Lexicon
What does receivership mean?
What does receivership mean? In the event that a business defaults on a secured loan, the creditor may be entitled to appoint a receiver to help them recover their money. When a receiver takes possession of the business’s assets and liquidates them to recoup money owed to the secured creditor, the business goes into receivership.
Receivership
What does receivership mean? The business world can be unpredictable, so it is a good idea to plan for all eventualities. For example, receivers may be appointed if a company is unable to pay its creditors.
Receivership, however, can be a useful tool for protecting companies against insolvency. Companies that go into receivership can return to profitability and avoid bankruptcy.
If a borrower defaults on a loan, a receivership makes it easier for the lender to recover the debt. A company can also undergo receivership as part of its restructuring to return to profitability.
“It is imperative that the receiver is independent of all parties and have no connection to them.”
Sean O’Neill
What happens during a receivership?
As part of a receivership, the court appoints an independent receiver who manages all aspects of the troubled company. Even though the company’s principals will remain in place, they will have little legal authority.
Receivership is typically used as a way of protecting a company. It is also a powerful tool for protecting the company’s creditors. Receiverships are not a legal process in themselves, but rather they are invoked through legal proceedings.
An individual creditor can appoint a receiver privately, but this receiver will only act on behalf of that particular creditor, whereas a court-appointed receiver will act on behalf of all creditors.
It is imperative that the receiver is independent of all parties and have no connection to them.
What authority does the receiver have?
The receiver will have the authority to stop paying dividends, and he or she can work with the company to prevent bankruptcy and liquidation. The receiver may sell assets to pay creditors, but if this fails, the court may order that the company’s assets be liquidated.
In contrast to bankruptcy, which protects the debtor rather than the creditor, a receivership is not a legal process.
For example, if a company defaults on its loan payments, a receivership may be available to assist its creditors in recovering any amounts owed.
A receivership is also not a voluntary process, unlike bankruptcy. Receiverships are appointed by the courts on behalf of creditors or by creditors themselves.
The receiver’s powers will be detailed in the court order or in a loan agreement if they are appointed as part of the loan.
Court orders can also be obtained by receivers to freeze directors’ assets, and ultimately they can decide the fate of the company.
“Receivers are often appointed by a court, but creditors can also appoint individual receivers.”
Sean O’Neill
What happens once a receiver is appointed?
Once a receiver is appointed, a notice of this must be filed with the companies registration office. Also, all invoices, orders, and business letters must contain a notice that a receiver has been appointed.
The duties of the receiver include:
- getting the best price for any property sold
- distributing the money raised from the sale of assets
- reporting on the progress of the receivership
- reporting any suspected criminal offences by the company
In summary
- A receivership occurs for a variety of reasons, but the most common reason is when a borrower defaults on one or more loans.
- Receivers are often appointed by the court, but creditors can also appoint individual receivers.
- Ultimately, the receiver must be independent and have the authority to sell company assets.