If a company breaches the terms of a debenture that is secured by a fixed or floating charge (created before September 2003), they may be subject to a formal insolvency procedure known as administrative receivership. During this process the debenture holder (creditor) appoints a receiver to assume complete ownership and control over the company’s assets. The job of the receiver is to assess the company’s finances and operations, and then determine the most suitable course of action to recover the debt owed to the appointing debenture holder as quickly and efficiently as possible.
From the perspective of a director receivership offers almost no advantages, as control of the company is lost and the business is essentially handed over to the receiver appointed by the debenture holder. However, with the help of advice from an Insolvency Practitioner the procedure you can minimise the risk of being accused of wrongful trading.
From the perspective of a creditor receivership is highly advantageous because it allows them to take control of secured assets and facilitates the process of recovering debts owed.
For the appointing debenture holder receivership is less advantageous than other methods used to recover debts because they have to underwrite any costs incurred by the receiver. In addition, the company’s other creditors often never recover the monies due to them because the receiver is not obliged to recover their debts, only the debt of the appointing debenture holder.
The best way to keep your company from falling under receivership is to either secure funding that will allow you to make repayments, or come to an agreement with the creditor regarding a viable repayment plan before violating the terms of your debenture.
If you’re unsure about whether your company is in danger of receivership, acting quickly is absolutely essential. Call us for a free consultation and we’ll help you devise a suitable course of action to avoid receivership and recover from the burdens of debt.
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