Receivership is a state law remedy similar to bankruptcy which is rarely used.  In the current legal world, receivers are most often sought during disputes between shareholders or business partners, especially where there is a “silent” partner who begins to question the operation and finances of the business.  It also may be used in place of an involuntary Chapter 7 bankruptcy since the risks to the party forcing the question of insolvency are less.

A “receiver” is an individual – often a lawyer or a CPA, but can be anyone – appointed by a Superior Court judge either on the judge’s own motion or by virtue of a consent motion from the parties to an underlying dispute.  The receiver essentially assumes responsibility for the operations and finances of a company which is placed in receivership.  The order appointing the receiver contains the powers and duties of the receiver, gives the receiver the right to employ professionals (lawyers, accountants), but sets the rate of compensation for those professionals, and provides guidance to the receiver in terms of the receiver’s duty to provide interim reports to the court. The court generally will set a finite period for the receivership, but the parties to the underlying action from which the receivership arose can have that time extended by making a motion to extend to the court.

Oftentimes receiverships are used to wind down a company though they can be used to stabilize a business while principals of that business resolve a shareholder dispute either resulting in a sale of the business or a settlement resolving ownership as between the principals.  The receiver submits a bill to the court by means of a motion and the court determines how much the receiver is to be paid and who is to make the payment.

The value of a receivership is that a neutral third party can control operations of a business such that the creditors of the business have an improved chance of recovering their receivables.  The downside to receivership is generally its cost.  Receivers are generally professionals paid by the hour at a rate approved by the court.  That rate is generally not discounted so depending upon how hands on the receiver has to be in the operations of the business, the cost can be prohibitive.  However, the cost also encourages the receiver to maximize either the profitability or the collection of receivables in order to improve the chances of the receiver being paid.

If you are interested in more information on receivership, contact an attorney.  The attorneys at Hannah Sheridan Loughridge and Cochran have experience with receivership both as receivers and as counsel for parties involved in receivership from all perspectives.