Administrative Receiver

Definition

An administrative receiver is a type of receiver appointed by the holder of a floating charge that covers the entire, or substantially all, of a company’s assets. An administrative receiver has the authority to sell the assets secured by the charge or to continue the company’s business operations to meet obligations to creditors.

Examples

Manufacturing Company: A bank holds a floating charge over a manufacturing company’s machinery, inventory, and other assets. Due to the company’s inability to meet its loan obligations, the bank can appoint an administrative receiver to manage the business and liquidate assets to repay the debt.
Retail Chain: A lending institution with a floating charge over a retail chain’s stock and shop leases appoints an administrative receiver when the company faces financial difficulties. The receiver may either sell off the assets or continue trading to maximize returns for the charge holder.

Frequently Asked Questions

What is the role of an administrative receiver?

An administrative receiver is responsible for managing the assets covered by a floating charge, which may include selling assets or continuing to operate the business, with the intention of repaying the debt owed to the chargeholder.

Can an administrative receiver be appointed today?

No, subject to certain exceptions, an administrative receiver cannot be appointed for floating charges created after 15 September 2003. However, the holder of such a charge can appoint an administrator without requiring a court order.

What is a floating charge?

A floating charge is a type of security interest over a fund of changing assets of a company or certain types of non-corporate entities. This fund of assets will be often stock-in-trade, raw materials, work in progress, and cash in bank.

What is the distinction between an administrative receiver and an administrator?

An administrative receiver is appointed primarily by a floating charge holder and focuses on realizing secured assets for the chargeholder. In contrast, an administrator can be appointed by various parties (including the company itself) and aims to achieve a better outcome for all creditors under a formal insolvency protocol.

What limitations impact the appointment of an administrative receiver?

The Enterprise Act 2002 introduced limitations prohibiting the appointment of administrative receivers for floating charges created after 15 September 2003, except in certain specific cases.

Floating Charge: A security interest over a pool of changing assets of a company, which “floats” until it crystallizes into a fixed charge upon a default event.
Administrator: A person appointed to manage the affairs, business, and property of a company for achieving a better outcome for creditors compared to liquidation.
Receiver: Generally, any person appointed to manage or sell certain company assets pledged as collateral. The term includes both administrative receivers and simpler forms of receivers.

Online References

Suggested Books for Further Studies

Insolvency Law: A Guide for Directors and Managers by Weeramantry, Rohan.
Debt Restructuring and Modern Financial Techniques by Melissa Borrelli.
Corporate Insolvency Law: Perspectives and Principles by Vanessa Finch.

Accounting Basics: “Administrative Receiver” Fundamentals Quiz

### Who can appoint an administrative receiver? - [x] The holder of a floating charge - [ ] The company's board of directors - [ ] The company's shareholders - [ ] Only a court > **Explanation:** An administrative receiver is specifically appointed by the holder of a floating charge that covers all or substantially all of the company's assets. ### What does a floating charge relate to? - [x] A pool of changing assets - [ ] A fixed property - [ ] Cash reserves only - [ ] Employee contracts > **Explanation:** A floating charge relates to a pool of changing assets within a company such as inventory, raw materials, or cash in bank. ### What restriction exists on appointing administrative receivers after 15 September 2003? - [ ] No restrictions apply. - [ ] They can appoint only on court orders. - [x] It is subject to certain exceptions most commonly through the Enterprise Act 2002. - [ ] They can only be appointed for personal insolvencies. > **Explanation:** Since the introduction of the Enterprise Act 2002, the appointment of administrative receivers is largely restricted except under specific conditions for charges created after that date. ### What primary duty does an administrative receiver have? - [ ] Returning assets to shareholders - [ ] Managing daily company operations indefinitely - [x] Realizing assets to satisfy the floating chargeholder’s debt - [ ] Reevaluating company policies > **Explanation:** The main duty of an administrative receiver is to realize assets that are secured by the floating charge to satisfy the chargeholder’s debt obligations. ### What differs an administrator from an administrative receiver? - [ ] Their method of appointment - [ ] Their legal authority scope - [x] Their objective to consider all creditors' interest - [ ] Their required qualifications > **Explanation:** Unlike an administrative receiver, who represents the floating charge holder’s interests, an administrator must consider the interests of all creditors ensuring better outcomes compared to direct liquidation. ### What document commonly establishes the limitation on appointing administrative receivers? - [ ] Companies Act 2006 - [ ] Insolvency Act 1986 - [x] Enterprise Act 2002 - [ ] Fair Trading Act 1973 > **Explanation:** The Enterprise Act 2002 introduced significant limitations, restricting the use of administrative receivership for floating charges created after its commencement. ### How does administrative receivership function within corporate insolvency? - [x] It allows for continued business operations or sale of assets to repay debts. - [ ] It solely aims to wind up the company immediately. - [ ] It acts as an appraisal and auditing role. - [ ] It involves internal company restructuring by the management team. > **Explanation:** Administrative receivership allows for continued operations or the sale of business assets to repay debts, usually benefitting the charge holder directly. ### Who cannot appoint an administrative receiver under the post-2003 rule? - [ ] Employees - [x] Holders of floating charges created after 15 September 2003 (with exceptions) - [ ] Creditors without any security - [ ] Auditors > **Explanation:** Post-2003 rules restrict holders of floating charges created after this cut-off date (with certain exceptions), from appointing administrative receivers. ### What is one of the recognized exceptions to post-2003 administrative receivership limitations? - [ ] Retail companies - [ ] Tech startups - [ ] Publicly listed companies - [x] Project Finance > **Explanation:** Project finance structures that fit certain criteria are one of the exceptions permitting the appointment of administrative receivers even post the 15 September 2003 restrictions. ### In what case can the holder of a post-2003 floating charge appoint a similar role? - [ ] Liquidator - [x] Administrator without a court order - [ ] Company director - [ ] Auditors with corporate governance review > **Explanation:** Under the revised regulations, holders of post-2003 floating charges can appoint administrators without a court order to manage company distress situations effectively.

Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!