Receivership

Since the advent of the Enterprise Act 2002, for all new floating charges (save exceptional floating charges involving financial market operations), administration and not receivership has been the appropriate vehicle of enforcement. Banks and other trade creditors that have floating charges created before 15 September 2003 may, however, continue to enforce them in the traditional way. Because of this fundamental change in the law, the matter is covered here only for the sake of completeness without going into undue detail.

Where it is sought to enforce the terms of a debenture where there has been a default, the appropriate remedy used generally to be to secure the appointment of a receiver. If it is sought to appoint a person under the terms of a floating charge, the person appointed was generally an administrative receiver who had to be a qualified insolvency practitioner: see s 388 of the Insolvency Act 1986. Since the coming into force of the Enterprise Act 2002, generally holders of floating charges created on or after 15 September 2003 have not been able to appoint administrative receivers. Exceptionally, in special circumstances in relation to specialist financing transactions, administrative receivers may still be appointed (see ss 72B–72G of the Insolvency Act 1986).

Where an administrative receiver is appointed over the entire assets and undertaking of the company, he will need to act as manager as well as receiver. It is likely where there are substantial contracts that the receiver will also be appointed as manager, as the company will wish to continue its business during the receivership.

An administrative receiver may, if the debenture is issued under the common seal of the company, be appointed where the company is in default under s 101(1) of the Law of Property Act 1925. In such a circumstance, the debenture holder or a trustee for debenture holders has the opportunity to appoint a receiver of the company’s income.

An alternative course of action is to enforce any express power given by the debenture to appoint a receiver.

In the last resort, the debenture holder can apply to the court for an order of sale of the property, foreclosure, delivery of possession or the appointment of a receiver of the property that is subject to the charge. The court will generally only appoint a receiver if the principal sum or interest is in arrears, if the company has gone into liquidation or if the security is in some way jeopardised. A receiver will not be appointed merely because it can be demonstrated that the company’s assets will on realisation be insufficient to meet the amount of the secured debt: see Re New York Taxicab Company [1913] 1 Ch 1.

The appointment of an administrative receiver will be in writing unless it is by court order. The person who it purports to appoint as administrative receiver must agree to the appointment.