Court Receiver Services

While both receivers and bankruptcy trustees may be faced with administering estates that are facing financial difficulties, their roles are quite different.
Bankruptcy Trustee:

1. Context: A bankruptcy trustee is appointed in a bankruptcy case when an individual or business files for bankruptcy under the U.S. Federal  Bankruptcy Code. Bankruptcy is a cause of action. One can file a lawsuit for bankruptcy.
2. Role: The trustee manages the bankruptcy estate, reviews financial disclosures and bankruptcy petitions, oversees the liquidation of non-exempt assets (in Chapter 7), or administers repayment plans (in Chapter 11 or 13).
3. Authority: The trustee has the authority to act, per statute/court order, on behalf of the creditors and the court to ensure the bankruptcy process proceeds according to legal guidelines. They primarily focus on maximizing payments to creditors, in order of priority, from the debtor’s estate.
4. Legal Framework: Bankruptcy trustees operate under federal bankruptcy law and are specifically trained to handle bankruptcy cases. There is very little flexibility in a bankruptcy case – when compared and contrasted with a receivership matter.

Court-Appointed Receiver:

1. Context: A court-appointed receiver is typically involved in a variety of legal contexts outside of bankruptcy, often in civil litigation or in situations involving business disputes, asset management, or regulatory issues. A receivership is not a cause of action. One may not file a lawsuit for receivership. A receivership is a remedy available in connection with existing litigation and it may be filed in either federal or state court.
2. Role: A receiver is appointed by a court to take control of a business or assets to protect the interests of creditors or stakeholders, manage disputes, or preserve the assets pending the outcome of a legal case.
3. Authority: Receivers can manage the operations of a business or liquidate assets as directed by the court. Their primary goal is often related to protecting and preserving assets rather than maximizing payments to creditors; however, a court may empower a receiver to sell assets for the benefit of creditor.
4. Legal Framework: Receivers operate under state law and the specific instructions of the court, which can vary widely depending on the situation and jurisdiction. There is a great deal of flexibility within a receivership. A receivership court is a court of equity.

Receivers are paid in accordance with the Order Appointing Receiver. Ordinarily, a receiver is paid on an hourly basis and is required to circulate monthly reports including a statement of fees. Often, a receiver may pay himself/herself after circulation of a statement of fees as long as there are no objections. In other situations, a receiver may need to file a motion seeking a hearing to approve and pay fees. If funds are not available to pay the receiver (from estate assets), a receiver may borrow funds, under certain circumstances and subject to court approval, through the issuance of a receiver’s certificate. The receiver borrows funds from a lender subject to the terms contained in the certificate which serves  as the functional equivalent to a note. The certificate along with the order approving certificate may be recorded against the real property or a lis pendens may be filed to effectuate a lien if the recorder’s office will not record the certificate

In order to be appointed as a receiver, a receiver must first be nominated by a party. A receiver generally must be qualified to serve as receiver over the particular asset(s) within the receivership estate. A receiver must have a properly formatted CV, references and he/she must qualify to obtain a receiver’s bond. Professional licenses and/or designations may be helpful for an individual to qualify as receiver; however, generally, there are no receiver-specific licenses to become a receiver.

The first role of the receiver is set forth in the Orde Appointing Receiver. Generally, a receiver must first qualify to serve as receiver by filing an oath and bond. Thereafter, the asset under receivership is obtained by the receiver. This is either done by obtaining physical possession of the asset or by notifying creditors/tenants of the appointment of receiver; thereafter, the receiver collects income of the property or the business. In a federal equity receivership, the receiver generally must file an Initial Report within ten days of his/her appointment.

The role of a court appointed receiver is defined primarily by the order appointing receiver or any subsequent orders issued by the court clarifying the duties, obligations, authority and responsibilities of receiver. Traditionally, a receiver is known as an arm or agent of the court. The receiver is the court’s receiver. Other than in instances where a receiver is appointed in aid in execution of judgment, or the receiver is working solely for the benefit of the judgment creditor, a receiver is neutral. A receiver may simply be appointed to preserve and maintain an asset or the receiver may be charged with an invasive, complex, costly and burdensome forensic accounting analysis of the operations of the business. This might include third-party claw-back litigation, claims procedures, sale of assets, contract analysis, defense and prosecution of existing and/or new litigation, tax administration, creditor and investor negotiations as well as the day-to-day operation of the business. In some instances a receiver will be required to provide monthly or quarterly reports to the court. Generally, a receiver will provide monthly or quarterly reports to the parties in the litigation. 

The role of the receiver will be impacted greatly by whether or not the receiver is a limited purpose receiver or an equity receiver. If the receiver is appointed on a limited basis then the receiver will generally take possession of assets that are collateral for a loan or a judgment. If a receiver is appointed on an equity basis then the receiver is actually the receiver over the ownership entity of the asset which might be real estate, intellectual property or a business. In this instance, the receiver actually operates the ownership entity as well as any underlying assets. The role of the receiver can change from time to time based upon further orders of the court as new information is learned or as the underlying litigation progresses. Existing litigation must be present in order for a receiver to be appointed. Receivership is not a cause of action; rather, it is an equitable remedy.

When a receiver is appointed over a company, the receiver will generally undertake an analysis of the operations of the Company including taxes, receivables, payables, payroll, inventory, litigation, insurance, marketing, business licenses as well as an overall analysis regarding the propriety of the business itself to verify that it is operating in a lawful manner. Depending upon whether or not the long-term goal of the receivership is to operate the business as a going concern or to simply liquidate and sell the business, the receiver may or may not make the appointment of receiver public. In some instances the receiver is very concerned about relationships with trade vendors or customers. However, if the Company has been engaged in allegedly illegal conduct, than the receiver will likely immediately shut down operations. In some cases a receiver is appointed solely to perform a financial analysis of the company and will not be engaged in day-to-day operations at all.

A receiver generally has an obligation to all creditors including taxing agencies. A receiver will advise (not including some limited purpose receiverships) taxing agencies of the appointment of receiver and will need to undertake an analysis regarding what tax obligations may exist. The receiver will verify whether or not tax returns are current and appropriate professionals will be retained by the receiver to assist in the operation of the business. Key personnel will be interviewed and their role, function, compensation and performance will be  analyzed as will the policies and procedures of the company. A risk analysis may be performed regarding insurance, possible premises liability issues, OSHA and wage-hour compliance etc. The receiver has a duty to use reasonable care to manage the business and/or the assets owned by the business and to use his or her business judgment in doing so. In many instances this is challenging, especially in the early phases of the receivership because the receiver may not have access to good business records for the business owners may be actively interfering with the efforts of the receiver to perform his/her duties.

In many instances a company will continue to operate under the guidance of a receiver and very little changes will be apparent to the outside world. A receiver may be marketing the business for sale and will be preparing a due diligence package allowing third-party purchasers to evaluate and value the business. In other instances, a receiver may need to make material changes to the operation of a business when the receiver identifies problems based upon noncompliance of laws or customs and practices in the particular industry within which the business operates. Finally, a receiver may determine that it is required to immediately suspend operations of the business. This may occur for a variety of reasons including allegations of fraud, mismanagement, insolvency and/or other considerations. Each case stands on its own and is entirely different.

The responsibilities of a receiver are specifically identified in the order appointing receiver. This may include financial analysis only. Or, it may include the actual operation of the business or real estate. The receiver may also only perform certain tasks based upon phases. For example, a receiver may be required to provide an initial report to the court after which the court will determine whether or not the receivership estate should or should not continue. Responsibilities of a receiver may also include addressing creditor claims, legal compliance with laws, codes and ordinances as well as tax obligations. However, the specific responsibilities are generally set forth in the initial or subsequent orders of the court and they may vary based upon the lifecycle of the receivership, new information as the case matures and possible changes in the underlying litigation. Essentially, a full equity receiver steps into the shoes of the owner and takes over operations of all elements of the business including taxes, investor relations, marketing, accounts payable, receivables or in the case of real estate, collection of rents, payment of invoices and repairs and maintenance of the property. A receiver may ultimately market and sell a business and/or real estate pursuant to existing or further orders of the court. It is important for a receiver not to take actions beyond those identified in the order appointing receiver.