Companies facing insolvency or financial difficulties often struggle to meet their obligations to creditors.
There are several options available for companies in this position. Receivership and Voluntary Administration can both help a company repay its debts while avoiding Liquidation. While they share similarities, there are key differences in Receivership vs Administration.
What is Receivership?
Receivership is a formal process that allows a secured creditor (usually a bank) to recover a debt it is owed without placing the debtor into Liquidation.
If a business becomes unable to make repayments on a secured debt, the creditor that holds the security may appoint an independent Receiver. The Receiver is responsible for controlling and managing the company in the best interests of the appointing creditor.
The Receiver will investigate the company’s financial position and develop a plan to recover some (or all) of the outstanding debt. This may involve selling company assets (including assets that are not subject to a security interest) and/or selling the company as a going concern.
Receivership may allow a business to repay its debt to a secured creditor and continue trading, potentially avoiding Liquidation.
Continuing to trade the business typically provides better returns for secured creditors. It also improves outcomes for unsecured creditors, employees, shareholders and other stakeholders.
What is Voluntary Administration?
Voluntary Administration is a tool that allows an insolvent company to access professional advice. With the support of an independent Administrator, the company can assess its options and develop a plan to repay its debts to creditors.
A company becomes insolvent when it is unable to pay its debts as and when they are due. When this occurs, creditors may have a right to place the company in Liquidation.
Liquidation is a final solution that results in the company ceasing to exist. Voluntary Administration is an alternative that allows the company to repay its debts, and may assist the business to recover its financial position and continue trading.
As the name suggests, a company that is experiencing financial difficulties can voluntarily appoint an Administrator. The Administrator takes control of the company, assesses its financial position, investigates officer conduct and negotiates a plan of action with creditors.
Once their investigations are complete, the Administrator will make a recommendation on how to proceed. This may include executing a Deed of Company Arrangement (DOCA) that allows the company to repay some (or all) of its debts while continuing to trade.
The Difference Between Receivership vs Administration
While Receivership and Voluntary Administration have some overlap, the two tools are very different, and they are adopted due to different circumstances or pressures. In both instances, the process is handled by a Registered Liquidator that is appointed to act as the Receiver or the Administrator.
Receivership and Voluntary Administration differ in several key areas:
|When the appointment is made||A secured creditor may appoint a Receiver when the debtor business becomes unable to repay its debt.||Directors can vote to appoint an Administrator if the company is insolvent, or if it is likely to become insolvent.|
|How the appointment is made||A Receiver can be appointed by a secured creditor or the Court.||An Administrator is appointed by the company directors, a Liquidator, or by secured creditors that hold a substantial security interest over the company.|
|Who benefits from the appointment||Receivers are only responsible to the appointing creditor.||Administrators are responsible to all creditors. The Administrator works to improve outcomes for all stakeholders.|
|Protection from legal action||Creditors are permitted to commence or continue legal recovery actions against a business in Receivership.||Creditors are prevented from commencing or continuing most types of legal recovery action against a business during the Administration period. All dealings with creditors are handled by the Administrator.|
|The expected outcome||If the Receiver can recover enough money to repay the appointing creditor, the business may be allowed to trade on. If the Receiver cannot recover the debt, the company may continue to Administration or Liquidation.||The Administrator investigates the company’s affairs and can recommend:|
It is also worth noting that, while a secured creditor has the right to appoint a Receiver, they may also allow the business to enter Voluntary Administration. This typically occurs where there are other creditor interests at play, or where Administration can provide a better outcome for the secured creditor.
Both Receivership and Administration may allow a company to avoid Liquidation. However, in either case, the company can still be wound up if it is unable to satisfy its debts.
Navigate Financial Difficulties with the Team at SV Partners
Staying on top of your business’ financial position can be a challenge. If the company becomes unable to repay its debts, you could find yourself facing Receivership or Voluntary Administration.
If that occurs, it’s important to seek advice from the team at SV Partners. SV Partners have a team of Registered Liquidators with vast experience in managing Receivership and Voluntary Administration proceedings.
We provide assistance, advice and services that can help your business navigate any situation. If you have received a creditor demand, or if you are at risk of becoming insolvent, get in touch with our team. You can contact us online to make an appointment, or phone us on 1800 246 801 for a confidential consultation.