Key differences between receivership and administration
Insolvency is by no means a simple process and many different terminologies only add to the confusion associated with it.
Both have the potential to bring about the end of a particular business, so understanding each step of the process is imperative.
However, establishing the difference between two of the main forms is especially important – notably the disparity between receivership and administration.
In simple terms, administration is designed to assist all creditors rather than just those that are secured or unsecured.
Companies can get additional breathing space from creditors, which means an appointed administrator can assess the situation and look for alternative ways of managing the situation.
The process is designed to give businesses the best possible chances of avoiding liquidation by rearranging any particular affairs for financial gain.
Company administration requires the intervention of the courts, usually once one or more creditors or one of the company directors has requested it.
Administrators take charge of the company with a broad set of powers while the company is protected from any form of legal action while under such an agreement.
The primary concern is to keep the company operating as a going concern – achieving the best possible returns for creditors prior to liquidation.
In some cases, alternative buyers can be found for the company which means the company can be taken out of administration and operated as before.
Receivers on the other hand are appointed by the bank or another creditor who then assumes control over all or most of the company assets.
They will act in the interests of those who appointed them, usually looking to recover the costs of what is owed via restructuring and the sale of assets.
In this situation companies can still face legal action and liquidation can still occur, so it is not guaranteed to avoid the end of the company.
Directors remain in office but their powers are limited, while the legal aspects of the company are unnaaffected.
By Phil Smith