Fixed Charge Receiver Or Administrators ' The Pros And Cons?

• Published date: 21 June 2023
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers
• Law Firm: DMH Stallard
• Author: Mr Frank Bouette

Fixed charge (or LPA) receiverships are increasingly popular when it comes to enforcement of security over property, particularly when it involves defaulting property developer borrowers. So, what is the difference between that and administration; and what are the pros and cons of each.

Pros and cons in brief

Administrators have a duty to all creditors of the borrower and are governed by a set priority of objectives. They are:

(a) to rescue the company as a going concern
(b) failing that, to achieve a better return for creditors as a whole than liquidation
or (c) failing that, to achieve a better return for secured and preferential creditors than liquidation.

Failing any of those, then the company should move to liquidation. Consequently, administrators have reporting obligations that receivers don't have.

In contrast a receiver's primary purpose and duty is to ensure their appointing lender is paid. They have no duty to other creditors. However, receivers don't have the investigatory powers that administrators have, and have no power to investigate or make claims against the directors or third parties who received assets at an undervalue or preferential creditor payments (or similar). If there is any surplus remaining after the lender has been repaid by the receiver (and after payment of the receiver's costs and expenses) then it is returned to the borrower, not distributed to creditors generally by the receiver.

During receivership the borrower remains under the general control of its directors; the receivers only take control of the asset(s) over which they are appointed. If administrators are appointed the control and powers of the directors are suspended - the administrators take general control of the borrower and all its assets, and have power to investigate and make claims against the directors and pursue transactions at an undervalue and preference claims etc.

However, during receivership the borrower...