How to Compare Administration and Administrative Receivership
While there are some similarities between administration and receivership, they are fundamentally different processes which this article will attempt to clarify. While administration may sometimes be instigated by the company directors with the goal of saving the company, administrative receivership has the clear intention of enforcing the sale of assets to recoup money for a creditor.
What is Administration?
Administration occurs when either the company itself, the directors or creditors request ‘an Administration Order’ by filing at court. The effect of this order will be to
(a) replace the company directors with an administrator (licenced Insolvency Practitioner) for the duration of the administration
(b) place a legal ring fence around the company to prohibit further creditor action
One possibility of an administration order is that it will allow a company to survive, rather than going into liquidation, by allowing it time to examine core business processes. This is not always the case, however, as the administrator’s primary duty is to the creditors, so he/she will assess the company situation in detail, then propose a course of action.
What is Receivership?
When a particular creditor (for example, a bank) have significant control of a company’s assets, they have the power to call in ‘an administrative receiver’ if a floating charge that was granted before 15 September 2003 is breached. Whereas administration offers a possible route towards a return to profitability, receivership means the end of a company, often ending in liquidation.
- Administration can be the result of a company decision, whereas receivership is something enforced by a creditor
- Administration offers protection against creditors and legal action; receivership does not.
- Administrators have a responsibility to all the company’s creditors whereas administrative receivers have the single goal of ensuring payment of the security interest that the organisation that appointed them has in the organisation.
- Administrative Receivership is now significantly less common. Its use has been heavily curtailed, following the passing of the Enterprise Act 2002 which attempted to priorities less harsh insolvency solutions
If you are considering putting your business into administration, you should always seek professional advice in advance. We’re always happy to help, simply give us a call on 08000 746 757 for a no-obligation, free consultation. Or chat using the Live Chat box on the bottom right of the screen.