Fixed charge receivership: what it means for directors and the company

How a receiver is appointed

A fixed charge receiver is usually appointed out of court by a lender exercising a power contained in the debenture or conferred by the Law of Property Act 1925. The appointment can be made very rapidly — often within 24 to 48 hours of a default — without any court application or advance notice to the company in most cases. The receiver takes control of the specific assets subject to the fixed charge immediately upon appointment.

Unlike administration, which requires a filing at court and triggers an automatic moratorium on creditor action, fixed charge receivership has no moratorium. Other creditors remain free to pursue their own remedies against the company during a receivership, which can create a chaotic environment if multiple secured and unsecured creditors act simultaneously.

The receiver's duties and loyalties

A fixed charge receiver's primary duty is to the appointing lender. Their objective is to realise the charged assets for sufficient value to repay the secured debt, interest, and their own costs. They do not owe the same fiduciary duties to the company or its directors as the directors owe to the company — they may sell assets at less than their highest achievable price if a prompt sale serves the lender's interests.

However, receivers do owe a duty of care to the company when dealing with its property — they must not wilfully sacrifice value. In practice, the distinction matters where the secured debt is less than the asset value: the company (and therefore its shareholders and unsecured creditors) have an interest in the surplus after the lender is repaid, and the receiver must act in a way that does not unnecessarily destroy that surplus.

What directors must do during receivership

Directors retain their statutory duties to the company even during receivership — they do not resign automatically. However, their authority over the assets in the receiver's hands is suspended. Directors must cooperate with the receiver, provide access to company records, and hand over assets covered by the charge. Obstructing a receiver can constitute contempt if court enforcement follows.

Directors should also consider whether continuing to trade the uncharged parts of the business is viable and lawful. If the company's unencumbered assets are insufficient to meet its ongoing obligations, continuing to trade may itself give rise to wrongful trading risk. Taking prompt insolvency advice at this point is important, both to manage ongoing obligations and to protect directors from personal liability.