A receivership is a remedy authorized by a court’s equity powers. The court holds a hearing upon motion by one or more of the interested parties pursuant to defined statutory provisions. Usually the court requires that the parties attempt to settle their dispute by other traditional means before it will consider issuing an order of appointment of a receiver.
The role of a court appointed receiver is to act on behalf of the court during the pungency of a legal or equitable proceeding. Generally, the receiver’s primary purpose is to protect property and assets which are the subject of a dispute. A receiver may be appointed to take charge of the operations of an insolvent corporation, partnership or individual to protect consumer interests pursuant to a court order which specifies the receiver’s powers and responsibilities. The court may instruct the receiver to rehabilitate or liquidate the entity to protect its creditors’ interests, a move somewhat similar to a bankruptcy.
However, the increasing popularity of a receivership over a reorganization in bankruptcy may be due to the fact that the receiver can define how the receivership will operate in a way not possible in the more structured federal bankruptcy proceeding.
If authorized by the court’s order, the process of collecting and selling the company’s assets may begin. The goal of liquidation is to use the money from selling the company’s assets to pay off the company’s debts and any outstanding claims against it.
In some instances the dispute may be between the members of the board of directors or other operating group within a company. The receiver is an interim director to oversee the operations of the company while the stakeholders negotiate their disagreement, thus preserving the value of the company and its assets.
