Receivership and Voluntary Administration

What is the difference between receivership and placing a company into administration? The answer is relatively simple.

A receiver is appointed by a secured creditor (such as a bank) who has a charge over all or most of the assets of a company. The receiver only acts for the benefit of the holder of the charge, subject to specific duties and powers nominated in the instrument under which the receiver was appointed.

An administrator, however, is appointed by a director or less likely one or more of its secured creditors. The administrator’s primary objective is to keep the company operating as a going concern so as to maximise the chances of the company, or as much as possible of the business, continuing in existence, or most likely increasing the returns for the company’s creditors and members than would otherwise be realised if the company were immediately wound up. Importantly, an administrator is personally liable for debts of the company incurred during the administration period for services rendered, goods bought, property leased or occupied and funds borrowed.

Voluntary administration has the following benefits:

• it requires no court involvement;
• the appointment of the administrator effectively avoids insolvent trading liability for directors of the company (in respect of the period of post-appointment); and
• it provides the company breathing space by imposing a moratorium in respect of various claims against the company and property in its possession during the period of voluntary administration.

The fate of the company is determined by majority vote at a meeting of the creditors after the appointment of the administrator. There are three possible outcomes after a company is placed into administration, which include:

• the company enters into a deed of company arrangement (DOCA);
• the company is liquidated; and
• control of the company is given back to the directors (however this is unlikely).

A DOCA is a statutory contract between the company and its creditors that governs the relations between the company and its creditors. At a minimum, it contains the nature and duration of any moratorium period, property available to pay creditors, the order of payments to creditors, and the release of debts of the company.

If you are either:

• a creditor who is owed money by a company;
  a shareholder or director of a company that is experiencing financial difficulties; or
• in default, or at risk of being in default, of a security instrument (loan or mortgage for instance),

you should seek legal advice as soon as possible.