Administration receivership is when a secured creditor, such as a bank decides that it needs to recover the money that it is owed. The bank or other lender will appoint an experienced insolvency practitioner to manage the businesses finances. The receiver’s role is to recover the money owed to the creditor.
Although administration receivership sounds similar to administration, it is a different process because administration is concerned with recovering the business and the businesses survival whereas administration receivership is concerned with repaying the debt to the creditor.
Because of the tough economic climate the numbers of businesses that are going into administration receivership are increasing. However creditors do not always opt to go down this route and often explore other options first because once the process of administration receivership has started it is difficult to stop. Creditors are also aware that the process may leave the business in a condition where it is unable to survive.
The process of Administration Receivership
Administration receivership is a process started by a creditor and not the business. However only a lender who has a debenture on the business dated prior to 15th September 2003 can use this process to recover the money it is owed.
If a creditor does decide to start administration receivership it will not spring this on you, the lender should already have already begun negations with you about the debt and what options are available to recover the debt. Lenders only normally begin this process once all other options have been exhausted.
dministration receivership is a dramatic step and a lender will normally only start this process if it has no other ways to recover its money.
The receiver will have a considerable amount of experience working with businesses that are in serious debt, and their first task will be to assess the financial viability of the business and then to decide which assets can be sold to pay off the debt. They will also look at reducing other costs like cutting staff. The receiver will work quickly as their obligation is to settle the debt of the creditor as quickly as possible; once this is done their role is over.
How to avoid administration receivership
If your business does not have a secured loan then you are not in danger of going into administration receivership. However many businesses do have secured loans with banks and often in the form of debentures, and for these businesses administration receivership is a very real possibility.
The best was to avoid administration receivership is to identify your cash flow problems well in advance. There are various actions that a business can take to address cash flow problems, these include:
- Invoice discounting
- Invoice factoring
- Stock financing
- Asset financing
- Cost cutting measures such as staff cuts
To understand the whole range of options and to get help choosing the right one for your business contact us on 0800 597 4757 or enquire online using the form opposite.
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