Receiverships: Not Just for Lenders
A receivership is an invaluable tool for managing, accounting for, marshaling, and preserving assets of whatever nature or kind. Although most often utilized by lenders, a receiver can be beneficial in any number of situations, including business disputes, partner disputes, and divorce proceedings. The limits of a receivership are as broad or as narrow as the parties’ desire.
Receiverships are an equitable remedy subject to the oversight of the court. Therefore, the appointment of a receiver is sought through a court proceeding. Anyone can request a receiver, including business partners, trade creditors, lenders, and landlords. Most receivers are appointed “to protect and preserve property or the rights of parties therein.”
There are two main types of receiverships:
- a receiver appointed as either oversight or to run a business, or
- a receiver appointed over specific property or assets. The type of receivership sought depends on the goals and needs of the parties. There are many reasons to seek the appointment of a receiver.
For instance, lenders should consider a receivership when an indebtedness goes into default, the lender needs to collect rents, needs to ensure property and/or assets are maintained, or wants to marshal assets and liquidate property. Receiverships can also be a useful tool in business disputes when there are threats of inventory shrinkage, threats of removal of assets, failure to pay creditors, or issues of potential fraud or embezzlement. Receiverships can be used in partner disputes to resolve deadlocks, resolve accounting irregularities, or address issues with departing members. In family disputes, such as divorce proceedings where there are substantial community assets, a receiver can be useful to marshal and manage those assets until distribution.
In the above examples, the receiver may be utilized to identify assets, identify accounts and/or property, identify debts and liabilities, structure payments, manage debts and cash flow, prepare an orderly distribution of assets, and pay ongoing operating costs and expenses, among other duties. As is evident from the wide array of examples, a receivership may be beneficial in almost any litigation where there are assets that need to be managed or preserved.
Next time a dispute arises where there are substantial assets which need to be preserved during litigation, consider a receiver.