Receivership

What is Receivership?

A receivership is a tool that can help creditors to recover their funds and also help firms in distress to escape Bankruptcy. This is a process or a solution that can protect a company. Receivership can help creditors to gain security and recover the cash that is outstanding under a secured loan when the borrower fails to pay the loan. This is one of the most powerful tools in place for creditors.

Receivership is extremely beneficial for companies facing Financial Distress. A company can include this process as a part of a restructuring or while facing financial bankruptcy. In other words, receivership acts as an umbrella to protect a troubled company. In this case, a receiver or a trustee comes to manage the entire company along with its assets and all financial decisions.

When a receiver is appointed privately, action will only be taken on behalf of the secured lender that appointed them. However, when receivers are court-appointed, action will be taken on behalf of all creditors. Remember the receiver must be an independent party e with no prior relationship with the borrower or lender. A receiver can never be partial in dealings with either party.

Responsibilities of Receiver

The responsibilities of s receiver are mentioned below:

1. Decision making

When a firm decides tourist structure, the receiver or the trustee, has the ultimate power to make decisions over the company's assets and management including the authority to cease the payment of dividend or interest. The receiver will also ensure that the firm complies with all government standards and regulations that can help in increasing profits.

2. Avoiding Bankruptcy

The receiver will work with the company to avoid bankruptcy and liquidation of assets. But a receiver can choose to shed certain assets to pay some lenders so that the company starts recovering. However, if these efforts Fail, the court can order the liquidation of the company's assets. Then, liquidator, will see to the sale of assets and gather funds to repay creditors. The company will then cease to exist.

Types of Receivership

The major types of receivership are mentioned below:

• Court-appointed receiver
• Administrative receiver
• Agricultural Credit Act receiver
• Crime Act Proceeds Receiver

Bankruptcy Vs Receivership

There are a few fundamental differences between bankruptcy and receivership.

| Bankruptcy| Receivership| | Bankruptcy is the action taken to protect a debtor from creditors. | Receivership is not a legal action. Receivership is designed to protect the assets of the lender during an interim period| | Accompany e generally ops for bankruptcy when wanting to liquidate or close a business| receivership helps a creditor with asking the court to protect Collateral like Land, buildings, machinery, etc|