Receiver Definition

A receiver is a court-appointed individual or entity responsible for managing and often liquidating the assets of a financially distressed company to satisfy debts and creditors.

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What is a receiver?

A receiver is a person appointed to care for your business when you need help managing your credit, property, assets, or operations. As an alternative to bankruptcy, a receiver acts as a neutral third party to preserve the value of the company. The receiver liquidates or reorganizes the business to pay off creditors and shareholders. Under the receiver business definition, when a court appoints a receiver, it is called a “receivership.”

When would you need a receiver?

If your business is behind on payments, your secured creditors can file a lawsuit to enforce their rights to the collateral. Additionally, as the owner of an insolvent business, you can motion for receivership as part of dissolution. In either case, the judge will consider the benefits of receivership to the business, creditors, and shareholders. The court order can limit the scope of the receiver’s power to named assets or extend it to the entire business. 

What does a receiver do?

Under the receiver definition, a receiver takes control of property and distributes its value to the creditors and shareholders. The receiver then executes a liquidation or restructuring of the business. If the receiver liquidates the assets, the value is then distributed to creditors and shareholders.

In a liquidation, the receiver sells the assets and distributes the proceeds to creditors on a priority basis. Secured creditors (those with collateral) get paid first. If any proceeds remain, the unsecured creditors and shareholders are paid last. 

If there’s a restructuring, the receiver suspends the Board of Directors and takes over the duty to make operational decisions. As a neutral third party, the receiver makes sure the business uses its assets efficiently. Once they pay off creditors, the receiver benefits by collecting a portion of the value as payment for their services.

What are the differences between a receiver and bankruptcy?

In both receivership and bankruptcy, an appointed person distributes the business value to creditors through liquidation or rehabilitation. However, a receivership is quicker, simpler, and less costly than filing for bankruptcy. Where bankruptcy is an extensive federal court process, a receivership only needs an individual court order. Also, a receiver usually charges a fee for their services, but it is less than the costs associated with bankruptcy. 

Receiver Advantages and Disadvantages

For a receiver managing the business, the definition of receiver means restoring the business to financial health whenever possible. Because the receiver works for the court, the receiver can secure more funds for creditors and stockholders. The receiver benefits the company by efficiently handling its affairs and developing debt-repayment strategies for the company. 

If rehabilitation isn’t achievable, liquidation can maximize the value of the assets of the failed business and distribute assets equitably. However, the assets won’t pay off all creditors and stockholders. Who gets paid depends on the proceeds from asset sales and how much you owe to secured creditors.

Because a receivership requires one court order, it can happen quickly. Thus, receiver disadvantages include surprising your employees with a quick consolidation or closing.

Receiver Examples

Regulated industries and insolvent corporations most often use receivers. Consider these examples:

  • Insurance
  • Securities
  • State jails
  • Federal home loans

A receiver is more common for regulated businesses, but a judge may appoint a receiver to manage any business if they determine one is necessary.

Summary: Receiver Definition

A receiver is a person who controls assets under a court order to help a business pay its debts. As an alternative to bankruptcy, a receiver can help the business avoid closure and return equity to creditors and shareholders.

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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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