What is a Receiver or a Receivership?

Often business or commercial litigation involves property that, while the lawsuit is going on, could diminish in value. That often happens with property that needs care or maintenance. These are the cases where a receiver may need to be appointed by a court.

What is a Receiver?

The best way to explain when a receiver is needed is to provide an example.

Let’s imagine that there is a lawsuit by a shareholder against a company, alleging that the company is being mismanaged, or that it is committing fraud, or that the owners of the company are self dealing.

While the lawsuit is going on, the company owners could allow the company to deteriorate. They may continue to siphon money from the company. Knowing they may lose the case, or even lose their company, they may allow company bills to go unpaid or not seize upon good business opportunities. They may spend corporate money on wasteful or unnecessary things.

But that shareholder suing the company is depending on the company being as healthy as possible when the lawsuit ends. After all, the shareholder has a continuing interest in the health and well being of the business.

The answer is to appoint a receiver to manage the business while the lawsuit is pending.

When is a Receiver Needed and What Does the Receiver Do?

Anything that takes regular maintenance—imagine, for example, a large rental property, where tenants need to be taken care of to avoid liability or rental losses—can have a receiver appointed by the court to maintain the property while the underlying case is going on.

Once appointed by the court, the receiver will take charge of the property and manage it the way the property’s owners or managers would. The owners and managers don’t immediately lose their title or position or their salary, but they will now have to answer to the receiver, an officer of the court, who will, at least temporarily, become “the boss.”

The receiver can generally manage day to day operations, but will need to seek court approval to make any major decisions, such as to sell property or take out loans or to expand or contract a business.

The receiver also will, if necessary, try to organize the company’s finances, and books and records, and then report back to the court on any problems or financial mismanagement the receiver may notice. The receiver can try, again with court approval, to resolve any lawsuits or disputes with customers, creditors or tenants that the company may be facing.

Receivers are doing a big job, and will get paid for their duties by one of, or both of the parties in a lawsuit. This can be a significant expense for parties.

Appointing a receiver is a significant thing, and can be a big expense, so courts don’t always do it in every case. Often, a full evidentiary hearing needs to be held, before a court will appoint a receiver.

Call the West Palm Beach commercial litigation lawyers at Pike & Lustig today if you have a commercial litigation case that may need a receiver, or if a court is trying to appoint a receiver in your case.

Sources:

floridabar.org/the-florida-bar-journal/floridas-new-commercial-real-estate-receivership-act-a-roadmap-for-judges-and-practitioners/

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0600-0699/0605/Sections/0605.0704.html