Receivership

Receivership — an overview

Receivership is a remedy used to preserve and manage a company’s assets when it faces financial distress or when a secured creditor seeks to protect collateral. A receiver — an independent, court-recognized trustee or manager — takes control of specified assets or the business to protect value, collect revenues, pay expenses, and maximize recovery for creditors. Receiverships can also be used as part of a restructuring effort to prevent a company from entering bankruptcy.

Key takeaways

• Receivership centralizes management of assets under an independent receiver to protect or realize value for creditors.
• It can be used to help a company restructure or to preserve collateral for a secured creditor.
• Receiverships are distinct from bankruptcy: bankruptcy is a legal proceeding focused on debtor protection, while receivership is a remedy focused on safeguarding creditor interests (often ordered by a court).
• A receivership’s duration varies widely — from months to years — depending on its purpose and progress.
• Receivers may liquidate assets if restructuring efforts fail.

How receivership works

• Appointment: A secured creditor may request a receiver, or a court may appoint one during litigation. Appointments can be private (acting for the appointing creditor) or court‑appointed (acting for all creditors).
• Scope: The court order defines the receiver’s scope — it may cover specific collateral, business units, or the entire company.
• Objective: The receiver’s goals are to preserve asset value, collect income, halt dissipative actions, and either facilitate restructuring or marshal assets for repayment.

Note: Receivership is not the same as filing for bankruptcy, though both can occur simultaneously.

Responsibilities and powers of a receiver

Typical duties include:

• Taking control of and safeguarding assets and records.
• Managing operations, cash flow, and contracts as authorized.
• Collecting receivables and overseeing incoming revenue.
• Paying necessary expenses and controlling distributions (including suspending dividends or discretionary payments).
• Evaluating and executing asset sales or refinancings to satisfy creditor claims.
• Preparing reports for the court and creditors and recommending a path forward (restructuring, sale, or liquidation).

Receivers must act independently and impartially, without prior relationships that would create conflicts of interest.

Receivership vs. bankruptcy

Bankruptcy:
* Is a statutory legal proceeding initiated by the debtor or creditors.
* Provides protections (automatic stay) and an organized process for reorganization (e.g., Chapter 11) or liquidation (Chapter 7).
* Primarily designed to balance debtor relief with creditor claims under federal bankruptcy law.

Receivership:
* Is an equitable remedy (often court-ordered) focused on protecting collateral and creditor interests.
* Places asset control in the hands of a neutral manager rather than giving the debtor protections under bankruptcy code.
* Can coexist with bankruptcy or be used instead of it, depending on objectives and circumstances.

Benefits of receivership

For creditors:
* Preserves and secures collateral value.
* Provides an independent manager to collect and account for revenues.
* Can accelerate recovery compared with prolonged collection disputes.

For distressed companies:
* Offers neutral operational oversight and cash management.
* Can facilitate restructuring and sale processes that might avoid formal bankruptcy.
* Provides a clear, court-supervised path to stabilize business affairs.

Who requests a receivership?

• Secured creditors commonly request receivership to protect collateral or obtain control of assets when a borrower defaults.
• Courts may impose receivership during litigation when equitable relief is warranted to preserve assets or prevent waste.

How long does a receivership last?

Duration depends on purpose and complexity:
* Short-term: a few months to stabilize operations or preserve assets pending litigation.
* Long-term: one to several years for complex restructuring, asset dispositions, or multiparty claims.
A receiver’s term typically ends when the court orders discharge, assets are liquidated and distributed, or the underlying objectives are achieved.

Conclusion

Receivership is a powerful, court-related remedy for preserving and maximizing the value of assets when a company or its secured creditors face financial distress. It concentrates control in an independent receiver to protect creditor interests and can facilitate restructuring, sale, or liquidation. Understanding the differences between receivership and bankruptcy helps creditors and companies choose the approach that best aligns with their recovery goals.