Administration Receivership

The tough economic climate means that an increasing number of companies are going into administration receivership. The number affected in the first quarter of 2009 was almost double that of the first quarter of 2008.

Administration receivership occurs when a secured creditor, such as a bank, decides that it needs to step in to ensure recovery of the money it’s owed. A receiver, an experienced insolvency practitioner, is appointed to manage the affairs of the business.

The receiver’s objective is to recover the money owed to the creditor. Although the name is very similar, administration receivership is very different from administration, because administration receivership is not interested in the survival of the business. Its focus is on repaying the debt to the creditor.

Administration receivership is less common than it once was, with creditors often preferring to explore other options first. However, it is a difficult process to stop once it begins, and there is no guarantee that it will leave the business in a condition to survive.

The Administration Receivership Process

Administration receivership is initiated by a creditor, not the company. Only a creditor with a floating charge over the company’s assets, such as a debenture, can take this approach to recovering its money.

The process is unlikely to come out of the blue. The creditor should already be in negotiation with the business about the debt, and other options may have been considered. Only when they’ve exhausted other avenues will creditors take the dramatic step of calling in a receiver.

The receiver will have considerable experience in working with businesses deep in debt. Their first task will be to assess the viability of the business and decide which assets can be sold to release cash. They will also look at other measures to reduce costs, including cutting staff.

These important decisions will usually be made very quickly. While the receiver has an obligation to consider the rights of other creditors, their primary responsibility is to settle the debt of the secured creditor. They will manage the business in such a way as to ensure that the debt is paid as quickly as possible. Once that is complete, their role is over.

Avoiding Administration Receivership

A business without secured creditors is not in danger of going into administration receivership. However, many companies do have secured loans in place, often with banks, and often in the form of debentures. In these cases, administration receivership is a real possibility.

The best way to avoid the situation is to identify cash flow problems well in advance. A business that is continually in an overdraft position and is struggling to pay its suppliers is already in trouble. If the cash flow is forecast to get worse, and the overdraft is only going to get larger, steps need to be taken to recover the situation before it gets too late.

There are various actions that an organisation can take to ease its cash situation. These include:

By taking the right measures before a creditor begins the process of administration receivership, a business retains more control over its activities and direction. Hard decisions may be required, but they’ll be easier to deal with if actioned by the business itself, rather than an external receiver.

When you’re considering these hard questions it’s important to get the right advice. At Touch Financial we’ve got decades of combined experience, and we’ve helped a wide range of organisations. We take the time to listen to our customers, understand their challenges, and help by providing tailored solutions.

If you’re concerned about the risk of administration receivership, or any other form of insolvency action, get in touch with us for a free, no-obligation consultation. Because of our strong track record we know that our experienced business advisors can help you. Give us a call now to see how we can support the stability of your business through these challenging times.

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