There are many terms heard that refer to corporate insolvency, other than ‘liquidations’. These include “Administration”, “Administrative Receivership”, “LPA and fixed charge receivership”
These are all explained in a bit more detail below.
What Is an Administration?
A company can enter administration following a court order, or by following an out of court route. The process for placing a company into administration out of court can be initiated by a floating charge holder (bank) or the director(s) or company itself. An application to the court can be made by the same entities, and also by any other creditor.
This procedure places the company under the control of a licensed insolvency practitioner and the protection of the court to achieve one (or more) specified statutory purposes. The aim is to save the business or achieve a better result for creditors than in liquidation.
Once in administration the company will be placed under the day-to-day control and management of an administrator. The administrator acts as ‘agent’ for the company, and will look at various ways to maximise the return to creditors. This may include continued trading, marketing the business for sale (or part of it), consideration of a voluntary arrangement to allow the company to continue to trade on, or an orderly wind down whilst fulfilling orders and collecting book-debts. The administrator will outline their plans for the administration shortly after appointment, at a creditors’ meeting.
Administrative Receiver
Administrative Receiverships are much rarer, as they are an option only available to lenders who hold a floating charge that was created before 15th September 2003, covering the whole, or substantially the whole, of a company’s property. In principle the process is not dissimilar to an administration, in that an administrative receiver may carry on the company’s business and sell the business and other assets subject to the floating charge. In practice, it is much more likely that the bank would appoint an administrator, as the administration process was brought in during a change of legislation in 2003 to bring in administration, and phase out administrative receiverships.
Fixed Charge Receiver / Law of Property Act (LPA) Receiver
Lenders who hold a charge over a company’s assets / property can appoint a receiver to deal with that specific asset under the terms of their mortgage / security documentation. The receiver can hold and manage property, collect rents, and in some cases trade a business whilst, for example, a sale is sought.
The receiver acts as agent for the borrower, and need not be a licensed insolvency practitioner. |
