What is a Receiver and When is A Receiver Appointed?
If you are in a business dispute, especially a dispute where fraud may be involved, you can expect to have to file a motion to appoint a receiver, or to have a motion filed against you by the other side, asking the court to appoint a receiver. But what is a receiver?
A receiver is a person appointed by a court to manage a company’s affairs. The receiver is authorized to run the company the same way the owner(s) would, and thus, the receiver takes over the duties of the company’s owners or managers.
Good or Bad?
The appointment of a receiver can be good or bad depending on what side you are on. If it is your business or your property, the appointment of a receiver takes the business/property out of your hands. You no longer run or manage your own property and are no longer “the boss.” It is almost like having a supervisor appointed for you, to handle your business affairs.
If you are the party asking for the receiver, you get the confidence of knowing that the receiver is a fair and neutral party, and that the business is, at least temporarily, being operated by someone other than the opposing party. You also get the confidence of knowing that the business’ assets are not being disposed of, wasted, hidden, or destroyed, while the lawsuit is pending.
When is a Receiver Appointed?
The Court can appoint a receiver under certain conditions, including:
- Where the parties signed a contract or agreement consenting to the appointment of a receiver, if necessary
- When the court finds that there is a risk of waste, destruction of evidence, or fraud
- If the court finds that proceeds are not being handled properly—for example, if mortgagees are not being paid from rents received, or business partners or shareholders are not being paid
- Where a business must be dissolved, and the court wants a neutral party to wind up the company’s affairs, or make sure creditors are paid
The receiver is a neutral party, and must swear that he or she has no affiliation with either party. The receiver will be compensated from the proceeds of the business, or, if there are none, by a party designed by the court.
Common Cases That Use Receivers
Receivers are often appointed in commercial real estate disputes, where a lender has concern that property is being mismanaged, or that the property securing the loan is at risk of being damaged. Receivers are also used to make sure that rents paid by existing tenants are used to pay the expenses of, and to maintain, the property.
Receivers also may be used in cases that ask the Court to wind up a company’s affairs, or in cases where a shareholder alleges that a company is being mismanaged or company assets are being wasted or diverted improperly.