AuthorDavid J. Cook
The Short Story
Receivers are no friend to the creditors of the underlying debtor. Courts
appoint receivers at the behest of a specific aggrieved party to take pos-
session of the debtor’s property usually for the purpose of satisfying the
aggrieved party’s claim or interest. For example, courts appoint receivers
to preside over partnership disputes, corporate dissolutions, family law
proceedings, or other matters that require a third party to liquidate assets
and distribute proceedings.
Sometimes, receivers do appear in the prosecution of pre- and post-
judgment remedies on behalf of creditors. These receivers are appointed
by the court to liquidate a debtor’s property for the benefit of the specific
creditor at hand. These receivers are relatively rare given their significant
expense and the fact that the creditor can execute upon the debtor’s prop-
erty. In the enforcement of a judgment, a receiver is required to liquidate the
debtor’s interest in a liquor license, patent, trademark, copyright, domain
name, and other intellectual property. Receivers might serve the interest of
a creditor in collecting large-scale portfolios of receivables.
The most common receivers are sought by banks, financiers, and hard
money lenders who seek to foreclose upon real property. This real property
is more than just raw land, but includes apartment buildings, commercial
properties, industrial properties, farms, developments, hotels, hospitals,
and other health facilities. These receivers are necessary to operate the
businesses attached to the real property, not only for the benefit of the
secured party and to avoid waste, but for the protection of all parties con-
cerned to avoid any risk of personal injury, damage, vandalism to the prop-
erty, or other calamity. A secured creditor might seek to appoint a receiver
to recover personal property collateral, including intellectual property,
inventory, equipment, furniture, fixtures, furnishings, and the like. Such a
receiver would take possession of this collateral and arrange for an orderly
sale, possibly as a going business. Any collection by a receiver would be
remitted to the secured party after judicial approval and an accounting. The
IRS and Securities & Exchange Commission routinely seek the appointment
of a receiver pending the outcome of an enforcement or regulatory action.
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State Attorney Generals likewise seek receivers similarly for enforcement or
regulatory actions. This list is illustrative, not exhaustive.
A debtor might stipulate to the appointment of a receiver, but will
almost never actually seek the appointment of a receiver to operate its
business in the face of insolvency. In the event of insolvency, nearly every
debtor will exercise its rights under the Bankruptcy Code, or pursue a
non-bankruptcy alternative, such as an assignment, bulk sale, or voluntary
workout. Receivers are by and large an adjunct to the court engaged to
properly care for and maintain a specific asset for the benefit of a specific
party. Obviously, from time to time, the receivership estate might generate
sufficient funds to be applied to the claims of creditors, but this is unusual.
Legal Basis
Receivership came from English Common Law. Proportional distribution
to creditors originated in the English Bankruptcy Act of 1542. Federal law
(FRCP 66) and every state authorizes the appointment of a receivership. The
U.S. Internal Revenue Code and the Securities and Exchange Commission
statutes, among many others, authorize the appointment of a receiver. The
court has the right under common law to appoint a receiver separate and
apart from FRCP 66 and/or state law.
A receiver is a creature of equity, which authorizes the court to appoint
a receiver. Most post-judgment enforcement statutes authorize a judge to
appoint a receiver in aid of enforcement. Depending upon the exigency,
some judges demand an exhaustion of other remedies before appointing a
receiver. A court may appoint a receiver based upon exigent circumstances,
which tend to arise out of the operation of a business, including, but not
limited to, an apartment building, hotel, agricultural property, commercial
property, or retail store, particularly if the owner (i.e., the debtor) is unable,
unwilling, or incapable of managing the business.
As a direct agent and officer of the court, the receiver takes legal title to
the receivership estate for the purpose of administration. This is a moment
for pause. The receiver takes “receiver’s title” to the debtor’s property to the
extent that the receiver, subject to an order of the court, has the legal right
to sell, lease, dispose, encumber, transfer, assign, liquidate, or abandon the
property of the debtor. Upon the order of the court, a receiver can sign the
debtor’s name to a contract, deed, note, bill, transfer agreement, or even
endorse the debtor’s name to checks, drafts, or money orders. The receiver
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