Restructuring

Understanding Receivership: Essential Guide for Creditors

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Receivership allows secured creditors to recover debts from defaulted loans by appointing a receiver to manage and sell assets. This guide explores the receivership process, its types, and the benefits it offers, providing essential insights for creditors navigating financial recoveries.
Contents

What is receivership?

The receivership process is commenced by a secured creditor who is entitled under their mortgage or debenture to recover their debts in lieu of loans in default.

The function of the receiver is to take possession of the asset(s) subject to the debenture holder’s charge and realise those assets to discharge the associated debt. Depending on the nature of the business, the security in place and the assets subject to the secured creditor’s charge, there are two primary types of receivership:

  • Trading receivership, known as a receiver and manager appointment; or 
  • Property or asset receivership, known as a fixed charge receivership. 

Receiver and manager / Trading receivership

A trading receivership is where a receiver and manager is appointed to a company and substantially all of its assets and undertakings. In this instance, and where deemed appropriate, the receiver may continue to carry on the operations of that business to seek a sale of it as a going concern.

The objective of a trading receivership is to maximise the value of the return to the secured creditor by maintaining the goodwill of the business while also retaining the employee positions.

One key benefit of selling a business as a going concern (compared to selling it on a break up basis) is the avoidance of a preferential creditor claim that would arise due to employee redundancy payments. This preferential liability would rank ahead of the secured creditor’s floating charge and result in less funds being available to discharge the secured debt.  

Who can appoint a receiver and manager?

A trading receivership is possible where a company has granted a secured creditor a debenture over the entire of the company’s business, assets and undertaking. This is generally in the form of a fixed and floating security package.  

When will a receiver trade a business?

Prior to appointment we carry out a detailed review of the debtor company, to the extent information allows, to prepare an enforcement plan with the secured creditor. This will include an assessment of the viability of continuing to trade from a risk, operational and cash flow position. This plan will be discussed in detail and agreed upon with the secured creditor prior the appointment of the receiver.

The aim of this strategic plan is to distinguish a clear and concise strategy so we can operate the business in a way that it can be sold as a going concern. The objective of this is to maximize the return to the charge holder, whilst also managing the risk associated with trading, such as cash flow funding, the risk of further trading losses and the likelihood of identifying a suitable purchaser to acquire the business.

Our expert knowledge and our vast experience of trading in a receivership environment allows us to alleviate many of the problems that arise on appointment leveraging our know-how in managing key supplier relationships, stakeholder and employee management, cash flow management and the process around successfully executing a sale of business process. 

Fixed charge receivership

There are generally three asset class types of fixed charge receivership:

  1. Property receivership
  2. Asset receivership
  3. Share receivership

Property receivership

The primary function of a receiver to a property is to take possession of the secured property, collect rent (if applicable) and arrange a transparent, open market disposal of the property to discharge the associated debt. 

On appointment, we will undertake a detailed analysis of the property and, in consolidation with the chargeholder, formulate a strategy to maximise the value of the security. This strategy will vary from asset to asset, whether it be residential, commercial, part-complete, development land, vacant or tenanted, or whatever other real estate is in play.

Over the past 10 years, Grant Thornton receivers have been appointed on and disposed of over 10,000 residential and commercial real estate assets. Our vast experience extends from single property holdings up to large multi-jurisdictional property portfolios with values in excess of several hundred million euro.

We have strong relationships with all the leading estate agents, solicitors, quantity surveyors and other third party advisors that we utilise to maximise the return for our clients in an expedient and efficient manner. 

Madison Property Management is our in-house expert asset management team, which specifically manages distressed property. For each appointment, Madison manage the day-to-day activities such as rent collection, interacting with tenants, the RTB process, rent reviews, address repairs needed and manage maintenance programmes.

Their expertise ensures that the secured assets are in their best condition, both physically and legally, for when the Receiver brings the property to market. 

Asset receivership

The primary function of a specific asset receiver is to secure the asset in question and realise it to discharge the associated debt. A receiver can be appointed to any secured asset including: 

  • Plant, equipment, aircraft, machinery, etc. 
  • Debtor book 
  • Bank accounts
  • Property leases, where the property itself is not owned by the borrower

The receivership process itself will vary greatly depending on the nature of the asset and the security in place.

We have extensive experience in dealing with assets of all classes, both nationally and internationally, and will run a robust and efficient process to maximise the return for the secured creditor as efficiently as possible.

Share receivership

A share receivership allows a secured creditor to take control of the shareholding of the borrower company. The primary benefit of doing this is that it enables the secured creditor to place their own representation on to the board of directors and to take control of the company. Whilst the receivers will not have direct control of the company and assets, the secured creditor can exercise control by way of its nominee directors.

Where a share receiver is appointed to a company, it is not a legal requirement to notify any parties of the appointment and the company does not have to include “In Receivership” after its name, as is the legal requirement for a trading receivership or any fixed charge receivership. This can assist in protecting the value of the company and its business.

The appointment of a share receiver is generally part of a wider restructuring or insolvency process. In this regard, we will discuss the full suite of options available as part of our planning process and advise if a share receivership would be appropriate in the circumstances.

How Grant Thornton can help you

We have established a strong reputation for achieving valuations on assets in excess of independent valuations. As the Receiver we always strive to achieve the best results for each of the businesses stakeholders. Our expert knowledge and experience in this area enables us to provide the most appropriate advice for you during this challenging process.

We coordinate closely with top class lawyers, asset managers and valuation agents. We also work closely with our own in-house corporate finance and tax experts, ensuring we provide you with the best possible outcome.

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Learn more about how our Receivership solutions can help you

If you are a creditor looking to understand the options available to you to recover your debt but you do not hold security against the company, a court liquidation could be an option for you.