DEFINITION of 'Receiver'

A receiver is a person appointed by a bankruptcy court or secured creditor to run a company for a short period of time. A receiver's main function is to liquidate all available assets and ensure as much debt as possible is paid back to creditors. When a receiver is appointed, the company is said to be "in receivership."


Receivership is an alternative to filing for bankruptcy and potentially a better option for companies facing difficult financial times. The receiver takes possession of all corporate assets and associated operational, insurance and tax aspects, and then decides to sell the business or close the company and sell its assets to restructure its debt and improve operations. Shareholders receive money only if funds remain after payment of all corporate debts.

Receiver’s Responsibilities

A receiver notifies creditors of the receivership, and then reviews the corporation’s financial condition and operations to determine issues leading to insolvency. If the company needs liquidation, the receiver sells the assets secured under each contract, deducts the receivership’s fees and expenses and distributes proceeds to creditors on a priority basis. If proceeds from selling assets are insufficient when repaying liabilities to secured creditors, no realizations are available for unsecured creditors.

If restructuring debt is possible, the receiver negotiates terms with creditors and creates a plan to repay the company’s debts. He also places new company management for a fresh perspective and approach in running the corporation more efficiently and profitably. The receiver monitors the new management team and submits monthly status reports to the company, its creditors and the court on the corporation’s progress.

Pros and Cons of Being Appointed a Receiver

A court-appointed receiver is a neutral third party working on behalf of the company and its creditors to secure an agreement benefitting both parties as much as possible. By communicating with a neutral receiver, the corporation and its creditors are more likely to reach an agreement in a shorter amount of time than by filing for bankruptcy. However, the process of being assigned a receiver begins quickly, and the company loses all control over assets and daily operations. Due to management replacement, employees may lose their jobs and incomes.

Assigning a receiver requires less paperwork and fewer court proceedings, resulting in a lower cost, quicker process and less stigma when compared to filing for bankruptcy. A receiver takes advantage of his flexibility in developing strategies for paying off company debt not permissible under bankruptcy rules. More money may be secured for creditors and stockholders, potentially saving the corporation rather than selling it. However, depending on 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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