What Does It Mean When a Company Has Been Placed in Receivership?
Many business owners ask themselves what it means for a company to be placed in receivership. This guide aims to answer your question and give you more insight into what receivership means and how it impacts a business.
What Does Receivership Mean?Receivership is an alternative to bankruptcy which is available for corporations. Individuals and partnerships can't access this option. Through receivership, a company's assets are placed in the care of a third party according to a procedure which falls under the scope of the federal or the state court.
Who Is the Receiver?The receiver is the person who takes over and manages the company's assets during receivership. The receiver is appointed by the court and must operate according to the court's provisions. A receiver can have other duties besides liquidating the company's assets. If the company faces conflicts at managerial level, the receiver can play the role of a custodian. The receiver may continue the business operations in order to pay off the company's debts.
Receivers are court officers who gain vast powers over the company's assets, operations and budget. The receiver's function is to act in the interest of the creditor and make sure they recover their money.
When Can a Company Be Placed in Receivership?A company is typically placed in receivership after an adversarial procedure like a lawsuit has been initiated. The court will determine when and if it's necessary to appoint a receiver.
There are several reasons why a company can be placed in receivership. Internal disputes between the company's directors, delaying debt payment or becoming insolvent are the most frequent causes.
What Should the Creditors Do After the Court Appoints a Receiver?After the creditors receive a legal notification regarding the receiver's appointment, they should start evaluating the situation in order to understand why this person was chosen. At this stage, it's also important to understand what roles the receiver will have. To do so, the creditors can consult the court's written instructions that are present in the receiver's appointing order.
What Happens after Receivership?There are two possible outcomes; the business can continue operating, or it can be liquidated. If the company's assets have sufficient value to cover the company's debts, business continuity is an available option. However, in most cases, the business goes into liquidation in order to repay all its creditors.
If you are threatened with receivership, the best thing to do is to contact an experienced commercial lawyer. He or she will be able to assess your case quickly and tell you whether it's possible to avoid receivership and resort to other legal options.