Prior to 2020, when a company is in financial distress and unable to pay its debt, the company’s creditors can choose to go after the company to recover their funds by initiating a liquidation process or receivership (if the debt is secure). In such instance, the creditor or creditors would typically approach the court under a liquidation process for an order winding up the company and appointing a liquidator with the objective of realizing the company’s assets to pay off the debts to the creditor(s) and distribute the remaining funds among the shareholders if anything is left. Consequently, the liquidator winds up the business and brings it to an end.[1]

Secured creditors, who hold charges or security over the insolvent company’s asset(s), have an additional option. They can initiate receivership process, which typically enables them to appoint a receiver to recover the debt owed. When a company is placed in receivership, the receiver appointed by the secured creditor gathers the company’s assets, manages them, sells them, and uses the proceeds to settle the debt owed by the company.[2]

Although the process of liquidation is different from the process of receivership and the category of creditors that can pursue liquidation is different from the category of creditors that can pursue receivership, both insolvency processes share a common goal – to repay the creditors’ debt, with no regard to the life of the company after the process. In fact, in the case of liquidation, the job of the liquidator is akin to that of an undertaker who gently leads the company to its grave. The situation seems a bit milder with receivership, where the receiver only proceeds against the assets of the company and would only manage the company’s business or assets for the limited purpose of paying the debt of the secured creditors and not to keep the company afloat. Hence, companies that undergo receivership often later slide into liquidation.

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