This is a guide created by R3 to provide assistance to creditors of a company that has recently been placed into Administrative Receivership. It is intended to relate only to England and Wales. It is not an exhaustive statement of the relevant law or a substitute for specific professional or legal advice.
If, having read the guide, you have any further enquiries, please do not hesitate to contact Kingsland Business Recovery. Depending on the circumstances of the case, creditors who play an active role in insolvency can make a significant difference to how much the insolvency practitioner will be able to recover for them. We hope that you will read this guide carefully and consider whether taking an active role as a creditor in this case could benefit you or your business.
Administrative Receivership
When a company breaches the terms of its borrowing from a creditor with a floating charge, that creditor may appoint an administrative receiver to recover the money it is owed.
What is administrative receivership?
When a company breaches the terms of its borrowing from a creditor with a floating charge, or in other circumstances set out in the charge, that creditor may appoint an administrative receiver (who must be a licensed insolvency practitioner) to recover the money it is owed. Many companies give such a charge to banks as security for their borrowing. Administrative receivership is often referred to simply as ‘receivership’.
What can an administrative receiver do?
An administrative receiver has extensive powers to deal with the charged assets. The administrative receiver effectively takes over management of the company’s business from the board of directors and can have it continue to trade prior to selling the business and assets.
Can the unsecured creditors form a creditors’ committee?
Yes. A creditors’ committee may be appointed at the meeting of creditors and must consist of at least three and no more than five members. The creditors’ committee may receive reports from the administrative receiver and may meet periodically. Creditors’ committee members are not paid, but will receive their reasonable travelling expenses as a cost of the receivership.
Does the administrative receiver pay trade creditors the money they are owed?
No. The administrative receiver does not make payments to unsecured creditors in respect of the money owed to them prior to appointment. An administrative receiver’s main function is to recover sufficient funds to pay the costs of the receivership, the preferential creditors and the charge holder.
(Preferential creditors are a special category of unsecured creditor. They consist mainly of certain debts due to employees and the Redundancy Payments Service.) If the company has more assets than are required to make these payments, the surplus is normally passed to a liquidator, who deals with creditors’ claims.
Six months after writing off a debt in your accounts, you can claim VAT bad debt relief from HM Customs and Excise for the VAT you have paid.
If you believe that you own something in the company’s possession, you should contact the administrative receiver as soon as possible with full proof of ownership and be prepared to identify what you are claiming. The receiver will examine your claim carefully before deciding whether to release the goods in question, pay you for them or otherwise.
Is the administrative receiver bound by contracts made by the company prior to the appointment?
Generally, the administrative receiver is not bound by pre-receivership contracts and may choose not to have the company perform them. The other party will then have a claim for breach of contract, which will rank as an unsecured claim. Special provisions apply to employment contracts.
Is the administrative receiver liable for sums due under contracts made after his appointment?
An administrative receiver is not personally liable where he has disclosed that he is acting as agent for the company and expressly excluded any personal liability.
The administrative receiver will usually pay, as a receivership expense, for goods and services supplied after appointment.
As an unsecured creditor, what information rights do I have?
The administrative receiver normally notifies all known creditors of the appointment within 28 days. A meeting of unsecured creditors is held within three months of the appointment, unless the company goes into liquidation earlier or the court otherwise directs.
The administrative receiver gives a report to the meeting on the events leading to the appointment, the carrying on of the business, disposals of assets, what is owed to the various classes of creditor and how much, if anything, is likely to be available to unsecured creditors. A copy of the report is normally sent to all known creditors.
