Receivership

What is receivership?

An administrative receiver may be appointed under the authority of a fixed charge and, if so, his authority only extends to the assets covered by the fixed charge. On the other hand, an administrative receiver may be appointed under the authority of a floating charge and, if so, his authority extends to all assets and he has the power to run the business. The directors are relieved of their powers for the duration of the receivership.

Most, but not all, administrative receivers are appointed by banks. An administrative receiver must be a Licensed Insolvency Practitioner and his first duty is to the bank (or other lender) that appointed him. His job is to safeguard the secured assets and endeavour to recover the money owing. Receivership often, but not always, leads to the company being wound up.

Would you please define an administrative receiver?

Section 29(2) of the Insolvency Act 1986 defines an administrative receiver as:

'(a) a receiver or manager of the whole (or substantially the whole) of a company's property appointed by or on behalf of the holders of any debentures of the company secured by a charge which, as created, was a Quoting charge, or by such a charge and one or more other securities; or

(b) a person who would be such a receiver or manager but for the appointment of some other person as the receiver of part of the company's property.'

What is the essential difference between administration and receivership?

Administration is for the benefit of all creditors and, if possible, the administrator must rescue the company as a going concern. Receivership is primarily for the benefit of the lender (usually a bank) that appointed the administrative receiver.

I have heard that there are more administrations and less receiverships. Why is this?

Administration was introduced by the Insolvency Act 1986. It had some successes but it did not achieve all that had been hoped. This was partly because in many cases a receiver was appointed instead of a company going into administration. The holder of a qualifying floating charge, usually a bank, was able to pre-empt administration by appointing a receiver. The balance has been very considerably changed by the Insolvency Act 2002. With certain exceptions it is not possible to appoint a receiver under the authority of a floating charge created after 15th September 2003. It is still possible to appoint a receiver under the authority of a qualifying floating charge created prior to 15th September 2003. The balance has therefore moved decisively towards administration and away from receivership.

Winding-up. General

What are the three ways in which a company may be wound up?

The three ways are:

Members' voluntary winding-up.

Creditors' voluntary winding-up.

Winding-up by the court.

What are the stages in a winding-up?

This question could have a very long answer but the winding-up procedures can be summarised in four stages as follows:

A decision is made to wind up the company. This is made either by the members or by the court.

A liquidator, who must be a Licensed Insolvency Practitioner, is appointed. This is done either by the members or the creditors, or if there is no appointment it is the official receiver.

The liquidator realises the assets.

The liquidator pays out the money to creditors in the order of precedence fixed by law. If creditors are paid in full, any remaining funds are paid to the contributors (members).

What is the difference between a members' voluntary winding-up and a creditors' voluntary winding-up?

In both cases the decision to wind up the company is taken by the members. The difference is that in a members' voluntary winding-up the choice of liquidator is made by the members and the proceedings are under their control. In a creditors' voluntary winding up the choice of liquidator is made by the creditors and the proceedings are under their control.

It will be a members' voluntary winding-up if the directors make a declaration of solvency and file it with the Registrar of Companies. This must state that the directors are of the opinion that the company will be able to pay all creditors (plus interest at the official rate) within a year of the commencement of the winding-up. Needless to say this declaration should only be made responsibly and after making suitable enquiries.

What are acceptable reasons for a members' voluntary winding-up?

The members do not have to have an acceptable reason. The members own the company and all the creditors will be paid in full, so the members can have the company wound up when they like for whatever reason they like.

In what circumstances can a company be wound up by the court?

By far the most common reason for a company to be wound up by the court is that the court has been successfully petitioned by a creditor or judgment creditor, who is owed at least £750. However, a company may also be wound-up by the court when any of the following apply:

The members so request it by means of a special resolution.

Membership of a public company has fallen below two members.

A public company has not obtained a trading certificate within a year of registration.

A public company has not commenced trading, or has stopped trading for a year.

It is just and equitable for the company to be wound-up.

If the company is, was or should have been regulated by the Financial Services Authority and winding up is requested by the Financial Services Authority.

In what circumstances might the court decide that it is just and equitable for a company to be wound up?

The court has a great deal of discretion. Perhaps the most common reason is irreconcilable differences between the members. This can happen, for example, when there are just two members each holding exactly half the shares. They could agree to have the company wound up as a members' winding up, but if this co-operation cannot be achieved, one of them could ask the court to have the company wound up. Another example is where the company has been used for criminal purposes and winding it up is in the public interest.