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Understanding Receivership

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It is not uncommon to hear businesses that are undergoing financial hardships to ask, "What is receivership?" Perhaps their creditor is threatening them with receivership and although it sounds like something ominous, the director or shareholders might not have the first clue as to what receivership is all about. A rough receivership definition is basically a company that has relinquished control of its assets and/or operations to a receiver appointed by the creditor until such time that all monies due are paid in full.

Of course, that is a very broad and basic definition. It is a lot more involved than that because each situation is a bit different. For instance, the government can appoint an official receiver if the company, directors or even the shareholders have been found to be violating public interest. This is much, much more serious than a company in receivership to a creditor because criminal as well as civil penalties might ensue. The official receiver is a civil servant as well as being an officer of the court who has the legal responsibility to report all wrongful acts.

More to the point, it would be better to as what does receivership mean in terms of the viability of ongoing operations of a company. Sometimes receivership can be advantageous in terms of the long term financial stability of a company. If a creditor/bank turns the company over to a receiver in order to raise profits to pay existing debts, the company will most assuredly be in better hands. After the creditor has realised all monies due, the company can be placed back under its own direction most often with a new and more competent director. If looking for a definition, receivership simply means that the company has lost control of its own operations which have been temporarily or permanently placed in the hands of an official or appointed receiver.

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