What It Means to be Under Receivership

The word receivership has been constantly in use for the past few weeks, understandably so because of Imperial Bank. So what does it really mean to be under receivership?

Receivership is the situation in which an institution or enterprise is being held by a receiver, in this case it’s the Kenya Deposit Insurance Corporation “placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights”, especially in cases where a company cannot meet its financial obligations or enters bankruptcy.

Receivership is an alternative to filing for bankruptcy that may be a better option for some businesses facing hard times. When a business cannot meet its financial obligations, it is said to be insolvent, and drastic measures may be necessary. When a receiver is assigned to oversee an insolvent business, they have more flexibility than a trustee appointed by a bankruptcy court.

The main obligation of a receiver is to ensure that the company’s debts are paid. Depending on the firm’s financial situation, the receiver may sell the company, shut it down or sell off the company’s assets.

Shareholders can get money only if there is remaining fund after all company debts are paid. The receiver can also assist the company in restructuring its debt and improving operations so as to meet its obligations again

When a receiver is assigned on behalf of a bank or other creditors, they first review the company’s financial condition and operations to identify the problems that led to insolvency.

If liquidation is required, the receiver attempts to get as much money for the firm’s assets as possible. If restructuring is feasible, the receiver negotiates terms with creditors and creates a plan for the company to repay its debts.