Receivership

Hearing that a receiver may be appointed can be daunting for any UK company director. The prospect of losing control over company assets is stressful and confusing, particularly given how quickly the process can unfold. Receivership is a mechanism used by secured creditors to enforce their security and recover debts, often leading to immediate and significant changes in how a company operates. 

Understanding the basics of receivership early is crucial, as it allows directors to respond appropriately and seek professional support where necessary.

Overview of Receivership in the UK

Receivership in the UK occurs when a secured creditor enforces its security by appointing a receiver to take control of specific charged assets. The purpose is to realise those assets and apply the proceeds toward repayment of the secured debt. Unlike administration or liquidation, receivership does not necessarily involve the insolvency or dissolution of the company itself, which remains legally intact.

A receiver is often appointed out of court under powers contained in a debenture or mortgage deed, but receivers can also be appointed by the court in certain circumstances. Once appointed, control over the charged assets passes to the receiver, not the directors.

The distinction between receivership and other insolvency procedures is important. Administration is a collective process designed to rescue the company or achieve a better result for creditors as a whole and includes a statutory moratorium. Liquidation involves winding up the company and distributing its assets. Receivership, by contrast, is focused on enforcing a specific creditor’s security rather than restructuring or closing the company.

In many cases, directors remain in office during receivership but lose control over the assets subject to the charge. This can have a major operational impact and may limit the company’s ability to continue trading.

When Receivership Arises and Why It Matters

Receivership typically arises following a default under a secured lending arrangement. When the debt becomes due and the contractual conditions are met, the secured creditor may exercise its right to appoint a receiver.

Common triggers include:

• Failure to repay secured borrowing
• Breach of loan covenants
• Insolvency-related events specified in the security document

Receivership is fundamentally creditor-driven. There is no automatic moratorium protecting the company from other creditor actions, meaning unsecured creditors and enforcement authorities may continue to pursue recovery.

For directors, the appointment of a receiver often results in a sudden loss of control over core assets. This makes early advice essential, particularly where alternatives such as administration might still be available.

Immediate Risks and Consequences for Directors

When a receiver is appointed, directors immediately lose authority over the assets subject to the charge. Although directors usually remain in office, they cannot deal with or dispose of charged assets without the receiver’s consent.

Directors must cooperate with the receiver and avoid taking steps that conflict with the receiver’s role. Attempts to deal with charged assets independently may expose directors to civil consequences or regulatory scrutiny, particularly if actions breach statutory duties or contractual obligations.

Key points for directors include:

• Loss of control: Charged assets fall under the receiver’s management
• Continuing duties: Directors still owe statutory duties to the company
• Compliance: Cooperation with the receiver is essential

Understanding these boundaries helps directors avoid inadvertent breaches and focus on managing remaining responsibilities appropriately.

Types of Receiverships

Receivership can take different forms depending on the nature of the security and the method of appointment.

Fixed-Charge (LPA) Receiver

An LPA receiver is appointed under the Law of Property Act 1925, usually in relation to land or property subject to a legal mortgage. The receiver’s powers arise from statute and are commonly expanded by the mortgage deed itself. This type of receiver focuses on collecting income or selling the secured property to repay the mortgage debt.

Administrative Receiver

An administrative receiver is a licensed insolvency practitioner appointed under a floating charge over the whole or substantially the whole of a company’s assets. The Enterprise Act 2002 significantly restricted the use of administrative receivership, meaning that it generally applies only to debentures created before 15 September 2003 or to limited statutory exceptions.

Court-Appointed Receiver

A receiver may also be appointed by court order, with powers defined by the order itself. Court-appointed receivers are less common in routine corporate lending situations but may arise in complex disputes or enforcement proceedings.

Each type of receivership has different legal foundations and practical consequences, which directors should understand when responding to an appointment.

Receiver Appointment Process

A receiver is commonly appointed out of court under the terms of a debenture or mortgage deed, though court appointment remains possible in certain cases. Where a receiver is appointed, the person making the appointment or obtaining the order must notify Companies House within seven days.

Companies House provides Form RM01 as the prescribed method for giving this notice, though the legal obligation itself is to notify the registrar within the statutory timeframe.

Out-of-Court Appointment Steps

• Trigger event: Default or other contractual enforcement event
• Appointment: Receiver appointed under the security instrument
• Legal basis: Powers arise from the Law of Property Act 1925 or the debenture
• Registration: Notice filed at Companies House within seven days

Court Involvement

• Court order: Appointment made directly by the court
• Registration: Court-appointed receivers are also subject to the same notification requirements

Compliance with filing requirements is important to ensure transparency and proper public record-keeping.

The Receiver’s Powers and Duties

A receiver’s powers depend on the type of receivership. For administrative receivers, statutory powers are set out in Schedule 1 to the Insolvency Act 1986. For LPA receivers, powers arise from the Law of Property Act 1925 and the security document.

In general, a receiver may:

• Take possession of charged assets
• Collect income and manage property
• Sell assets to realise the secured debt
• Act in the name of the company where authorised

Receivers must act in good faith and for proper purposes, exercising their powers in accordance with statute and the terms of their appointment. Their primary duty is to the appointing creditor, not to unsecured creditors or shareholders.

Directors’ Obligations and Common Mistakes

Directors must cooperate with the receiver and provide access to books, records, and information relating to the charged assets. While they remain responsible for uncharged assets and statutory compliance, they must not interfere with the receiver’s role.

Key do’s and don’ts include:

✅Do provide requested records promptly

✅ Do maintain communication with the receiver

✅ Do continue meeting statutory filing duties

❌ Don’t deal with charged assets without consent

❌ Don’t assume a moratorium applies

❌ Don’t ignore formal requests

A frequent mistake is assuming directors retain operational control over all assets. In reality, authority over charged assets transfers to the receiver immediately on appointment.

Potential Alternatives to Receivership

Where business rescue is still possible, alternatives may be available.

Administration provides a statutory moratorium and is designed to rescue the company or achieve a better outcome for creditors as a whole. However, holders of certain older security may still retain enforcement rights.

A Company Voluntary Arrangement (CVA) allows a company to propose a compromise with its creditors. A CVA does not automatically include a moratorium, although eligible companies may apply for one in specific circumstances.

Professional advice is essential to assess whether these options are viable before enforcement progresses too far.

FAQs

Your Next Steps

If you are facing the possible appointment of a receiver, early professional advice is critical. Receivership can move quickly, and decisions made at an early stage may determine whether alternatives remain available. 

Understanding your duties, cooperating appropriately, and seeking expert guidance can help limit risk and preserve options during a challenging period.