What is company Receivership?
Receivership is a rarely used insolvency procedure in Scotland and has all but been replaced by Administration. Only companies who have floating charges from before 2003 are able to apply to use this procedure.
It was originally in place to allow companies that had failed to keep up repayments on a loan in which the bank or lender had what’s called a ‘floating charge’. This makes the lender a ‘secured’ creditor and gives them extra rights to try and recover their money should a borrower default.
A receiver should not be confused with a liquidator who can actually be appointed at the same time and a company can be subject to both liquidation and receivership at the same time.
What is the role of the Receiver?
The receiver’s job is to sell off the assets which are covered by the floating charge. This is why they can operate alongside a liquidator as the receiver is only focused on the assets that are covered by the floating charge. If the company is not being liquidated and is only subject to receivership then any funds left over after the receiver has taken what is due would be returned to the company.
However, many companies placed into receivership are often forced into liquidation as there is simply not enough money left to run the business let alone pay the other secured and unsecured creditors. Any receiver will work diligently to try and maximise their return as well as the return to all other creditors but it will often be the case that unsecured creditors would have to settle for a reduced return or no return at all.
Any company that is subject to receivership will have their details recorded in the Register of Insolvencies which is open to the public.