What is 'Receivership'

Receivership is a process in which a legally appointed receiver acts as custodian of a company's assets or business operations, as with bankruptcies. A bankruptcy court, creditor, or governing body may appoint a receiver. In most cases, the receiver is given ultimate decision-making powers and has full discretion in deciding how to manage received assets.

BREAKING DOWN 'Receivership'

A receivership provides a business with the opportunity to restructure, and avoid liquidation, through use of a court-appointed trustee, known as a receiver, to oversee business operations. The receiver assumes rights over the associated business' assets and properties and has the authority to cease dividend or applicable interest payments. The company's directors remain as material contributors, but their authorities are limited.

Receivership Responsibilities

The enactment of a receivership allows a chance to review a failing company's practices. The receiver will work to restructure the company, manage the assets and obligations, and bring the company into a period of recovery. Under the authority of the receiver, certain assets may be liquidated. The goal of receivership is to protect threatened property and assets during legal proceedings and to return the company to a profitable state, thereby avoiding bankruptcy.

Other than receivership, the most common method to resolve a bankruptcy is through liquidation, which is the selling of all assets. The process of liquidation occurs if corporate restructuring will not salvage a company's operations. A court may order the liquidation of assets. This process involves selling the company's assets with oversight from a liquidator who acquires the funds to repay creditors. Upon completion, the company will cease to exist.

Some situations require a receiver to oversee operations while looking for a buyer of the business. The receiver ensures that all previous company operations comply with government standards and regulations while maximizing profits.  For example, Park West Lodge nursing home continued most of its standard operations while the appointed receiver worked to find a buyer. The Park West Lodge receivership was necessary after the company failed to secure a buyer on the death of the primary shareholder.

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