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What Does Receivership Mean?

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When trying to understand the meaning of receivership it is best to look at it from the perspective of the creditor. A creditor, usually a bank or other financial institution, lends a business a certain amount of money secured by tangible assets. The assets could be the machinery or equipment used in the operation of the business and it could be the actual property itself as in a mortgage loan. In fact, the security could be the business itself! The lender/creditor will want to know that its investment is safe so the loan is issued with security.

The meaning of security is made apparent if the business fails to make payments on that line of credit. The creditor can file receivership and actually take over the business in order to realise the money owed. This could mean that assets are liquidated (often at a fraction of their value!) or it could mean that the business itself is seized. Operations will no longer be left in the hands of the director/board/members and the receiver appointed by the creditor will be in charge. Now then, what does receivership mean? First of all, it means losing control of your company and its assets!

When a business goes into administration receivership there are a few potential outcomes. First of all the business might go into receivership bankruptcy proceedings. Secondly, the business might realise enough profits to pay back the loan and then be placed back in the hands of the owners/members. However, if the receiver notices that the business was knowingly mismanaged and wrongdoings were intentional, those offenses may be reported to the authorities which might place the business in jeopardy of going to an officer of the court, an official receiver. Receivership is not always easy to define, but one thing is perfectly clear. It should be avoided at all costs if you don't want to relinquish control of your company.

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