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Rethinking Receivership: Maximising Investor Recovery


Within the intricate arrangements of borrowing and lending, the primary goal at peer-to-peer lending platform FOLK2FOLK has always been clear: to ensure the security of our Investors’ funds. To date, we have zero capital losses for our Investors and you can view our track record here.  However, things don’t always go to plan in life; in the event a secured loan doesn’t go to plan, the traditional route of receivership is often perceived as the failsafe method for investor recovery, yet there may be more effective strategies for maximum recovery. 

This blog aims to shed light on why receivership isn’t necessarily the golden key to unlocking Investors’ capital and how alternative approaches may better serve the goal of achieving full recovery of Investor funds.

The Misconception of Receivership as a Panacea

Receivership, the process where a receiver is appointed to oversee the liquidation of assets to repay creditors, is often seen as a direct route to recoup lost funds. However, this process can be fraught with pitfalls that could lead to suboptimal outcomes for Investors:

  • Cost and Time Implications:
    The receivership process incurs substantial costs, that can run into the hundreds of thousands of pounds, including legal fees and the receiver’s charges. These costs can erode the total amount recovered, diminishing the returns that are passed back to Investors. Receivership can also draw out the investor recovery process, incurring further delays for Investors seeking a return of capital.
  • Undervaluation of Assets:
    In receivership, the primary focus is on the rapid liquidation of assets. This rush can lead to assets being sold at a value significantly lower than their true worth, especially in a distressed sale scenario. The potential for recovering the full value of the investment diminishes when assets are not given the time or strategy to realise their true market value.
  • Market Dynamics:
    The forced and often hasty sale of assets under receivership doesn’t always align with market conditions. Selling assets in an unfavourable market can result in returns that are far lower than if the assets were sold in a more strategic and considered manner, so patience and timing can be key.
Focusing on Better Recovery Strategies

At FOLK2FOLK, our commitment extends beyond the conventional. We believe in exploring and employing strategies that will result in the maximum recovery of our Investors’ funds. Our approach is bespoke, meticulous, and deeply rooted in our commitment to protect our Investors’ interests. However, it’s important for all parties to recognise that if a borrower does encounter financial difficulties, it doesn’t inherently reflect on their character or intentions. It is a reality of life that people can come across difficult situations and they usually need help to think creatively to resolve it.

It is for all these reasons mentioned, that when a loan encounters difficulties, our immediate response is not to rush towards receivership but a thoughtful evaluation of the situation, guided by the following principles:

  1. Tailored Solutions:

Recognising that each case is unique and a one-size-fits-all approach will not likely deliver the outcome we wish. Instead, we delve into the specifics of each situation; experience has shown that patience and a tailored strategy are crucial for crafting the best possible outcome for our Investors.

  1. Borrower Engagement and Assessment:

At the first indication of a loan faltering, our priority is to engage with the borrower to understand their circumstances. We assess any new financial information and work collaboratively with them to explore viable repayment strategies. By taking a collaborative approach, we aim to ensure the Borrower works with us rather than against us to successfully implement the course of action we determine is in the best interest of our Investors’.

  1. Exhausting All Avenues:

We consider all possible courses of action before deciding on the path most likely to recover Investor money. Receivership, with its high costs and potential for undervaluation of assets, is seen as a last resort, not a first response. Our goal is to explore every alternative avenue to avoid any capital loss for our Investors. An external refinance, for example, would almost certainly be a quicker route of investor recovery than a property sale.

  1. Transparent Communication:

We engage in open dialogue with our Investors at all stages when an investment doesn’t behave as expected. In instances where receivership is considered, we outline the pros and cons, ensuring that every Investor is informed and involved in the decision-making process. This approach reflects our commitment to transparency and collective decision-making.

  1. Partnerships and Vigilance:

Our strong relationships with reputable receivers, when that path is chosen, underscore our commitment to maximising the value of securities for sale.

Achieving the optimal recovery of funds can be complex and multifaceted. At FOLK2FOLK, we recognise that while receivership is a tool in the financial toolkit, it’s not always the master key it’s presumed to be. By adopting a more nuanced and strategic approach, we aim not just to recover funds, but to do so in a way that maximises the potential for returns to our Investors.

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