Receivership is a legal remedy that exists in federal and state courts and provides an aggrieved party the option of placing an asset or business into legal custody, meaning that the court dispossesses the party in control of that asset or business and puts it into the hands of a court-appointed agent—the receiver. A receivership is a court-appointed tool that can assist creditors in recovering funds in default and can help troubled companies avoid bankruptcy. Here are some key points about receivership:
- Receiverships are a remedy of last resort in litigation involving the conduct of executive agencies that fail to comply with constitutional or statutory obligations to populations that rely on those agencies for their basic human rights.
- Receiverships can be broadly divided into two types: those related to insolvency or enforcement of a security interest, and those where either... Receiverships relating to insolvency are subdivided into two further categories: administrative/equity receivership, where the receiver is appointed wide management powers over all or most of the property of a business, and other receiverships (sometimes misleadingly called fixed charge receiverships) where the receiver has limited control over specific property, with no broader powers beyond managing or selling the individual asset.
- A period of receivership may be thought of as a protective umbrella for a troubled company. During this time, a receiver, or trustee, steps in to manage the entire company, its assets, and all financial and operating decisions. While the receivership is operative, the companys principals remain in place as material contributors, but their authority is limited.
- Receiverships are one of the most powerful solutions available to aid creditors. Unlike bankruptcy, a receivership is not a legal action, but rather an adjunct solution.
- When used properly, a receivership can be a flexible and creative avenue to assist in the restructuring or turnaround of a business, real property, or other asset.
- The main goals of receivership are to help the company in dispute avoid bankruptcy or liquidation while the lawsuit is in progress, to manage the assets and liabilities of a company under litigation, and to develop and implement strategies for paying company debts with a simpler process that is typically unavailable under bankruptcy.
- As part of a receivership, the court appoints an independent receiver who manages all aspects of the troubled company. Even though the company’s principals will remain in place, they will have little legal authority.
