Administrative Receivership

When a company breaches the terms of its borrowing from a creditor with a floating charge, or in other circumstances set out in the charge, that creditor may appoint an administrative receiver (who must be a licensed insolvency practitioner) to recover the money it is owed. Many companies give such a charge to banks as security for their borrowing. Administrative receivership is often referred to simply as ‘receivership’.

As a consequence of the introduction of the Enterprise Act 2002, the holder of a qualifying floating charge is prohibited from appointing an administrative receiver unless the charge was created prior to 15 September 2003.

An administrative receiver has extensive powers to deal with the charged assets. The administrative receiver effectively takes over management of the company’s business from the board of directors and can have it continue to trade prior to selling the business and assets.

The administrative receiver does not make payments to unsecured creditors in respect of the money owed to them prior to appointment. An administrative receiver’s main function is to recover sufficient funds to pay the costs of the receivership, the preferential creditors and the charge holder. (Preferential creditors are a special category of unsecured creditor. They consist mainly of certain debts due to employees and the Redundancy Payments Service.) If the company has more assets than are required to make these payments, the surplus is normally passed to a liquidator, who deals with creditors’ claims.