I got a call from the bank today warning me that they would exercise their right to appoint a receiver if I don’t make a payment by the deadline. I’m concerned that this may be a real possibility, given the fact that I don’t think we’ll be able to afford the bill with the amount of cash flow we have available to us at the moment. Is it possible to stop receivership once the bank has committed to taking action?
When a bank or creditor wants to put a company into receivership typically they have to make demand for payment. Once the demand is issued you’ll have to pay it within the deadline set or the bank would have the right to appoint a receiver. However, they may not need to issue this demand if the security they hold allows for the appointment of a receiver in the other circumstances
If the loan is not secured by some of your assets, then a receiver cannot be appointed. A company voluntary arrangement (CVA) is one way you may be able to receive approval for new payment terms that would remove some of the burden from your company’s monthly financial obligations.
If creditors reject the CVA proposal and decide to continue taking legal action then you may be able to postpone or prevent a negative outcome by entering into administration voluntarily. During this procedure a licensed insolvency practitioner will act as the administrator (in effect the temporary CEO). If the court grants an administration order then all actions being filed against your company (including receivership) are halted, during which time the administrator would be focusing on negotiating with creditors and/or selling some of the assets to raise the funds needed to repay debts.
Other options that maybe considered include invoice discounting, factoring, or a pre-pack administration sale. A pre-pack would allow the directors of your company to purchase the assets and then transfer them to a new company that could essentially start over with a clean debt slate. This type of pre-arranged asset sale is usually only recommended if the sale price achieved is higher than the forced sale or open market value.