Receiver: Definition, Legal Role, and Responsibilities

What Is a Receiver?

A receiver is a person appointed as custodian of a person or entity's property, finances, general assets, or business operations. Receivers can be appointed by courts, government regulators, or private entities. Receivers seek to realize and secure assets and manage affairs to pay debts. For businesses, receivers seek to maximize profits and asset value, and either terminate operations or sell all or part of the company. When a receiver is appointed, a company is said to be "in receivership."

Key Takeaways

  • A receiver is a person appointed by a court, government regulator, or private entity to manage debt consolidation for a company.
  • When a receiver is appointed, a company is said to be "in receivership."
  • Receivership is an alternative to bankruptcy.

Understanding the Role of a Receiver

Receivership is an alternative to bankruptcy and potentially a better option for companies facing financial difficulty. Compared to bankruptcy, the process of receivership carries less stigma, requires less paperwork, and has fewer court proceedings. This action will result in lower costs for all parties. 

Going into receivership is an alternative to declaring bankruptcy for many companies. The receiver manages the debt payment process and charges a fee doing so; however, it is less costly than bankruptcy.

A Receiver’s Responsibilities

A receiver will notify creditors of the receivership as they review the corporation’s finances and operations to identify inefficiencies. If liquidation is the preferred or only option, the receiver sells assets secured under each contract. Receivers oversee the distribution of proceeds from liquidation after they deduct receivership fees and expenses. Distribution of assets is on a priority basis. Unsecured creditors receive payment if funds remain after paying secured and other higher priority creditors.

If restructuring is possible, the receiver negotiates terms with creditors and creates a repayment plan. The receiver may also hire new management to run the company more efficiently and profitably. The receiver closely monitors administration and submits a monthly progress and status report to the company, its creditors, and the court. The role of the board of directors is suspended until the company is out of receivership.

Advantages and Disadvantages of Being an Appointed Receiver

A court-appointed receiver is a neutral third-party entity who works on behalf of the company and its creditors to secure mutually beneficial agreements. By communicating with a neutral receiver, the corporation and its creditors are more likely to reach a favorable understanding and in less time than under bankruptcy proceedings. Because the process of receivership begins quickly, many employees are blindsided by changes in the corporation, such as involuntary terminations and cuts in benefits or wages.

Fast Fact

Court-appointed receivers are officers of the appointing court; they do not act as fiduciaries for creditors (that is, protect the interest of those who are owed money) as debtors and trustees do in bankruptcy cases.

A receiver has the flexibility to develop strategies to pay company debts typically unavailable under bankruptcy. More money may be secured for creditors and stockholders, potentially saving the company from closing. However, depending on the proceeds from asset sales and amounts owed for secured and unsecured debts, not all creditors and stockholders are paid during liquidation.

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