ADMINISTRATIVE RECEIVERSHIP

Definition

The term ‘administrative receiver' was first introduced by the IA 1985 replacing the receiver and manager appointed under the provisions of the Companies Acts.

An administrative receiver is a licensed insolvency practitioner appointed by a bank or other lender to recover its outstanding advances to a company pursuant to an authority contained within a debenture, duly registered by the lender, granting the lender a ‘qualifying floating charge' (QFC) over the assets of the company

Principal duty of the administrative receiver

The first duty of an administrative receiver is owed to his appointor, his powers of management being ancillary to that duty. The administrative receiver also has a duty to deal with and, when possible, pay the claims of preferential creditors

Appointment

On 15 September 2003 new insolvency law removed the right of a lender to appoint an administrative receiver under any QFC created from that date. Lenders may still continue to appoint administrative receivers under QFC's created before that date, so that we can expect to see appointments from time to time for many years to come.

Appointment of an administrator

As an alternative to administrative receivership, holders of a QFC, be it pre or post 15 September 2003 may elect to appoint an administrator, the bank's choice of administrator taking precedence over any alternative nomination of the company or its directors. It can be seen then that the holder of a pre 15 September 2003 QFC has the choice of appointing either an administrative receiver or administrator, whilst under a post 15 September 2003 QFC any appointment is restricted to that of administrator

Contrast with position of an administrator

In contrast to the position of an administrator who must, as an officer of the court be impartial as to the various competing interests in his administration, an administrative receiver is the ‘bank's' man and it is to the debenture holder that he owes his primary duty. This he fulfils through the realisation of the assets of the company in reduction of the secured debt of his appointor.

Directors are sometimes heard to complain that receivers do not have sufficient regard to the saving of companies and are too quick to close down businesses simply so as to pay off the bank. It is this very complaint that highlights the difference between the two appointments for whereas an administrator will act in accordance with the terms of the administration order and, following approval by creditors, his own proposals which will often include a continuation of trade, an administrative receiver has no duty to trade on. What he does possess are the powers of management, but those powers are ancillary to his duty to his appointor.