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Receivership is an insolvency procedure for companies that have failed to keep up with the required repayment terms of their loan and the lender – who has ‘secured’ status as a preferential creditor through a floating charge – has effectively decided enough is enough and has called in the loan through the appointment of an official receiver.
It’s important to note that a receiver isn’t the same as a liquidator and can be appointed even after the appointment of a liquidator – meaning businesses can find themselves in liquidation and receivership at the same time. There’s also a key difference between receivership and administrative receivership with the latter seeing a receiver appointed ‘over all or substantially all of the property of the company over which a charge has been granted.’ In any case, administrative receivership is not a legally defined process in Scotland.
Once a receiver is appointed, he/she will be empowered to realise assets (such as property) which are covered by the floating charge in order to pay the secured creditor that is holding the charge. It is to this preferential creditor with which the receiver has a primary duty of care – as agreed with the legally binding floating charge. Any remaining funds after payment to the secured creditor will then be sent back to the company.
By law; all receiverships must be published which, for Scottish companies, will mean a public notice in the Register of Insolvencies to alert creditors upon the receiver’s appointment.
Of course, in a large number of cases, the outcome of receivership is the eventual liquidation of the company facing financial distress. This would occur if the debtor’s company simply doesn’t have the funds to pay either secured or unsecured creditors. The receiver would do their best to realise as many funds as possible through the sale of assets but these are typically available at basement prices and it’s common for this process not to produce enough money to safeguard jobs, pay all creditors and keep the business running. In many receiverships, it is unlikely that unsecured creditors will receive the full extent of the money owed to them – in many cases they receive nothing. A knock-on effect of a company being in this level of financial turmoil would be an investigation into the director’s conduct.
On the plus-side, the business might have been causing the director high levels of stress, leading to a feeling of it being out of control – a common theme. The receiver would adopt all control of the business and would be in the best possible position to save the business in its current state if this was at all possible. From a creditors’ perspective, preferential creditors have more chance of being repaid than through a standard liquidation process.
Real Business Rescue’s team of experienced insolvency practitioners are well versed across the entire receivership and company insolvency spectrum. We can advise on your options if your firm is facing receivership and, in times of business dispute, we can act as the official receiver under the order of the courts.
For further assistance and answers on receivership-related queries, please contact your local Real Business Rescue office. There are five regional offices of Real Business Rescue in Scotland – Aberdeen, Dundee, Edinburgh, Glasgow and Inverness. Alternatively you can dial our director hotline on 0800 644 6080 for immediate advice from one of our licensed Scottish insolvency experts.