Difference between Administration and Receivership

If a company is facing financial difficulties, there’s a strong chance it might be liquidated by creditors using a formal insolvency process. These creditors aim to retrieve any owed money, potentially involving the sale of the business and its assets. 

Conversely, there are instances when a struggling business can be revived with an administrator assuming control temporarily. As the director of a distressed company, it’s crucial to grasp both procedures and their impact on your business.


Receivership and Liquidation

Receivership is when a creditor chooses a receiver for assets or properties of an insolvent company as outlined in a legal charge within a secured loan agreement. 

If the charge has a provision for direct appointment, receivership can occur swiftly, sometimes with little warning. The specific powers and rights of the receiver depend on the terms of the loan agreement, but all receivers must comply with the relevant legislation.


Company Administration

Administration is a formal process in which an insolvency practitioner is appointed as the administrator by the company directors, the company itself, its creditors of the company’s debts, or the Court. 

Once an administration order is granted, all legal actions against the insolvent company, including receivership and winding-up petitions, are put on hold for approximately 8 weeks.

In this period, the administrator can create a plan of action and present it to creditors in a meeting. The administrator takes charge of all assets and business operations, aiming to act in the best interest of the company’s creditors to repay as much as possible.


Administration vs. Receivership

For company directors, receivership holds little benefit as it inevitably leads to losing control over company assets and, in many cases, results in complete liquidation and dissolution. On the contrary, the administration places control in the hands of a skilled insolvency practitioner, allowing for the development of a plan of action during the administration order. 

Possible options explored during this period include pre-pack administration sales, invoice factoring, alternative financing, and the sale of certain company assets.


Is Administration a Viable Option to Prevent Receivership?

If the company possesses sufficient assets for sale or can arrange a pre-packaged sale, it might avoid receivership entirely. Yet, if the administrator struggles to secure a buyer for the assets and goodwill, the company may proceed with liquidation and dissolution. Opting for voluntary administration early can often be the most effective means to minimise the risk of liquidation, receivership, or other adverse actions against the company. Additionally, it aids in preserving the company’s overall value.


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What Actions Can I Take When Facing Receivership?

When a secured creditor hints at appointing a receiver, time is of the essence, especially if your loan agreement permits the creditor to make the appointment independently

Don’t wait for them to act; initiate the defence of your company promptly. 

Consulting with a licensed insolvency practitioner on available options and potential outcomes at the earliest is often the sole means to avert receivership, as the process looms when an individual director tries to negotiate or delay without professional guidance.

If your company is struggling to meet financial obligations and you worry about the prospect of entering receivership or if you wish to explore administration as an option, contact us today. Engage in a free consultation with one of our turnaround specialists to discover how we can assist you in lessening or completely avoiding this difficulty.

David Jackson MD
Senior Partner at Vanguard Insolvency Practitioners | Website

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.