Receivers and their role

before the 2002 Act,3 or those with charges which, though created after that date, fall within one of the specified exceptions4 may still appoint administrative receivers. ‘Ordinary’ receivers, moreover, can still be appointed by the courts and debenture holders. It is, accordingly, necessary to consider the operation of receivership and the reasons for its curtailment. This discussion is best commenced by outlining the development of receivership, the procedures that are adopted in receivership and the duties and obligations that form the legal framework for receivership.

The development of receivership

Receivership is a long-established method by which secured creditors can enforce their security.5 There have traditionally been two types of receiver in English law: the receiver appointed by the court and the receiver appointed by a debenture holder under the terms of the debenture deed.6 The ‘administrative receiver’ was an institution introduced by

3Numerous banks rushed to take out floating charges before the 2002 Act came into effect on 15 September 2003 and ended the qualifying floating charge holder’s right to veto administration and curtailed the right of such floating charge holders to appoint an administrative receiver. Armour, Hsu and Walters point out, however, that, numerically, the new administration procedure has largely replaced receivership and report that their interviewees explained this by referring to the banks’ desires to distance themselves from the negative publicity associated with receivership: see J. Armour, A. Hsu and A. Walters,

Report for the Insolvency Service: The Impact of the Enterprise Act 2002 on Realisations and Costs in Corporate Rescue Proceedings (Insolvency Service, London, December 2006);

Armour, Hsu and Walters, ‘The Costs and Benefits of Secured Creditor Control in Bankruptcy: Evidence from the UK’, University of Cambridge Centre for Business

Research Working Pa p er No. 33 2 (Cambridge, Septe m ber 200 6). Betw een 200 2005–6 the number of receiverships fell from 1,639 to 565 whereas administrations grew

in number from 775 to 2,661: see Insolvency Service, Enterprise Act 2002 – Corporate Insolvency Provisions: Evaluation Report (Insolvency Service, London, 2008) p. 17.

4See Enterprise Act 2002 s. 250 which inserts a new s. 72A into the Insolvency Act 1986 listing the exceptions.

5See also A. Keay and P. Walton, Insolvency Law: Corporate and Personal (2nd edn, Jordans, Bristol, 2008) ch. 6. See Re Maskelyne British Typewriter Ltd [1898] 1 Ch 133. On aspects of administrative receivership still left to private contract see L. Clarke and H. Rajak, ‘Mann v. Secretary of State for Employment’ (2000) 63 MLR 895 at 899.

6I.e. all-assets receivers appointed by the court and receivers of only part of the company’s property. See further S. Fennell, ‘Court-appointed Receiverships: A Missed Opportunity?’ (1998) 14 IL&P 208. Although the appointment of court-appointed receivers is rare, the procedure can be used to good effect to gain control of assets held overseas ‘when all other avenues look doomed to fail’: see D. Wood, ‘Can a Court Appointed Receiver Secure Assets Held Overseas?’ (2008) Recovery (Spring) 30.

10It is an offence under the Insolvency Act 1986 ss. 388, 389 for a person to act as an IP without being properly qualified under the Insolvency Act 1986 s. 390. The IP must be a member of a recognised professional body or obtain authorisation to act under the Insolvency Act 1986 s. 393. See ch. 5 above.

This chapter focuses on administrative receivership, the roots of which are to be found in the Cork Report11 and the Insolvency Act 1986. The Cork Committee (Cork) saw the aims of insolvency law in terms of the dozen objectives set out in paragraph 198 of the Cork Report and discussed in chapter 2 above. Cork stressed that the public interest should be protected by corporate insolvency processes because groups in society beyond the insolvent company and creditors were affected by an insolvency. Cork also emphasised that means should be provided for preserving ‘viable commercial enterprises capable of making a useful contribution to the economic life of the country’. After the enactment of the Insolvency Act 1986, four different formal insolvency procedures were available to play a part in corporate rescues and reorganisations. These were: (1) administrative receivership; (2) administration under Part II of the Insolvency Act 1986; (3) company voluntary arrangements under Part I of the Insolvency Act 1986; and (4) creditor schemes of arrangement under the Companies Act 1985 (now the Companies Act 2006). These procedures establish regimes for the management of the affairs of a business and they are binding on the managers of the business as well as on the creditors. In this sense they are ‘formal’ procedures to be distinguished from the informal methods that can be adopted in response to corporate troubles. It should be emphasised that companies in financial difficulties do not have to resort to formal procedures. As was noted in chapter 7, if the involved parties (directors, shareholders and creditors) can come to (and sustain) an agreement on the steps to be taken to effect a rescue then informal processes are likely to offer a far speedier and cheaper way of reversing corporate fortunes than resort to formality. Research suggests that there is ‘an elaborate rescue process outside formal procedures’ with about 75 per cent of firms emerging from rescue and avoiding formal insolvency procedures altogether by either turning around their fortunes or repaying their debts.12

When the Cork Committee looked at receivership, a receiver might be put in place by the traditional methods of appointment by the court or under the powers contained in an instrument such as a mortgage

11Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558, 1982) (‘Cork Report’).

12See J. Franks and O. Sussman, ‘The Cycle of Corporate Distress, Rescue and Dissolution: A Study of Small and Medium Size UK Companies’, IFA Working Paper 306 (2000) p. 2. It has been argued that if most rescues are informal, changes in the formal structures may make little difference to the incidence of corporate rescues: see Armour, Hsu and Walters, Report for the Insolvency Service.