When your business debts are continually growing and it seems almost impossible to pay your creditors, you can clearly see where your business is heading. Bankruptcy can appear to be the most likely outcome, but there is a better option – Receivership. Although you can find it incredibly difficult to allow someone else to have the overall control of your company, it would be difficult to find another alternative that can lessen the impact of your business’ decline.
But in order for you to prepare yourself and your business to enter into receivership, you need to first be able to understand the nature of Receivership, and how it works.
So what is Receivership?
Receivership happens when the bank, court or a secured creditor assigns an external person (known as the receiver) to take over the administration of a company. This outside manager will then replace the managing director of the business that has been placed under receivership, and this person will endeavor to find the best ways possible to pay the company’s debts in a limited amount of time.
To be able to free the company from the majority of its debts, most assigned receivers will liquidate all of the company’s properties and other assets. And that means that the business will have to be shut down. But after careful analysis of the company, if the receiver sees hope in the capability of a company to continue its operation and move into profit, the receiver will try to find possible ways to rescue some of the assets of the business.
Receivers work hard to protect the company’s stakeholders and creditors. And when his or her responsibilities are all accomplished, the company receiver will then file a resignation and return the power to the former managing director (if the company is still able to survive and can still operate). However, there are times when the receiver will make the decision to appoint a new managing director.
When compared to filing for bankruptcy, receivership is seen as the lesser of the two evils. It is also a faster process, so the cost is usually a lot less than the cost of going through bankruptcy. Probably its biggest advantage over other options is that it gives a failing company hope to restructure itself, only now with a firmer foundation.
It is important that when a company is facing receivership that the company directors face up to their responsibilities. Certainly there is no point in conducting a witch-hunt to find someone to blame for the company’s downfall. Usually there has been more than one cause. But if receivership is necessary, then the right advice needs to be sought out, and acted upon.