Writing an article on receiverships for a business audience is not easy. Most in business will have come across a “Receiver” of one form or other, probably put the file on the “too difficult – write off pile” and moved on. For most situations this is not a bad decision but knowing a bit more of the detail might well assist you in getting a return.
Whilst researching this article I thought a good start would be a legal definition (it is amazing what Wikipedia can provide). Perhaps, not surprisingly for a very old common law appointment (from the Chancery Courts apparently), even this wasn’t that simple.
The best I came up with was a quote from Receivership: A Value Adding Tool – Philip, Ken and Kevin Kaminski: a person “placed in custodial responsibility for property of others, including tangible and intangible assets and rights”.
How, or even whether, you should spend time engaging with a receiver is dependent on how and over what they are appointed and the specific powers that they have.
Receiver appointed by statute (the official receiver “OR”)
The OR is appointed following the making of an insolvency order by the Court, whether that be a bankruptcy order for an individual or a winding up order for a company or partnership. Their role is to establish and protect the Insolvency estate until the appointment of a trustee (personal) or liquidator (corporate).
The OR is an officer of the court and you should tread carefully when it comes to proceeding with enforcement. The devil in terms of what you can do is very much in the detail and, if you are part way through an enforcement process, you should seek specific advice as to what you have done and how you should proceed. Falling out with the OR over a misunderstanding of your rights is something to be avoided.
In most cases, you will be an unsecured creditor and you should ensure that your claim on the estate is noted. If there are likely to be recoveries the OR might ask you which insolvency practitioner you wish to engage. Similarly, you are at liberty to request the appointment of an external insolvency practitioner if you wish, although the OR does not necessarily have to accede to your requests.
Court appointed receiver
Where a court becomes convinced that assets are at risk it will appoint an appropriate individual to act as a receiver who might be an insolvency practitioner (but does not need to be) to protect them. The key thing here is that the receiver’s, entire role and powers, including the assets over which they are appointed, are contained within the appointment order.
If you are approached by a court appointed receiver, then your first action should be to request a copy of the order appointing them. This will be the full extent of their authority, hence if the assets you are seeking to enforce over are not covered within the order, then you should continue with enforcement.
Similarly, if you have commenced enforcement proceedings, the details of those proceedings should have been brought to the attention of the court prior to making the order. If they weren’t then you should certainly be in contact with your solicitor regarding potential amendments to the receiver’s appointment to enable you to proceed with your enforcement.
By a secured lender
Security of businesses falls into two categories: fixed security and floating security. Banks lending to corporate vehicles will usually request a fixed charge over a schedule of assets, including specified property and chattels. Enforcement over assets the subject of fixed charges is problematic. The floating charge covers all other assets owned by a company from time to time and can only be granted by a company. Floating charge assets are likely to be those where enforcement action bites. Please be aware that non corporate bodies cannot grant floating charges.
Fixed charge receivers (law of property receivers)
Where a property is mortgaged and tenanted without anything more than a bare mortgage deed, the lender can appoint a (law of property act) receiver to collect in the rents from the tenants and use them (after costs) to pay the mortgage. More usually where there is a business there will be a more detailed contract detailing the rights and obligations of the borrower and lender. This will include an ability for the lender to appoint a (fixed charge) receiver if certain covenants are breached. The fixed charge receiver is likely to have a power of sale of the assets the subject of his charge.
In both cases, if you are in enforcement mode you should request a copy of the appointing paperwork from the receiver. It is a possibility that they are not appointed over all the assets of the debtor, in which case your target for enforcement will be clear.
Floating Charge (Administrative Receivers)
Security granted prior to 2003 allowed a bank to appoint an administrative receiver over the whole of the concern of a company. The Enterprise Act 2003 expanded the role of administrators and removed this ability; however, you may still come across an older charge. Once an administrative receiver is appointed there will be no free assets over which to enforce.