What is a Commercial Receivership?
You may have never heard of a commercial receivership before or perhaps you have but don’t quite know what it is. In this blog, we are going to walk through how receiverships work and why they are fantastic tools for shareholders and creditors. In the world of debtors and creditors, you often hear the term bankruptcy thrown around, but it is primarily an opportunity for debtors to receive protection against creditors while they handle debts and insolvency. It can benefit the creditor if they attempt to force an unwilling debtor into involuntary bankruptcy, but this is more rare and risky. A receivership decisively protects the creditor’s or shareholder’s interests while they take the necessary actions to find a long term solution.
Why do you need a receiver in the first place?
A receivership provides a brief but essential solution in two types of circumstances:
In the first instance, a creditor can petition the court to appoint a receiver to run a company or manage an asset while they take legal action to regain control over their investment when through foreclosure or restructuring debt. The receiver ensures that
In the second instance, a shareholder dispute over ownership or operation may require legal efforts and a receiver can independently and efficiently operate the company while shareholders settle their differences. This protects the company’s value from falling over mismanagement, failures to cooperate, or even unwillingness to work until the circumstances.
What are the duties of a receiver?
The key feature of receiverships is that they have specific duties and rules that regulate what they can and must do. In the case of a restructuring, the appointed receiver generally has ultimate decision-making power over the company's assets and management decisions. If a receiver is appointed while a disagreement is settled, the receiver ensures that all company operations continue efficiently and works to maximize profits.
Another requirement is that they must regularly report to the court in front of the judge. This ensures transparency, not just with disputing parties, but also transparency with the judge. Their role is to be a trustee of the asset while the court works through the disagreement at hand.
Key Benefits of a receivership
A receivership provides speed and efficiency resulting in saved money and time. It also is far less risky to petition the court for a receiver rather than attempt to force a company into involuntary bankruptcy. It is worth noting though, receiverships and bankruptcy are not mutually exclusive. Receiverships are simply a tool to give creditors the power necessary to protect their interests when they are at risk. This has applications in a bankruptcy proceeding. Additionally, creditors can quickly and efficiently move to ensure their investment is properly managed while the company remains under the original ownership. Creditors rarely want ownership brought under their name so they can avoid legal liabilities and outstanding debts. Receiverships alleviate this risk making them an ideal, temporary solution for creditors.
Simply put, a receivership is beneficial because it is a fast and efficient path to protecting the value of an asset. The speed and money saving capacity of a receivership are what make it a seriously beneficial tool for creditors. Additionally, with the right receiver in place, the value of a company or asset can be significantly increased over the course of a receivership.
Conclusion
So what does all of this mean for you? Well, if you are in a position where you are concerned over an investment, asset, or company, you can utilize a receivership. They may not be the only tool, but a receivership is surely the most powerful tool creditors have to manage, protect, and preserve assets. In order to continue to educate and promote the use of receiverships, NMBL Strategies founder, Eric Moraczewski, helped to found the Commercial Receivers Association.
Are you interested in hearing more about how receiverships can help protect your investments? Connect with us on our blog or on social media. If you are looking to hear more about our experience serving a a receiver, send us your question.
