Pre–Enterprise Act 2002
A receiver (or administrative receiver in England) is an insolvency practitioner who is appointed by a creditor to realise a security such as a floating charge over a company. His foremost duty is to the chargeholder who appoints him. His task is to ingather the assets of a company which attach to the floating charge and to use the proceeds of these to repay the loan from the floating charge holder.
It is now a relatively rare procedure. Since the inception of the Insolvency Act 1986, the rules on receivership continue to apply to floating charges registered prior to the implementation of the Enterprise Act 2002, on the 15th September 2003. Subsequent to that date, (with a number of restrictive exceptions), all new floating charges must be qualifying floating charges which permit the floating charge holder to appoint an administrator, rather than a receiver.
Appointment of a receiver under the Old Rules
Under the Insolvency Act 1986, a receiver is appointed when any of the following events occur:
The expiry of a period of 21 days after a demand for payment of the whole or part of the principal sum secured by a charge without payment having been made
The expiry of a period of two months during which interest has been unpaid and is in arrears
The making of an order or the passing of a resolution to wind up a company
The appointment of a receiver which relates to any other floating charge created by the company.
The floating charge itself may specify additional grounds on which a receiver may be appointed and may provide for prior warning to be given to the debtor company of the imminent receivership although this is not necessary unless specified in the charge documentation.
It remains possible, although unusual, to apply to the court for the appointment of a receiver. This may be used unusually where there is a defect in the floating charge documentation, or perhaps where property is situated overseas and a court appointed receiver is necessary.
In ordinary circumstances, the floating charge holder completes an instrument of appointment which is then sent to the nominated receiver. The nominated receiver has a 24 hour period in which to accept the appointment which must then be registered with the Registrar of Companies within 7 days, with a subsequent entry being made in the company’s register of charges. On the appointment of the receiver, the floating charge attaches to the company’s assets and becomes a fixed charge over those assets. All creditors must then be informed by post and by publication in the Edinburgh Gazette.
The process of receivership
Once in place, the receiver requires to determine which assets attach to the floating charge and will attempt to realise these as advantageously as possible on the charge holder’s behalf. He must then use the proceeds to settle any preferential debts, remit the sums due to the charge holder and return any remaining excess to the company.
The receiver has substantial powers under Schedule 2 of the Insolvency Act 1986 to carry out his required duties, and may, if necessary apply to the court for further powers. He requires cooperation from company employees and officers of the company to provide him with the relevant information required to complete a statement of affairs detailing the company’s assets, liabilities, debts and any additional securities. Within a three month period from appointment, the receiver must prepare a report for the floating charge holder and the creditors summarising the circumstances leading to his appointment, his findings relating to any charges or assets of the company that he has dealt with, and details concerning all sums due or available to floating charge holders, preferential creditors and other unsecured creditors. If the company has gone into liquidation, the liquidator must also receive a copy of the report.
Throughout the receivership, the directors of the company lose their rights to management in respect of the assets caught under the receivership, though they may maintain their role in respect of any unsecured parts of the company.
The Post Enterprise Act 2002 Position
The Enterprise Act 2002 has, with effect from the 15th of September 2003 effectively abolished receivership as an option to any floating charge holder with a charge registered since that date. Instead administrators must be appointed with a view to promoting the out of court administration ethos focused on the rescue of the business and the best return for creditors as a whole.
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