Running a business comes with its fair share of bumps in the road. But sometimes, you might encounter a particularly nasty pothole – financial difficulty. If you’re worried about mounting debts and looming insolvency, you might have come across the term “receivership.” Here at Blackstone Solicitors, we understand this can be a scary and confusing time. This article aims to explain what receivership is and how it might affect your company.
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For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of a business in financial distress, and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
What Exactly is Receivership?
Receivership is a court-appointed process where a neutral third party, known as a receiver, takes control of a company’s assets. This typically happens when the company is struggling to pay its debts, but unlike liquidation, the goal of receivership isn’t necessarily to shut the business down.
There are two main types of receivership:
- Administrative Receivership: This is initiated by a secured creditor, typically a bank, that has a legal charge over a company’s assets (like property or equipment). If the company defaults on its loan, the creditor can appoint a receiver to take control of those specific assets and sell them to recoup their debt.
- Court-Appointed Receivership: This is initiated by the court, often at the request of an unsecured creditor (like a supplier) or even the company itself. The court-appointed receiver then has control over all the company’s assets, not just those secured by a specific creditor.
Red Flags: When Might Receivership Be on the Horizon?
While it’s never a good sign, here are some red flags that might indicate receivership is a possibility:
- Mounting Debts: Are unpaid bills piling up faster than you can handle them? This could be a sign of deeper financial problems.
- Loan Defaults: Have you missed payments on any loans or financing agreements? This could trigger an administrative receivership if the lender has a charge over your assets.
- Creditor Pressure: Are creditors becoming increasingly impatient and threatening legal action? This could be a precursor to a court-appointed receivership.
What Happens During Receivership?
The specific actions taken by the receiver will depend on the type of receivership and the circumstances of your company. Here’s a general breakdown of what you can expect:
- Appointment of a Receiver:
A qualified insolvency practitioner will be appointed as the receiver. Their role is to act impartially and in the best interests of all stakeholders, including creditors, employees, and shareholders (depending on the circumstances).
- Taking Control of Assets:
The receiver will take control of the company’s assets, depending on the type of receivership (administrative or court-appointed). They will then assess the value of these assets.
- Exploring Options:
The receiver will work with the company’s directors to explore various options, such as:
- Restructuring the company: This could involve things like selling off non-core assets, negotiating with creditors, or reducing costs to become profitable again.
- Selling the business as a going concern: The receiver might try to find a buyer for the entire company, allowing it to continue operating under new ownership.
- Selling assets: In some cases, the receiver may need to sell off some or all of the company’s assets to pay off creditors.
- Communication and Reporting:
The receiver will keep all stakeholders informed throughout the process and will need to report to the court (if court-appointed) on their actions and progress.
What Does Receivership Mean for You?
The impact of receivership on you and your company will depend on the specific circumstances. Here’s a general overview:
- Directors: While the receiver is in control, the directors’ powers will be limited. However, the receiver may still seek their input and expertise.
- Employees: Receivership doesn’t necessarily mean job losses. However, there’s a possibility of redundancies if restructuring or asset sales are necessary.
- Creditors: The primary goal of receivership is to achieve a better outcome for creditors than they would get in a liquidation. The receiver will work to pay them back as much as possible, following a specific order of priority as dictated by insolvency legislation.
- Shareholders: Shareholders are typically the last in line when it comes to repayment, and they may not receive anything if there are insufficient funds after creditors are paid.
How we can help
We have a proven track record of helping clients deal with the legal process involved with a business in financial distress. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of a distressed business. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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