What Is a Receivership?

A receivership is a court-appointed tool that can assist creditors in recovering funds in default and help troubled companies avoid 澳洲幸运5官方开奖结果体彩网:bankruptcy. Having a receivership in place makes it easier for a lender to ob🌺tain the funds that are owed to them if a borrower defau💦lts on a loan.

A receivership may also occur as a step in a company’s 澳洲幸运5官方开奖结果体彩网:restructuring process that's initiated to return a company to profitability. It could🗹 arise as a result of a shareholder dispute over completing a project, liquidating assets, or selling a business.

How Receiverships Work

A receivership is generally a process that's put into place to protect a company. A period of receivership can be thought of as a protective umbrella for a troubled company. A receiver, or trustee, steps in to manage the entire company, its ass♉ets, and🔯 all financial and operating decisions during this time.

The company’s principals remain in place as material contributors while the⛎ receivership is operative but their authority is limited.

A receivership was traditionally intended to help 澳洲幸运5官方开奖结果体彩网:creditors recover amoun♔ts outstanding under a secu💧red loan if a borrower defaulted on its loan payments. Receiverships are one of the most powerful solutions available to aid creditors.

They're also used by companies in financial distress. They can be part of a company’s restructuring process. A receivership can help when a company makes significant changes to its financial or operational structure, typically while under financial duress. A receivership can be used when a company is headed toward bankruptcy.

A receivership itself isn't a legal process but it's usually invoked during legal proceedings. Either the secured creditor (lender) or a court of law appoints a receiver to act as trustee of a business. Privately appointed receivers will generally act only on behalf of the secured creditor that appointed them. Court-appointed receivers act on behalf of all creditors.

The receiver must be an independent party with no prior business relationship to either the borrower or the lender. They can never act for the benefit of one party and to the detriment of another.

Responsibilities of a Receiver

The appointed receiver generally has ultimate decision-making power over the company’s assets and management decisions in the case of a restructuring. This includes the authority to stop paying dividends or applicable interest payments. The receiver also ensures that all company operations comp🌄ly with government standards and regulations while still maximizing profits.

The receiver customarily works with the company to help avoid bankruptcy. A receiver may choose to shed select assets to pay some creditors and to bring the company i🐲nto a period of recovery.

The court may order that a company’s assets be 澳洲幸运5官方开奖结果体彩网:liquidated if these efforts f♍ail to achieve the purpose of the receivership or be seen as insufficient from the start. A liquidator would oversee the sale of assets and collect the funds to repay creditors in this case. The company would cease to exist when the assets are all sold.

Bankruptcy vs. Receivership: How🐎 Are They Different?

Confusion over the terms “bankruptcy” and “receivership” is quite common but the fundamental diff🔯erences are fairly straightforward.

Bankruptcy

Bankruptcy is an action that’s usually taken to protect a debtor frꩵom collection actions by creditors. Bankruptcy courts and rules are primarily aimed at shielding the borrower, not the lender.

A company might file for 澳洲幸运5官方开奖结果体彩网:Chapter 11 bankruptcy when it wants time to solve its financial problems while maintaining business operations. It’s generally for the purpose of liquidating and closing a business when a company files for 澳洲幸运5官方开奖结果体彩网:Chapter 7 bankruptcy.

Receivership

Unlike bankruptcy, a receivership isn't a legal action but rather an adjunct solution. In the case of a secured lender, a receivership is designed to protect the borrower’s assets that represent the loan during an interim period until the creditor’s claim is resolved by a court.

The secured lender asks the court to protect its security (collateral): land, buildings, business income, or cash. An independent party is put in charge of the assets 🌱and remains in possession and control of them until discharged by the court.

The Bottom Line

Receivership is a court-appointed remedy that may be used to assist creditors in recovering funds due to them when a company is unable to make payments on a loan. It can keep a company out of bankruptcy as it restructures due to financial hardship. But receivership is not bankruptcy. It's considered a temporary phase of necessary oversight by a trustee until a company resolves claims against it by lenders and/or regains its financial footing.