What is Receivership in Business?

Receivership is a unique way to wind down a business, and an outside party usually starts it. Here is everything you should know about receivership in business.

Administrative receivership occurs when a business is unable to pay back a creditor, known as a charge holder, from which they received a secured loan, with the creditor gaining security over a business’s assets. They have the right to do this under the Property Act 1925, and will usually assess other options, such as requesting a new business plan or asking for increased security from the business, before beginning a receivership process.

The creditor may then appoint a person, called a receiver. The receiver takes control of the business’s assets and oversees liquidation. This helps the creditor recover money or reduce their risk. They may sell a portion or all the business’s assets, sell the business itself, or allow the business to continue to trade.

The Insolvency Act 1986 provides further limitations on the business, helping to prevent malpractice during the winding up procedure.

The business does not need to be insolvent for a receiver to be appointed, only that it has defaulted on the loan in question.

What is voluntary receivership?

Voluntary receivership is when a business’s owner or shareholders decide to liquidate their business of their own accord. This requires the business to be solvent, meaning it has enough assets that can be liquidated to cover its debts. The business will appoint its own receiver and will usually involve its creditors in the liquidation process.

Receivership vs liquidation

Receivership differs from liquidation because an outside party, usually a creditor, starts it. It focuses on recovering the debt owed.

Liquidation is when a business is closed by its owners or shareholders. It is done to pay debts first. Any remaining funds are then shared among the owners or shareholders. This process doesn’t require appointing an administrative receiver and can be undertaken by a business unilaterally.

Contact our Dispute Resolution Team to learn more about our receivership solicitor services.