Attorneys and clients considering financially challenged businesses should not forget to consider the benefits Receivership, both as a potential tool for collection of outstanding obligations or enforcement of contracts, but also as a vehicle for financial restructuring.
Receivers are typically appointed by the Court in a litigation proceeding at the request of a creditor, co-owner of a business or reap property, or by any adverse litigant. A party who may be contesting or litigating ownership or control of an asset over which Receivership is being sought may be wise to consider consensual receivership as a solution to the dispute and means of financial restructuring.
- The advantages of a Receivership over bankruptcy include:
- The ability to choose the fiduciary and discuss outcomes and strategies in advance
- Lower administrative costs than in bankruptcy
- Faster administration than in bankruptcy
- Judicial Supervision by local Superior Court
- Ability to preserve going concern value that would be lost in a bankruptcy liquidation
In addition to these advantages parties should consider tools the Receiver has which can facilitate continued operation of a business or rehabilitation of an asset before sale, such as the power to:
- Issue Receivership certificates to fun needed services to benefit the Receivership estate
- Assume or reject existing contracts.
- Pursue litigation on behalf of the Receivership estate.
While there is no automatic stay protecting against other suits, the appointing Court will typically protect the Receivership estate from lawsuits that would interfere with the smooth administration of the Receivership estate.
Sometimes disgruntled parties seek to remove a Receiver by filing a voluntary or involuntary bankruptcy proceeding but the Bankruptcy Code provides the Bankruptcy Court with discretion to leave the Receiver in control of asset in order to do what is best for the estate. Bankruptcy Judges rarely remover property from Court Appointed Receivers who have already invested time in protecting assets.
William E. Winfield is an attorney at Schneiders & Associates. He has been practicing in creditors’ rights and debtors remedies for 30 years and is board certified in Business Bankruptcy by the American Board of Certification. He is also available for appointment as a Receiver.