What is Receivership?
Receivership is a debt solution that helps a secured creditor recover outstanding amounts under a secured loan to a debtor’s business when a debtor defaults on loan payments. A receiver is a Licensed Insolvency Trustee who is appointed by a creditor or by the court to “receive” and liquidate the debtor’s assets in order to pay back the creditor.
What Does Going into Receivership Mean?
If a business has a secured loan with a creditor and defaults on payment, the creditor may have the right to appoint a receiver to recover their money. The business then goes into receivership when a receiver gains possession of the business’s assets and liquidates them to recoup money owed to the secured creditor.
How is Receivership Different from Bankruptcy?
While the terms receivership and bankruptcy are sometimes used interchangeably, they are not the same thing. Bankruptcy is a legal process that relieves a business of its unsecured debts. Receivership, on the other hand, is a legal process available to secured creditors that protects their security if a debtor defaults on payments.
What’s the Difference Between a Court-Appointed Receiver and a Privately Appointed Receiver?
In Canada, a receiver must be a Licensed Insolvency Trustee whose license was granted by the federal government’s Office of the Superintendent of Bankruptcy. There are two basic types of receivers:
Court-appointed receiver: the Receiver is appointed by the Court through a Court Order upon application by a secured creditor.
Privately-appointed receiver: the Receiver is appointed by the secured creditor pursuant to the terms of the General Security Agreement as between the secured creditor and the debtor.
What’s the Difference Between Receivership and Liquidation?
Receivership is a form of liquidation governed by Court Orders, the Bankruptcy & Insolvency Act, and Security Agreements with a view to distributing the sale proceeds to the secured creditor. The business can be shuttered wherein all, or a portion, of the business’s assets are sold or a business can keep operating and be sold as a going-concern.
Liquidations are generally governed by the Business Corporations Acts or Wind-Up Acts of the various Provinces. They typically involve shuttering of a business and liquidation of all its assets for the benefit of all the creditors on a priority basis.
Is Receivership the Right Solution for You?
Unlike declaring bankruptcy and other alternatives, receivership is not a voluntary solution. A receiver is appointed either by a secured creditor or by the court on behalf of a secured creditor. If you are a debtor company and are falling behind on debt payments and are concerned that a Receiver may be appointed over your business, it’s important to understand your options. MNP LTD is here to assist. We can walk you through all of the various restructuring options to stave off Receivership. If you are a secured lender looking at the option of appointing a Receiver over your client’s defaulting business, MNP LTD can also provide those services. Start today with a free confidential consultation.