Receivership FAQs

An administrative receiver's appointment will be invalid, for example, if the floating charge is unable to withstand attack or has not yet become enforceable.

If an administrative receiver is invalidly appointed, their acts will remain valid but they may be personally liable in trespass (in relation to the company's property) or in conversion (in relation to the company's chattels).

Where there is a defect in an administrative receiver's appointment, the administrative receiver may apply to court for an indemnity from the purported appointor in respect of any liability that they incur because of the invalid appointment. 

An administrative receivership is complete when the floating charge holder has been paid in full or when the administrative receiver has sold all the property and distributed all the proceeds in the order prescribed by law.  Although the primary duty of an administrative receiver is to realise the security of the debenture holder who appointed them, they are under a duty to pay off preferential creditors first.

An administrative receiver's statutory duty to pay the preferential creditors is personal to the administrative receiver.  It is capable of being enforced by the preferential creditors directly against the administrative receiver, for example, by making the administrative receiver personally liable to account to them for funds that the administrative receiver paid to the appointing floating charge holder instead of applying to satisfy the preferential claims.

The administrative receiver will then cease to act and send a summary of final receipts and payments to the company, the Registrar of Companies and each member of the creditors’ committee.

A receiver has a common law duty to cease to act if they raise sufficient funds to discharge all of the following:

• The liabilities due from the chargor to the chargee, including all applicable interest and charges.
• All liabilities for which the receiver is personally liable.
• The receiver's remuneration.

The terms of the charge under which the receiver is appointed may modify, limit or extend the receiver's common law duty to cease to act.

The appointing chargee may remove a receiver from office at any time by giving notice to that effect.  The removal is, as with a receivership appointment, effective from the time it is received by the receiver.

Although under a duty to cease to act in certain circumstances, a fixed charge receiver cannot resign their appointment, unless there is an express provision in the charge under which they were appointed that permits them to do so.  In the absence of an express provision, it is incumbent upon the appointing chargee to remove a receiver from office once the receiver has completed their duties.  A receiver may however be required to vacate office if an administrator is appointed.

There is nothing in the Insolvency Act 1986 that permits the court to order the removal of a receiver from office.  This is in contrast to the express provisions that permit the court to remove the appointees in other forms of insolvency process (including administrative receivership).  It is unlikely that the Court has any inherent jurisdiction to order the removal of a receiver.

Under the Law of Property Act 1925, the receiver must apply the asset realisations in the following order:

• Any liabilities that attach to the property (e.g. rents, taxes and rates).
• Any interest and repayments due to creditors holding security that has priority over that held by the chargee.
• The receiver’s remuneration and any expenses incurred in insuring or repairing the property at the direction of the chargee.
• The interest that has accrued on the debt due from the chargor to the chargee.
• The secured liabilities themselves.

Notwithstanding the above, the chargee and the chargor may agree a different order of priority in the terms of the charge document.  Also, a different order of priority may be agreed between all parties with an interest in the assets realised. 

A receiver will convey such right, title and interest as the chargor has in the relevant asset(s).  The receiver cannot convey any better title than that held by the chargor.  Accordingly, a purchaser from a receiver will take the receivership assets subject to any pre-existing security interests.  For this reason, it is important that any potential purchaser identifies what other security is held over the asset(s) being acquired and requires the receiver to obtain confirmation that all other charges will be released as a condition of completion of the sale. 

Any purchaser should also make sure that the receiver has been validly appointed.  If the receiver has not been validly appointed, there is a risk that the purchaser will not acquire good title (or any title at all) if it transacts with an invalidly appointed receiver.

A contract entered into by a receiver will usually include provisions that exclude any warranty from the receiver (express or implied) that their appointment is valid, or that they have authority to act.  This is to prevent the existence of any warranty in the contract as to the receiver's authority to act, which might otherwise be implied by virtue of the receiver's agency for the mortgagor.  Depending on the precise drafting of any exclusion of warranty, the effect of the contract may well be to prevent the purchaser from relying on the receiver's ostensible authority.  Purchasers should pay particular attention to clauses that require them to rely on their own enquiries as to the receiver's appointment and authority, or to acknowledge that they have made (or had the opportunity to make) all enquiries about these matters that they see fit to make.

An administrative receiver has neither the duty nor the power to make a distribution to unsecured creditors.  To the extent that there are surplus funds following the repayment of the appointing floating charge holder, the administrative receiver must account to the company for these.  It is likely that the company will then enter another formal insolvency process, typically liquidation.

Unlike in administration or liquidation, liens over the assets of a company in administrative receivership are not automatically unenforceable.  Accordingly, a creditor may be able to validly assert a lien over assets of a company that has an administrative receiver appointed. 

The appointment of an administrative receiver causes the floating charge to crystallise.  This means that the company can no longer deal with the property subject to the floating charge.

A receiver has neither the duty nor the power to make a distribution to unsecured creditors.  To the extent that there are surplus funds following the repayment of the appointing chargee, the receiver must account to the chargor for these.  It is possible that the chargor will then enter a formal insolvency process (typically liquidation), but this will depend on its ability to meet its debts as they fall due and the overall state of its balance sheet following the receivership.

Generally, when appointed under a fixed charge, a receiver has no obligation to make any provision for discharging the preferential creditor claims against the chargor.

In a case where the receiver is appointed under a crystallised floating charge, however, the receiver is obliged to discharge the chargor's preferential debts before making a distribution to the chargee.

A receiver's statutory duty to pay the preferential creditors is personal to the receiver.  It is capable of being enforced by the preferential creditors directly against the receiver, for example by making the receiver personally liable to account to them for funds that they paid to the appointing chargee instead of paying the funds to them.

The receiver is obliged to recognise any prior ranking security over the receivership assets and account to the holder of any prior security for the proceeds of the sale of the secured assets before accounting to the appointing chargee.  The receiver has no power to sell assets free of prior ranking security (or to seek a court order permitting such a sale).  In practice the receiver must therefore obtain a release of the prior chargee's security when effecting a disposal of the receivership assets.  The prior chargee will almost certainly seek the receiver's undertaking to discharge the prior security as a condition of granting such a release.

A receiver also has no power to sell receivership assets free of security subordinate to the appointing chargee's charge.  In practice, the receiver must therefore seek the release of the subordinate security.  Occasionally, this may prove difficult in practice, especially where the subordinate secured creditor will not receive any return from the proposed disposal.  In that scenario, the appointing chargee may appoint the receiver as its agent allowing it to, effectively, dispose of the assets as mortgagee in possession, thereby overreaching the subordinate security.

The principal duty of an administrative receiver is to realise property of the company to repay the indebtedness owed to the secured creditor that appointed them.  The secured creditor may enforce any breach of duty on the part of the administrative receiver.

An administrative receiver may also owe a secondary duty to the company to which they are appointed to exercise care to avoid preventable loss.

Where the interests of the secured creditor and the company coincide, the administrative receiver may owe their duties to both of them.

It is for the administrative receiver, taking such advice as they consider necessary, to decide whether the primary duty can be achieved by continuing to carry on the business of the company, selling the business as a going concern or selling the business piecemeal on a break-up basis.  The administrative receiver is not required to consider a rescue of the company.

Despite the fact that an administrative receiver may continue to carry on the business of the company, administrative receivership often ends up in the sale of the business and the liquidation of the company.  This is one of the reasons why the government has restricted the circumstances when an administrative receiver may be appointed.

An administrative receiver is entitled to refuse to carry on the business of the company, even though this may be viewed as detrimental by the shareholders and other creditors of the company.  Similarly, the administrative receiver is free to consider only the interests of the floating charge holder in deciding whether to exercise the power of sale.  It does not matter that the administrative receiver may obtain a higher sale price by waiting to sell.  Where the floating charge holder's interests conflict with those of the company, the administrative receiver may give preference to the floating charge holder's interests.  This general duty is subject to the limitation that any receiver has a duty to manage the business with due diligence and to take reasonable steps to carry on the business profitably and, where selling secured property, to obtain the true market value at the point of sale.  The receiver is not however managing the company's property for the benefit of the company but managing the security (the property of the floating charge holder) for the benefit of the floating charge holder and their powers of management are ancillary to that duty.

Please note also that an administrative receiver's duties may be limited by the contractual documents under which they are appointed.

The receiver owes their duties primarily and almost exclusively to the appointing chargee.

However, the receiver owes a duty to the chargor to act in good faith in the course of their appointment.  A breach of the duty of good faith would normally involve proving that the receiver has acted dishonestly or for an improper purpose. 

Where the interests of the chargee and the chargor coincide, the receiver may owe their duties to both of them.  The basis of a receiver's duty to a chargor is the chargor's interest in the equity of redemption in the charged assets.  The duties of a chargee to a chargor derive from the same basis.

Beyond the general duty to the chargor to conduct the receivership in good faith, the receiver's duties to the chargor are limited if there is no coincidence of the interests of chargor and chargee.  Indeed, if the interests of the chargee and chargor conflict, the receiver is entitled to put the interests of the chargee ahead of those of the chargor.

On appointment, the administrative receiver must send notice of their appointment to:

• The company, straightaway.
• All known creditors within 28 days of their appointment.

The notice must be advertised in the London Gazette and may be advertised in any other way that the administrative receiver thinks fit.

Every invoice, order for goods or services, business letter or order form issued (whether in hard copy, electronic or any other form) and the company's websites must also contain a statement that a receiver or manager has been appointed.

 The administrative receiver must immediately following their appointment require the directors (and/or others involved in the management of the company if required by the administrative receiver) to prepare a statement of affairs of the company.  The statement of affairs must be provided within 21 days of the request.

Within three months (or a longer period if the court allows) the administrative receiver must send a report to:

• The Registrar of Companies.
• Any trustees for the secured creditors of the company.
• The secured creditors of the company (other than opted-out creditors), so far as the administrative receiver is aware of their addresses.

The report must include details of:

• The events leading up to the administrative receiver’s appointment.
• How company property has been, or is proposed to be, disposed of.
• How the business of the company has been carried on.
• The amounts payable to the creditors that appointed the administrative receiver.
• The amounts payable to preferential creditors.
• The amount (if any) likely to be available for the payment of other creditors.
• The estimated value of the prescribed part and the company's estimated net property.
• Any proposed application to court to disapply the prescribed part provisions (on the basis cost is disproportionate to benefits) and the reason for the proposed application.
• A summary of the directors’ statement of affairs and the administrative receiver's comments on the same.

Also within three months (or such longer period as the court may allow), the administrative receiver must:

• Send a copy of the report to the unsecured creditors of the company (other than opted-out creditors), of whose addresses the administrative receiver is aware; or
• Publish in the Gazette a notice stating an address to which unsecured creditors should write for copies of the report.

The notice in the Gazette and the report sent to creditors must include a notice inviting creditors to establish a creditors' committee and requesting nominations for membership of the committee by a specified date.

Although it is no longer necessary to hold a creditors' meeting to consider the administrative receiver's report, creditors are still entitled to establish a creditors' committee.  The procedure for establishing a committee is set out in the Insolvency (England and Wales) Rules 2016.  The committee will consist of between three and five creditors and has a statutory duty to help the administrative receiver.  The committee may require the administrative receiver to attend the committee and furnish information to it relating to the conduct of the administrative receiver's functions. 

The chargee is the person or company that has the benefit of a charge, usually a bank or a finance company. 

The receiver’s appointment is invalid if the appointing chargee fails to comply with the requirements of a valid appointment.

If the receiver's appointment is invalid and the receiver is on the chargor’s property, they are a trespasser.  The receiver is liable to account to the chargor for any dealing with the property that they undertake as trespasser.

Where there is a defect in a receiver’s appointment, the receiver can apply to court for an indemnity from the purported appointing chargee in respect of any liability that they incur because of the invalid appointment. 

Before a floating charge holder can appoint an administrative receiver, they must have grounds for making an appointment.  The burden of proof is on the floating charge holder to show that there are grounds for the appointment.

Grounds for appointment will usually arise on the appointor's floating charge becoming enforceable; typically, that is on the occurrence of an event of default under the loan agreement secured by the relevant floating charge or on the failure to satisfy a demand for immediate repayment of all the secured liabilities.

As long as the floating charge holder acts in good faith, it may appoint an administrative receiver at any time after the grounds for appointment arise.

Correspondence or discussions around how and when the secured assets are to be realised could, depending on what was agreed, affect the ability to appoint an administrative receiver if the discussions amount to a suspension or variation of the grounds for appointment or postpone the company's liability to pay.

It is important to check that the company is not already subject to some other formal insolvency process.  Whilst the fact that the company may be the subject of another form of insolvency procedure does not necessarily preclude the appointment of an administrative receiver, it may alter a floating charge holder's commercial view of the merits of the appointment of an administrative receiver.

Before a floating charge holder can enforce its security, depending on the terms of the finance documents in place, it may need to make a formal demand for payment of the secured liabilities.  In such a case the floating charge holder's demand for repayment must comply with the terms of the finance documents.

The floating charge holder must allow the company time to satisfy the demand before appointing an administrative receiver.  This requirement is, however, relatively easy to satisfy in practice; the floating charge holder need only allow the company enough time to effect the mechanics of payment (as distinct from raising monies for the repayment).  This may require the floating charge holder to wait only a brief time between making the demand and appointing the administrative receiver. 

While some loan or security documents may stipulate that making demand is not necessary before the secured liabilities are payable and the security can be enforced, or be silent on the point, a floating charge holder may in any event decide to make demand.  This is to avoid any argument post-appointment that there was an implied obligation to do so.

The appointment of an administrative receiver involves the following three steps which must be completed in order:

• The execution of a document appointing an administrative receiver over the assets secured by the security document, in accordance with the terms of the security document.
• The delivery of the appointment document, duly executed by the floating charge holder, to the proposed administrative receiver.
• The formal acceptance by the administrative receiver of the appointment.

The administrative receiver’s appointment takes effect from the time the administrative receiver receives the instrument of appointment, provided that the administrative receiver accepts the appointment by the end of the business day after receipt.

Before the appointment can be made, the floating charge holder must have become entitled to appoint an administrative receiver.  This entitlement will usually arise on the charge becoming enforceable, for example as a result of the company going into default under the loan agreement in respect of which the floating charge was granted.

Before accepting an appointment as an administrative receiver, an insolvency practitioner will want to check:

• Whether the floating charge will withstand any legal attack; and
• Whether the floating charge has become enforceable.

Once a chargee's power to appoint a receiver under a charge is exercisable, the chargee can proceed to appoint a Fixed Charge Receiver.  The appointment of a Fixed Charge Receiver involves the following three steps, which must be completed in order:

• The execution of the appointment document by the chargee.
• The delivery of the appointment document to the proposed receiver(s).
• The acceptance of the appointment by the receiver(s).

In practice, the chargee will typically arrange for the proposed receiver to be at or near the vicinity of the charged assets over which the receiver is to be appointed before starting the appointment process.  This allows the receiver to take control of the assets as swiftly as possible.

Unless the charge document contains a provision requiring the chargee to notify the chargor of any proposed receivership appointment (which would be unusual), the chargee has no obligation to notify the chargor before appointing a receiver.  In practice, the chargor will likely be aware that a receivership appointment is taking place as a result of surrounding circumstances, even if the chargee has not made its intentions clear.

If the charge document allows the chargee and the Fixed Charge Receiver to agree the receiver’s fees, the appointment document should specify the Fixed Charge Receiver's commission (i.e. their fees and expenses), subject to a maximum of 5% of the gross amount of all money received.

The appointment document may limit the receiver's appointment to only some of the charged assets. 

The appointment over a company's assets takes effect from the time that the receiver (or someone on their behalf) receives the appointment document, provided that the receiver (or someone duly authorised on their behalf) accepts the appointment by the end of the business day following receipt. 

If the chargee appoints a Fixed Charge Receiver over a company's assets, they must notify the Registrar of Companies of the appointment within seven days using Form RM01. 

Finally, please note that, if the chargor is a foreign company, local law advice will be needed to confirm the requirements for a valid appointment to be effected in the relevant foreign jurisdiction. 

Before a chargee can appoint a receiver under a charge, their power to make an appointment under it must be exercisable.  Typically, most charge documents effectively disapply the restrictions of the Law of Property Act 1925 that prevent the appointment of a receiver until the money owed under a mortgage is due for payment and the chargee can exercise their right of sale.  Instead, they provide that the chargee can appoint a receiver when the security becomes enforceable, which is usually on the occurrence of an event of default.

The events of default may be set out in the charge document or in a related finance document, for example the facility agreement.  Among other things, the events of default will usually include any failure by the chargor to pay any sum when due to the chargee.

As long as the chargee acts in good faith, it may appoint a receiver at any time after the grounds for appointment come into being.  The chargee owes the chargor a duty to act in good faith and that duty extends to any other party with an interest in the equity of redemption in the charged assets.

Chargees should note with caution that correspondence or discussions around how and when to realise the secured assets may affect their ability to appoint a receiver, if they amount to a suspension or variation of the grounds for appointment or postpone the chargor’ s liability to pay.  It will depend on what was agreed.

Once a mortgagee’s power to appoint an LPA Receiver has arisen, and a condition for exercising the power of sale is satisfied, the mortgagee can proceed to appoint an LPA Receiver.  The appointment must be in writing.

If the document creating the mortgage allows the mortgagee and the LPA Receiver to agree fees, the appointment document should specify the LPA Receiver's commission (i.e. their fees and expenses), subject to a maximum of 5% of the gross amount of all money received by the LPA Receiver. 

The appointment of an LPA Receiver over an individual’s assets is made when the appointment document is handed to the LPA Receiver in circumstances so that they understand that they are being appointed and they accept that appointment.

The appointment of an LPA Receiver over a company’s assets is deemed to be made at the time that they (or someone on their behalf) receive the instrument of appointment, provided that they (or someone duly authorised on their behalf) accept the appointment by the end of the next business day.

If the mortgagee appoints an LPA Receiver over a company’s assets, they must in addition notify the Registrar of Companies of the appointment within seven days using Form RM01. 

A mortgagee's power to appoint an LPA Receiver arises when the money owed under the mortgage is due for payment.  However, the mortgagee may not appoint an LPA Receiver until they can exercise their power of sale.  That is, when one or more of the following conditions are satisfied:

• The mortgagee has served notice on the mortgagor(s) requiring repayment of the money due under the mortgage and three months have elapsed without any payment.
• Some interest due on the money due under the mortgage has remained unpaid for two months.
• The mortgagor is in breach of a provision of the Law of Property Act 1925 or the document creating the mortgage, other than a provision for payment of the money due under the mortgage or interest on that money.

A creditor can appoint a Fixed Charge Receiver over any asset in respect of which it holds a fixed charge.  The relevant security documents will typically purport to create fixed charges over a variety of assets.  However, whether a charge over an asset is fixed is a matter of fact as opposed to the intention of the parties when drafting the security document.

An LPA Receiver may be appointed in respect of the property of a company, a partnership or an individual.  An LPA Receiver, although appointed by the mortgagee, acts as agent for the mortgagor.  The income or other rent derived from the property is paid to the LPA Receiver as agent of the mortgagor. 

Creditors who satisfy one or more of the following criteria can appoint an administrative receiver:

• The holder of a floating charge over the whole or substantially the whole of the property of a company provided that the charge was created before 15 September 2003.
• A qualifying floating charge holder who has a floating charge over the whole or substantially the whole of the property of a company where one of the statutory exceptions as set out in sections 72B to 72GA of the Insolvency Act 1986 applies.

Please note that a creditor cannot appoint an administrative receiver over the assets of a foreign company.  An administrative receiver’s appointment must be over the assets of a company incorporated under the Companies Act 2006 in England, Wales or Scotland. 

A chargee may have the contractual right to appoint a Fixer Charge Receiver under an agreement with a chargor.  Typically, the chargee’s right to appoint a Fixed Charge Receiver is contained in the security document creating the fixed charge.

A mortgagee or chargee with the benefit of a fixed charge (usually over property) has the right to appoint an LPA Receiver under the Law of Property Act 1925.  It is a statutory right and it is implied into any mortgage or charge executed as a deed.  Notwithstanding this, most security documents will in any event confirm the mortgagee’s or chargee’s power to appoint an LPA Receiver. 

The chargor is the person or company who grants a charge.