Definition of Receiver
A receiver is a person or entity appointed by a court or a creditor to oversee, manage, and protect a debtor’s assets or business operations, especially during financial distress or bankruptcy. The receiver’s role is to collect and preserve the debtor’s assets, manage operations to preserve value, and distribute assets according to legal or contractual obligations.
Types of Receivers
- Official Receiver: In bankruptcy, this government-appointed official manages the bankrupt’s estate, overseeing the liquidation and distribution of assets.
- Administrative Receiver: Appointed when a floating charge over a company’s assets crystallizes, granting wide powers to manage and potentially liquidate the company’s assets.
- Fixed Charge Receiver: Specifically deals with the property covered by a fixed charge and lacks authority to manage the company’s entire business operations.
Examples
- Bankruptcy Case: In the event of a company’s bankruptcy, an official receiver may be appointed to manage the liquidation of the company’s assets and settle debts with creditors.
- Crystallization of Floating Charge: When a floating charge (pre-dating 16 September 2003) over a company’s assets crystallizes, an administrative receiver can be appointed to assume control over the entire business, manage operations, and potentially sell assets.
- Fixed Charge Property: If a company defaults on a loan secured by a fixed charge on real estate, a fixed charge receiver might be appointed to sell the property and repay the secured debt.
Frequently Asked Questions (FAQs)
What is the difference between an administrative receiver and a fixed charge receiver?
An administrative receiver can manage the entire business and its assets, while a fixed charge receiver can only deal with the specific assets covered under the fixed charge and has no authority over the overall business operations.
What are the primary responsibilities of a receiver?
A receiver’s main duties include collecting and protecting assets, managing business operations if necessary, selling assets to repay debts, and distributing any remaining assets according to legal priorities.
When is a receiver appointed?
A receiver is typically appointed during financial distress, such as insolvency or bankruptcy, or if a borrower defaults on a debt secured by a charge over their assets.
Can a receiver sell the company’s business?
Yes, an administrative receiver has the power to sell the company’s business as a going concern or liquidate assets individually to repay creditors.
Related Terms with Definitions
- Receivership: The legal process in which a receiver is appointed to manage a company’s assets and operations.
- Bankruptcy: A legal status for a person or entity that cannot repay debts to creditors.
- Official Receiver: A government appointee who manages the estate of a bankrupt individual or entity.
- Floating Charge: A security interest over a fund of changing assets of a company.
- Administrative Receiver: A receiver appointed over all or substantially all of a company’s assets.
- Fixed Charge: A security interest over specific assets of a company.
- Liquidation: The process of winding up a company’s financial affairs and selling off assets to repay creditors.
Online References
- Investopedia - Receiver
- The Balance - Role and Duties of a Receiver
- Gov.uk - Liquidation and Insolvency
Suggested Books for Further Studies
- “Corporate Bankruptcy: Economic and Legal Perspectives” by Jagdeep S. Bhandari, Lawrence A. Weiss
- “Insolvency Law: Corporate and Personal” by David Brown
- “The Law of Corporate Insolvency” by David Milman
Accounting Basics: “Receiver” Fundamentals Quiz
### When is an official receiver typically appointed?
- [ ] During the thriving period of a business.
- [x] In the event of bankruptcy.
- [ ] For managing profitable company operations.
- [ ] During a company merger.
> **Explanation:** An official receiver is appointed during the bankruptcy of a company or individual to manage the liquidation and distribution of assets.
### What type of receiver can manage the entire business and its assets?
- [ ] Fixed charge receiver.
- [ ] Official receiver.
- [x] Administrative receiver.
- [ ] Legal guardian.
> **Explanation:** An administrative receiver has broad powers to manage and potentially sell the entire business, unlike a fixed charge receiver who can only manage specific assets.
### Which type of charge allows for the appointment of an administrative receiver?
- [ ] Fixed Charge.
- [x] Floating Charge.
- [ ] Personal Guarantee.
- [ ] Merchant’s Lien.
> **Explanation:** An administrative receiver can be appointed when a floating charge over a company's assets crystallizes, giving them broad control.
### Does a fixed charge receiver have the power to manage the entire company’s business?
- [ ] Yes, they have full control.
- [ ] Sometimes, depending on the court's decision.
- [ ] If specified in the contract.
- [x] No, they can only deal with the specific property covered by the fixed charge.
> **Explanation:** A fixed charge receiver is only responsible for specific assets covered by the fixed charge and cannot manage the company’s entire business.
### During what circumstance can a floating charge crystallize to allow the appointment of an administrative receiver?
- [ ] When the company is pursuing an acquisition.
- [ ] On arbitrary dates decided by the company.
- [x] When a crystallizing event occurs, such as default on a debt or insolvency.
- [ ] After a shareholder meeting.
> **Explanation:** A floating charge crystallizes upon predefined events like default or insolvency, enabling the appointment of an administrative receiver.
### Who oversees the liquidation and distribution of assets in the event of bankruptcy?
- [ ] Fixed charge receiver.
- [ ] Administrative assistant.
- [x] Official receiver.
- [ ] Company management.
> **Explanation:** An official receiver, often government-appointed, manages the liquidation and distribution of assets in bankruptcy.
### Can an administrative receiver be appointed for a floating charge created after 16 September 2003?
- [x] No, administrative receiverships are generally limited to old floating charges created before this date.
- [ ] Yes, if the company is over a certain age.
- [ ] It depends on the company's revenue.
- [ ] Yes, if approved by the creditors.
> **Explanation:** An administrative receiver can typically only be appointed for floating charges created before 16 September 2003.
### What is one of the major roles of a receiver during financial distress?
- [x] To collect and preserve assets.
- [ ] To increase the company's share price.
- [ ] To develop new products.
- [ ] To negotiate with employees' unions.
> **Explanation:** A key role of the receiver is to collect and preserve the assets of a distressed company to protect the interests of creditors and other stakeholders.
### Can a receiver liquidate a company’s assets?
- [x] Yes, a receiver may liquidate assets to repay creditors.
- [ ] No, receivers cannot sell assets under any circumstance.
- [ ] Only under court order.
- [ ] Only with the company's board approval.
> **Explanation:** A receiver, especially an administrative receiver, may liquidate company assets as part of their duties to repay creditors.
### What limits a fixed charge receiver from managing an entire business?
- [ ] Company location.
- [x] Their limited jurisdiction over only specific charged assets.
- [ ] Duration of the charge.
- [ ] Number of company employees.
> **Explanation:** A fixed charge receiver is limited to managing and dealing with assets specified by the fixed charge and cannot involve themselves in other parts of the business.
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!
