Receivership is the process whereby a secured creditor, if he is not paid, can appoint a person to take control of the assets which form the security and sell them or trade with them to provide the funds to pay that creditor. A Receiver can also be appointed by the Court to take control of property for whatever purpose which the Court considers appropriate, e.g. to protect assets in the event of a partnership dispute or because of the ill health of the owner. In most cases a Receiver does not need to be a Licensed Insolvency Practitioner, but simply someone whom the Court considers adequately qualified for the job.
A Receiver can be appointed by a mortgagee, if the mortgage is in arrears, to take over a commercial or buy-to-let property in order to collect the rent or sell it to clear the mortgage. This is called a Law of Property Act, or LPA, Receiver. He does not need to be licensed.
If the security is a floating charge debenture (which is the usual security used by banks when lending to limited companies) created before 15th September 2003 then a Receiver can be appointed under it. He must be a Licensed Insolvency Practitioner and he will be called an Administrative Receiver. He will have power to take over the whole company and run it instead of the directors, whose powers are suspended while he is in office. The Administrative Receiver has the power to close down all or any part of the business if he thinks it right to do so. He must pay preferential creditors first but thereafter the next creditor in order of priority is the debenture holder. If he can be repaid in full then the Administrative Receiver’s job will be done, and he will hand whatever is left back to the directors. Usually however by this time there is nothing much left and the company may need to be put into Liquidation.
The holder of a floating charge debenture created after 15th September 2003 cannot appoint an Administrative Receiver but has the power to appoint an Administrator (see section on Administrations).