Vol 7 (2010) - Issue 5

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Receivership of Foreign-based Companies: Scottish Government Consults

Introduction
Many in Scotland and elsewhere think receivership is no longer important. Most UK receiverships used to be administrative receiverships over all of a company's assets and administrative receivership was largely abolished in the UK from September 2003 by the Enterprise Act 2002, in favour of administration. Receivership does, however, remain important, both when relating to only part of the assets of a company ('non-administrative receivership') and in the exceptional situations in which administrative receivership remains competent following the Enterprise Act.
Administrative receivership remains competent in relation to various specialised situations relating largely to projects and financial markets (under sections 72B to 72H of the Insolvency Act 1986, the 'IA'). While these situations are relatively small in number they tend to be high in value and of economic importance including, for example, securitisation and publicprivate partnerships. Non-administrative receivership
is of significance in other specialised situations, such as in receivables and asset finance, where floating charges may be taken over only book debts or vehicles being financed. Non-administrative receivership is also relevant where a separable element of a business and its related assets, such as an operating division of a company or a specific property development, may be subject to a separate floating charge which does not cover the other assets of the chargor.
Responding to concerns expressed by market participants, the Scottish Government has issued a consultation ( Doc/254431/0101393.pdf>) regarding the scope of receivership in Scotland – and in particular its exclusion relative to companies over which the Scottish courts ceased to have winding up jurisdiction following the coming into force in May 2002 of the European insolvency regulation (Council Regulation (EC) No.1346/2000, the 'EUIR') – for example in relation to an Irish-based investment company with assets but no 'establishment' (for the purposes of the EUIR) in Scotland.
The consultation also addresses concerns that nonadministrative receivership may be overly restricted by requiring a floating charge under which the nonadministrative receivership takes place to relate solely to the assets relative to which that non-administrative receiver is appointed (e.g. that a receiver cannot be appointed to part of the assets charged by an all assets floating charge) – thereby leading to unnecessary administration or winding up when non-administrative receivership may have provided the optimum solution for a distressed company.
The consultation period closes on 29 October 2010.

Crystallisation & enforcement in Scotland
Under Scots law, receivership is entirely statutory and only possible as a means of enforcing a floating charge under the IA. It is not possible under Scots law to enforce a fixed security by receivership. Receivership crystallises a floating charge and the only other circumstances in which a floating charge will crystallise under Scots law is winding up under the IA and when an administrator chooses to do so under para.115 of sch.B1 to the IA in order to make a distribution to the floating charge holder. Receivership is accordingly a significant option when seeking to crystallise and enforce a floating charge, particularly if the other options of winding up or administration under the IA are not available or present disadvantages to those involved.

Insolvency Act 1986, Section 51
The consultation relates largely to section 51(1) of the IA, which states: 'It is competent under the law of Scotland for the holder of a floating charge over all or any part of the property (including uncalled capital), which may from time to time be comprised in the property and undertaking of an incorporated company (whether a company registered under the Companies Act 2006 or not) which the Court of Session has jurisdiction to wind up, to appoint a receiver of such part of the property of the company as is subject to the charge.' and relates in particular to the emphasised text.