What is receivership?

By This Is Money
Updated: 05:30 EST, 13 April 2005

 

What is the difference between a business going into receivership and going into administration? BB, Loughborough

This is Money replies: Receivership and administration are both methods of staving off the complete collapse of a company. However, there are significant differences between the two.

Administration is designed to protect companies from their creditors while a restructuring plan is completed. Control of the business is handed to a licensed insolvency practitioner appointed by the courts.

Administrators will examine whether the company can be saved and may try to sell the company, or part of it, as a "going concern" while stripping out costs.

The mechanism was used by a string of football clubs such as Leeds and Crystal Palace, while a number of retailers have appointed administrators over the past six months including Courts, Allders and the Gadget Shop.

Receivership is a process initiated by banks or other creditors who have lost faith in a company's ability to repay its debts. Receivers are appointed with a view to selling assets so that creditors can recover money owed to them.