Administrative receivership

History

The common law has long recognised the concept of a receiver. Following the development of the floating charge creditors were effectively able to take security over a company's entire business by means of a floating charge over the undertaking. Security documents generally contained very wide powers of appointment such that on default the creditor could take over the business immediately and without the input of any court. A receiver appointed to the entire business became known as a receiver and manager. The receiver and manager would typically have extensive powers over the business, including the power to sell it at a time and on terms that suited the appointing creditor.

The ability to appoint a receiver and manager was a very powerful remedy, but it came to be considered unsatisfactory that it was entirely a creature of the contract between the creditor and the borrower. There was no general ability on the part of the borrower or any other party to review the actions of the receiver (who would generally be acting on behalf of the borrower under the security document) or seek the supervision of the court. As a part of the general review of UK insolvency law that took place in the 1980s, beginning with the Cork Report and culminating in the Insolvency Act 1986, two major reforms were put forward. First, the receiver and manager was put on a statutory footing: a receiver appointed to all or substantially all of a company's property was now to be known as an administrative receiver and subject to some (albeit not too extensive) statutory responsibilities. Second, the "administration order" procedure was introduced, designed as an equivalent process to administrative receivership but one available to any company by order of the court, and not dependent upon a particular security arrangement.

The expectation of Parliament was that companies and creditors would utilise administration in preference to administrative receivership. Crucially, however, Parliament had conceded in the Insolvency Act that administrative receivership should have priority - that is, a secured creditor with a floating charge could defeat any attempt to commence an administration by appointing an administrative receiver. As a result administration was not as popular as had been envisaged, and secured creditors habitually appointed administrative receivers to enforce security rights. More drastic action was taken in the Enterprise Act 2002 - Parliament made changes to the administration regime in an effort to make it more attractive, but also barred the right to appoint administrative receivers in any security created after 15 September 2003 (subject to certain specific exceptions). Any attempt to do so takes effect as a power to appoint an administrator.

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