What is the Difference Between Administration and Receivership?

Administration and receivership are two different processes that companies in financial distress may undergo. Here are the key differences between the two:

1. Purpose: Administration aims to help a company pay off its debts and avoid liquidation, while receivership works to realize the assets of a company to maximize the benefit for secured creditors. Receivership usually results in the company entering liquidation.
2. Initiation: Administration can be initiated by the company directors, the secured creditor, or even the company itself. On the other hand, receivership is initiated by creditors or banks that believe the business cannot pay its debts. Directors cannot place their own company into receivership.
3. Control: In administration, an administrator is appointed to control the assets and operations of the company, acting in the best interests of the company. In receivership, a receiver is appointed by a secured creditor (usually a bank) to recover a debt. The receiver acts only for the benefit of the secured creditor for whom it was appointed and not for all creditors.
4. Outcome: Administration is generally viewed as the preferred rescue procedure, as it typically delivers higher returns to creditors from company assets and saves jobs where possible. Receivership, on the other hand, is less desirable for a company director, as it often results in the loss of control and may lead to the liquidation of the company.
5. Appointment: In administration, the appointed administrator investigates officer conduct and negotiates a plan of action with creditors. In receivership, the receiver may not take advice from directors and will investigate their conduct.

Comparative Table: Administration vs Receivership

Administration is a legal process designed to help a company facing financial difficulties pay off its debts and avoid liquidation. The primary goal of administration is to protect the company and its creditors. A licensed insolvency practitioner is appointed as an administrator, who takes control of the company's assets and financial decisions. Company directors maintain limited authority during the administration process. Administration is considered a more favorable option than receivership, as it often leads to higher returns for creditors and job preservation.

Receivership, on the other hand, is a process where a secured creditor or a court of law appoints a receiver to manage the company's assets and financial decisions. The primary goal of receivership is to realize the assets of a company to maximize benefits for secured creditors. Receivership usually results in the company's liquidation and dissolution, and company directors lose control of the company during the process.