When a company borrows money from a bank on an overdraft or loan, it will be common for the bank to ask for a security (debenture) against such a loan. If anything goes wrong with the business this security gives the bank more power to get their money out of the company. Essentially it is like a secured loan or a mortgage on your house. If the company runs into financial difficulty then the bank can call the money in more easily than without the security.
Before September 2003 this used to be a very common debt recovery tool for the banks. On 15th September 2003 the UK Government introduced changes, set out in the Enterprise Act 2002, to phase out Receivership as a debt solution. The reason for this is that the banks were usually first to be aware of a company’s financial worries and made sure they got their money out quickly without any consideration for the other creditors.
It is less commonly used now and will disappear gradually. Most often banks use administration as a solution now.
Note: If your company has borrowed money from a bank before 15th September 2003 and you granted a debenture (security) before that date, then it is still possible for the bank to appoint a receiver. If the borrowing was after that date they cannot appoint a receiver at all.
The Receiver’s role is mainly concerned with getting back any money owed to the bank. The Receiver may sell the business as a whole or sell assets individually, to pay off the bank, and the costs of the receivership, which are usually quite high.
AdministrationWhen a company gets into financial trouble an administrator may be appointed to help the company through the difficult times and start trading again if possible. |
CVAA Company Voluntary Arrangement (CVA) is an insolvency procedure which allows a financially troubled company to reach a legally binding agreement with its creditors. |
LiquidationLiquidation usually means, the company’s trading stop and its assets are turned into cash or “liquidated”. All other possible liabilities, like employment or renting are stopped. |
ReceivershipWhen a company borrows money from a bank on an overdraft or loan, it will be common for the bank to ask for a security (debenture) against such a loan. |