What is Receivership?
Receivership is a step in which a trustee is legally appointed to act as the custodian of a company's assets or business operations. It's typically invoked during legal proceedings, with the goal of returning the company to a profitable state and thereby avoiding bankruptcy. Typically appointed by a bankruptcy court, creditor, or governing body, the receiver is usually given the ultimate decision-making power over company assets, including the authority to cease dividend or applicable interest payments. The company's directors remain as material contributors, but their authority is limited.
Receivership is used to restructure a company and avoid bankruptcy, if possible; conservatorship is when an individual is incapacitated or a minor and someone is appointed to manage their financial affairs and more, if necessary.
The receiver assumes management of the associated business's assets and properties, customarily working to restructure the company and avoid complete liquidation of all assets. The receiver may choose, though, to shed select assets with the goal of paying some creditors and bringing the company into a period of recovery. The receiver also ensures that all previous company operations comply with government standards and regulations while maximizing profits.
Should these efforts fail—or be seen as insufficient from the start—a court may order the liquidation of assets. All company assets are then sold, with oversight from a liquidator who acquires the funds to repay creditors. Upon completion, the company ceases to exist.
A related status in which a trustee is also appointed is known as conservatorship. However. in these cases the appointment is generally due to a person being incapacitated or a minor. When needed, this responsibility may extend beyond finances and assets to overseeing the person's physical care and living conditions.