Receivership Effect
Crystallisation and Receiver’s Powers
When a floating charge is enforced, it “crystallises,” converting into a fixed charge on the company’s assets. Before this, assets may be freely used in business. Crystallisation can occur automatically on default or upon a receiver’s appointment, based on the debenture’s terms. Once crystallised, third-party enforcement against these assets ceases, and only the chargeholder may claim proceeds from the secured assets.
Impact on Contracts and Employment
Existing contracts generally remain, with receivers choosing to perform, breach, or transfer these contracts. A receiver does not have the statutory power to disclaim contracts like liquidators but may indirectly cause breaches, leaving creditors with limited claims. Employment contracts persist but may be affected by redundancies or restructuring; employees are entitled to preferential debts from floating charge proceeds.
Leases and Legal Proceedings
Receivership does not automatically affect property leases unless specified. However, a receiver may need to continue paying rent to preserve business operations. Receivers may initiate legal actions for asset recovery or company restructuring and may even form a new entity to separate assets from liabilities.
Liquidation and New Contracts
Receivership does not prevent company liquidation. If liquidation begins, the receiver’s agency relationship ends, limiting their powers to those specified in the debenture. Post-appointment contracts typically bind the receiver personally unless otherwise stated, safeguarding the company from further liabilities.