"What does appointing a receiver mean"?

When a company has borrowed money from a bank on an overdraft or loan, it will usually give a debenture as "security" for the loan. It's a bit like a mortgage on your house. This debenture gives powers to the bank if the business cannot repay that money or breaks the lending terms.

If the company runs into financial difficulty then the bank can call the money in or "foreclose". This is a common fear for directors and many people worry that banks want to appoint a receiver when things go wrong. Actually, this is far from accurate for two reasons:

1. Most banks CANNOT appoint receivers! If their debenture was created after 15th September 2003 the bank has no power to appoint receivers.
   
   
2. Banks don't want to appoint receivers! If the banks debenture is older than 15th September 2003 the bank may appoint, but actually won't want to unless under very difficult circumstances.

Before 2003 this used to be a very common recovery tool for the banks. In the last recession in the 90's you might have heard the phrase: "the bank put the receivers in" a lot. Now it is less commonly used and it is in fact disappearing gradually. Most often banks use Administration as a recovery tool now.

Links to further guides

Receivership a Detailed Guide Want to know how the bank can appoint a receiver and what their powers are in more detail?

Receivership - Frequently Asked Questions (FAQ's)

Administration - the most likely bank recovery tool

CVA - Powerful restructuring tool that keeps directors in CONTROL