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Where a company defaults with a creditor who possesses a floating charge, the creditor can appoint an administrative receiver to recover sums owed to them. If this occurs, the company is said to be subject to administrative receivership. An alternative form of receivership exists for fixed, rather than floating, charges.

It is imperative to note that administrative receivership is only available to charge holders who were granted a floating charge before 14 September 2003.

Appointment of administrative receiver

Upon default by the debtor company, a floating charge holder has the right to appoint an administrative receiver, who must be an Insolvency Practitioner.

Powers of the administrative receiver

The administrative receiver will take over effective control of the company from the company directors, which includes the ability to set aside transactions that are financially onerous, as well as enter into transactions in order to maximise creditor return.

Priorities of the administrative receiver

The chief priority of the administrative receiver is to recover sums owed to the charge holder, including the costs of the receivership, and, where applicable, preferential creditors such as employees who are made redundant as a result of the process and are due compensation. By contrast with administration, the priority of the receiver is not to ensure the rescue of the business.

With regards unsecured creditors where liquidation occurs, any surplus remaining after completion of receivership will pass to the creditor-appointed liquidator for distribution to the unsecured creditors.

Within three months of appointment, the receiver will report to the company’s creditors and Companies House as the progress of the receivership.

Alternatives to liquidation in receivership

Although the priority of the receiver is to secure returns for the charge holder, where necessary involving the liquidation of the company, in some cases alternative measures such as Company Voluntary Arrangements (CVAs) are considered more appropriate.

Law of Property Act 1925 – receivership

As opposed to floating charges, where a fixed charge is sought to be enforced it is done so under the Law of Property Act 1925. This will often occur with mortgages over real property. The receiver under these circumstances has the power to redirect income from the property toward paying off debt. In many cases, the fixed charge agreement will entail the power to have the property sold off and returns paid towards the creditor.

Contact our Receivership Solicitors Mayfair and throughout London

Entering into a floating charge agreement with a creditor carries with it a considerable trade off where, in the event of default, the governance of the company has to be surrendered. In some cases, liquidation of the company will be carried out, resulting in sanctions for the company’s directors.

The Receivership Solicitors at Lewis Nedas have advised a wide range of clients on their financial affairs during difficult times, including directors in insolvency and stakeholders such as banks, sponsors and landlords. We have provided expert advice on salvaging company prospects, including reorganising and restructuring of debts.

For further information or to speak to our expert Receivership Lawyers please contact us on 020 3811 6792 or complete our online enquiry form.

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