Has your property entered the receivership stage? This transition can be difficult and worrying. But don’t confuse your receivership process with liquidation, a much more serious affair that spells the end of your business.
Receivership and liquidation are two very separate processes. Even if certain aspects are comparable, the two procedures involve different end goals and overall different strategies. Let’s take a closer look at both to highlight the differences.
When a company enters receivership, that’s a sign that the business has a lot of debt and is struggling to repay its creditors. However, the process of receivership is designed to eventually guide the company back to former glory if possible. A receiver is appointed by the company’s creditors to manage the company’s assets, sell certain portions to repay all debts, and keep the business running as much as possible in the meantime. For properties, this typically means the receiver handles tasks like collecting rent and communicating with tenants. The owner still maintains a limited role in the company, but the creditor- or court-appointed receiver handles the majority of the work. If and when the company’s debts are finally repaid, the receiver leaves and the owner retakes control of the business.
Pro Tip: When a property enters receivership, your duties as a manager will change. Discuss your new, limited responsibilities with your receiver agent for more details.
Liquidation is a horse of a different color. While receivership is designed to get a business back on its feet, liquidation is designed to dissolve a business that has no chance of recovery. A liquidator is always appointed by a court to divide up and sell every asset of the company to repay its creditors as much as possible. Every employee, including the owner, forfeits their position in the business. When the entire business has been dissolved, the company ceases to exist.
What They Have in Common
While the end goals of the two processes differ significantly, several aspects are strikingly similar. Both a liquidator and a receiver act on behalf of creditors and prioritize repaying them, especially creditors that appointed them or initiated the process, above virtually all else They will also file periodic reports on their progress. The owner of the company is always required to step aside, in whole or in part, as another party takes over.
Most importantly, both receivership and liquidation show that a company is heavily in debt. The process of receivership simply means you have a chance of recovery, while liquidation is a last resort.
Keeping Your Property Afloat
In the vast majority of cases, receivership is designed to get your property back on its feet. You only have to worry about liquidation in particularly bad circumstances. Do your best to work with the receiver as much as you can to help things get back to normal.
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