January 2018
By Daniel Richardson, Insolvency Practitioner, CG&Co
It has become increasingly common that individuals purchasing property, in particular investment property, are doing so within a limited company. This may be for tax purposes, or simply to avoid any personal exposure, where guarantees are not a requirement of a loan.
Where the loan is made to a limited company, it may be prudent to also seek a fixed and floating charge debenture over the whole of the company’s assets, in addition to a legal charge registered against the property. Should a default on the loan occur, the lender then has a further option available to it under the floating charge – to appoint administrators to the company, rather than receivers under the fixed charge.
Below we compare several key areas to consider when deciding what action to take upon a default.
|
Consideration |
Administration |
Receivership |
|
Suitability |
Where a wide range of assets fall under floating charge security, and greater control is required. Creates a moratorium preventing continuance or initiation of proceedings against the company. |
More suitable for single-asset enforcement. No protection against creditor action, but, once appointed, the Receiver is entitled to secure the asset. |
|
Powers and duties |
Take full control of all company assets and to trade on. Statutory powers within the Insolvency Act. Can compel various parties to co-operate with the process. |
Limited to those set out within the lender’s security, such as sale, collection of rent etc. No power to obtain co-operation from borrower. |
|
Investigation |
The Administrator is required to complete a report on the director’s conduct. These investigations could lead to recovery of assets from antecedent transactions. |
A Receiver has no duty to investigate company affairs, or powers to recover other assets not subject to the fixed charge. |
|
Other Office Holders |
The moratorium prevents any other appointments being made. |
Where an Administrator is appointed, permission to appoint a Receiver is required. The Receiver would not act as agent of the borrower. |
|
Other Assets |
An Administrator deals with all assets of the company, which could enhance the return to the lender. |
A Receiver is appointed over the asset specifically described in the fixed charge. |
|
Rental Income |
This would fall under the floating charge, unless paid into a specific blocked rent account mandated to the lender, and would therefore be subject to deduction of costs, preferential claims and the prescribed part. |
The rent received by the Receiver would be available to the lender, net of costs. |
|
Rent Payable |
Rent and rates for the period of occupation during Administration is an expense of the process. |
These remain the liability of the borrower, although non-payment may lead to insolvency proceedings against the company. |
CG&Co are property receivership specialists and Insolvency Practitioners, therefore able to advise and act in respect of both scenarios discussed in this article. Please contact Daniel Richardson on 0161 358 0210 or daniel.richardson@cg-recovery.com.