What happens when receivers are appointed by the court?

When the court appoints a receiver in California, Nevada, Arizona, and throughout the country, this sets off a series of events that will impact the asset over which the receiver has been appointed. The duties and responsibilities of the receiver are identified in the order appointing the receiver.

Depending upon the type of case, which could include a real estate, business, judgment, divorce, regulatory enforcement actions, or health and safety-related cases, the receiver may take possession of all or a portion of the business or real property.

Generally, the receiver must first file the oath and bond of a receiver. Thereafter, the receiver records the order appointing a receiver. The receiver then contacts the property owners or their counsel to make arrangements to take possession of the business or the assets. At the time of the takeover, locks may be changed, employees may be interviewed and notices are served on employees and/or tenants.

A new receivership estate bank account is established, creditors are notified of the appointment of the receiver, contracts are reviewed and business or real estate assets are inspected. A determination is made regarding the solvency of the asset which would include an analysis of short-term and long-term liabilities, liquid and illiquid assets, inventory, receivables, and cash. Possession of the asset is transferred from the owner to the receiver.

In some cases, the owner or employees of the owners may be retained by the receiver. The business may continue to operate or the receiver may determine that the business needs to be shut down. In addition, inventory may be liquidated as appropriate and pursuant to a court order. If the asset is a piece of real estate, tenants are contacted, leases are reviewed, rents are collected and the net operating income of the real estate is analyzed.

Depending upon the purpose of the receivership and the contents of the order appointing the receiver, the asset may be sold. This would involve an initial appraisal, broker opinion of value, or another method of valuation to determine a reasonable list price. The receiver selects a qualified broker, the asset is marketed and the receiver then selects an appropriate buyer. An analysis of the buyers’ qualifications would include whether or not they are able to purchase the asset for cash, their track record, their ability to close quickly, and evidence of cash.

After the court receiver selects a buyer to purchase the receivership asset, a motion will be filed with the court seeking an order confirming the sale. Thereafter, an appeal period may apply and title insurance will not be issued until the appeal period has run unless the parties waive the appeal period. Upon sale, the receiver may hold onto the sales proceeds pending the resolution of any disputes regarding sales proceeds; however, the receiver may obtain an order selling the property free and clear of liens with the liens attaching to the sales proceeds.

While possession of the property or business transfers to the receiver, ownership does not change. The receiver may be required to file tax returns on behalf of the owner as well as compromise debts and take over existing litigation. The receiver has an obligation to all creditors and analysis of creditor claims, tax obligations, litigation, and other liabilities must be performed.

The receiver determines if the business or real estate complies with best practices and standards of care. This includes a safety inspection, risk analysis, review of books and records, customer service, insurance review, market rate analysis of leases and or products to be sold as well as personnel and human resources considerations. To the extent that the receiver determines corrections need to be made, those changes may be implemented in order to preserve, maintain and enhance the value of the asset over which the receiver is been appointed.

The receiver, as an agent of the court, steps into the shoes of the owner in terms of possession and daily operation. The receiver fulfills his/her duties and obligations pursuant to the order appointing the receiver on behalf of the court. If the receiver needs to expand his powers or has questions regarding the operation and administration of the receivership estate, the receiver may petition the court for further instructions.

The receiver provides monthly reports to all parties and ideally communicates regularly with parties in order to keep them informed regarding the administration of the receivership estate. A successful receivership involves good communication, proper reporting to the court, and adherence to the provisions of the order appointing the receiver.