FAQ UK Administration 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.
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 prereceivership
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.
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 appointment of an administrative receiver
prevent a creditor taking legal action against the
company?
No. Creditors may continue or begin any legal action against the
company, including petitioning for its liquidation, whilst the company
is in administrative receivership.
If you are considering this, you should think carefully whether you
would benefit from doing so. For example, success in most actions
would result in an unsecured claim against the company, which
might prove valueless unless there were to be a substantial return to
unsecured creditors. Petitioning for the company’s liquidation is
unlikely to speed up distributions to creditors and may hinder the
business or asset sales and reduce the amount available for
unsecured creditors.
Does administrative receivership automatically end when
the company goes into liquidation?
No. A company can be in administrative receivership and liquidation
at the same time. This is more likely once it becomes clear that there
are sufficient assets to allow the liquidator to make a distribution to
creditors.
When is the administrative receivership complete?
The administrative receivership is complete when the floating charge
holder has been paid in full or when the administrative receiver has
sold all the assets and distributed the proceeds. He will then cease to
act and send a summary of his final receipts and payments to the
company, the registrar of companies and the creditors’ committee.
How is the administrative receiver’s fee determined?
The floating charge holder agrees the administrative receiver’s fee. A
liquidator, if one is appointed, will review the administrative receiver’s
fee and could apply to the court to challenge it.
What should I do if I am dissatisfied with the
administrative receiver’s handling of the case?
You should contact the administrative receiver to try to resolve the
problem. If you are still not satisfied, you should bring the matter to
the attention of the liquidator, if there is one.
If you think that the administrative receiver is guilty of professional
misconduct, you should contact his regulatory body.

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