A receiver is generally appointed by a secured creditor under the terms of a secured charge. Only in limited circumstances will a Court appoint a receiver.
Directors seeking the appointment of a receiver need to approach the secured creditor to make the appointment. This is usually a bank or other financial institution granted powers pursuant to loan documents signed by the company.
Most receivers require indemnities from the secured creditor to cover receivership costs, expenses and liabilities. Notice periods may also apply.
The receiver’s principal obligations are to the secured creditor, not unsecured creditors and shareholders. Possible conflicts between the interests of these three groups make receivership an unpalatable option in some instances. A receiver can only deal with the assets subject to the charge held by the secured lender. No power exists to deal with the company structure, unsecured creditors’ claims or the interests of shareholders, except for the claims of priority creditors such as employees.
Receivership does not prevent other creditors from taking action for debt recovery. Personal guarantees extended by directors may also be enforced.
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