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 seek to realize and secure assets and manage affairs to pay debts. For businesses, they try 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."
BREAKING DOWN 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 economy of action will result in lower costs for all parties.
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 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. They 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.
Pros and Cons of Being Appointed a Receiver
A court-appointed receiver is a neutral third-party entity, working 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 a bankruptcy proceeding. 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.
A receiver has the flexibility to develop strategies for paying company debts typically unavailable under a bankruptcy. More money may be secured for creditors and stockholders, potentially saving the company from closing. However, depending on proceeds from asset sales and amounts owed for secured and unsecured debts, not all creditors and stockholders are paid during liquidation.