While there are some similarities between administration and receivership, they are fundamentally different processes which this article will attempt to clarify.
While administration is typically instigated by the company directors with the goal of saving the company, administrative receivership has the clear intention of enforcing the sale of assets to recoup money for a creditor.
Administration occurs when either the company itself, the directors or creditors request ‘an Administration Order’ by filing at court[1]Trusted Source – GOV.UK – Put your company into administration. The effect of this order will be to
(a) replace the company directors with an administrator (licenced Insolvency Practitioner) for the duration of the administration
(b) place a legal ring fence around the company to prohibit further creditor action
One possibility of an administration order is that it will allow a company to survive, rather than going into liquidation, by allowing it time to examine core business processes. This is not always the case, however, as the administrator’s primary duty is to the creditors, so he/she will assess the company situation in detail and then propose a course of action.
What is Administrative Receivership?
When a particular creditor (for example, a bank) has significant control of a company’s assets, they have the power to call in ‘an administrative receiver’ if a floating charge that was granted before 15 September 2003 is breached[2]Trusted Source – GOV.UK – Types of Receivers.
Whereas administration offers a possible route towards a return to profitability, receivership means the end of a company, often ending in liquidation.
What’s an Administrative Receiver?
An administrative receiver is an insolvency practitioner appointed to enforce and administer a receivership for the benefit of a secured creditor.
Administration vs. Administrative Receivership?
Administration can be the result of a company decision, whereas receivership is something enforced by a creditor
Administration offers protection against creditors and legal action; receivership does not.
Administrators are responsible to all the company’s creditors, whereas administrative receivers have the single goal of ensuring payment of the security interest that the organisation that appointed them has in the organisation.
Administrative Receivership is now significantly less common. Its use has been heavily curtailed, following the passing of the Enterprise Act 2002, which attempted to prioritise less harsh insolvency solutions
Can Administration Be Used to Avoid Receivership?
Yes, administration can be an effective strategy to avoid receivership, offering your company a more flexible approach to financial difficulties.
Once your company enters administration, there’s a moratorium on creditor actions, including the appointment of a receiver by a floating charge holder. This gives you breathing space to restructure your business.
Even if a receiver has been appointed, the court can replace receivership with administration if it believes this will achieve a better outcome for your creditors.
However, the success of this strategy depends on various factors, including your company’s financial position and the cooperation of major creditors.
Consider consulting an insolvency practitioner such as ourselves to explore whether administration could be a viable option for your business. We can help you assess your situation and guide you through the process if it’s appropriate.
Need Guidance?
If you are considering putting your business into administration, you should always seek professional advice in advance. We’re always happy to help. Simply give us a call on 0800 074 6757 for a no-obligation, free consultation, or chat using the Live Chat box on the bottom right of the screen.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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