Before, or for a limited period after the appointment of a Voluntary Administrator, it is possible for a secured creditor to enforce his security with the appointment of a Receiver, usually known as a Receiver and Manager. The Court is not required to approve the appointment.
A Voluntary Administrator is required to make decisions on behalf of all creditors. A Receiver’s duty is to the company’s secured creditor. The receiver has no obligation to pay any other unsecured creditors for outstanding pre-appointment debts.
Receivers and Managers can choose to carry on the business, close it down, or sell it off. The Receiver’s principal task is to realise enough funds to repay the secured creditor through the sale of company assets or the company itself. They do not deal with claims from other creditors.
Companies can be in both Receivership and either Administration or Liquidation at the same time. In this situation, Receivers run the company because they have control over the secured assets.
In the absence of the appointment of a Voluntary Administrator or Liquidator, the directors remain liable to perform their statutory liabilities, such as the filing of annual returns and will retain power over any assets which are not the subject of the Receiver's appointment.
Voluntary Administrations are often used by banks today rather than appointing a Receiver.
The Receiver is personally liable for the purchase of goods or services should the sale of assets provide insufficient funds. They are also personally responsible for any rent or amounts payable arising if they continue to use, occupy or hold property owned by another party that is in the company’s possession or occupied by the company.
On the basis of an unpaid debt, an unsecured creditor can apply to the court to have the company put into liquidation despite the appointment of a Receiver:
- There may be money or property left over after realisation of the charged assets and payments by the Receiver
- There may be recoveries available to a Liquidator for the benefit of unsecured creditors, which are not available to a Receiver
- A Liquidator may investigate potential offences by those associated with the company
- The Liquidator has the ability to review the validity of the appointment of the Receiver and of the charge and to monitor the progress of the receivership.