Receivership

What is 'Receivership'

Receivership is a type of corporate bankruptcy in which a receiver is appointed by bankruptcy courts or creditors to run the company. The receiver may be appointed by a bankruptcy court as a matter of private proceedings, or by a governing body. In most cases, the receiver is given ultimate decision-making powers and has full discretion in deciding how the received assets will be managed.

BREAKING DOWN 'Receivership'

A receivership provides a business with an opportunity to restructure to avoid liquidation by using a court-appointed trustee, referred to as a receiver, to oversee business operations. As part of operating the receivership, the receiver assumes rights over the associated business assets and properties and holds the ability to cease all dividend or applicable interest payments. Members of the executive leadership or board of directors lose all decision-making authority.

Receivership as Rehabilitation

A receivership may be enacted in an attempt to review a failing company. The receiver works to restructure the company, managing assets and obligations as necessary, to bring the company into a period of recovery. Certain assets may be liquidated, under the authority of the receiver, but the true purpose is to work to bring the company back to a profitable state.

A company looking towards bankruptcy is not required to consider a restructuring. Instead, it can choose to move straight to liquidation, as was the case with the Sports Authority, a sporting and outdoor retail chain, in 2016. Bypassing the option to reorganize, Sports Authority chose to begin organizing the liquidation of assets after filing for bankruptcy protection in March 2016.

Receivership and Liquidation

If it is determined that a company's operations cannot be salvaged through a corporate restructuring, the decision to liquidate may be in order. This process involves selling the company's assets with oversight from the receiver to acquire the funds needed to repay certain debts or other obligations. At times, the assets are sold at deep discounts as the goal is to recoup monies owed.

Oversight of a Sale

An alternative to the liquidation of assets individually, a receiver may oversee operations while looking for a buyer. For example, Park West Lodge, a nursing home, was continuing the majority of its operations while the appointed receiver worked to find a buyer for the business. This receivership was deemed necessary after the company failed to find a buyer after the death of the primary shareholder. The receiver ensures that all operations are meeting any government mandated standards and regulations while assisting in keeping the business solvent until a buyer can be located.

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