Receivers And Receivership

August 13, 2023

A receiver is a court-appointed person who (typically) takes over a judgment debtor’s business on behalf of the court, keeps it alive and runs it; and then sells the business’s available profits and assets to pay its debts and the creditor’s judgment.

One of many judgment-related articles: I am not a lawyer, and this article is my opinion based on my experience in California, please consult with a lawyer if you need legal advice.

Receivers are typically used in situations where a business has assets that are not easily sold by the County Sheriff. If the debtor company is in a receivership status already, the current receiver might tell you that there are no longer any assets at that address.

A receiver could be appointed to liquidate assets such as real estate. Usually, it is easy to get a judge to agree to appoint a receiver, because a receiver protects the market value of the property to be liquidated; unlike a regular sheriff auction sale.

Examples of when a receiver would be hired (at a considerable cost), is when a judgment debtor owns assets such as real estate, a coin collection, an animal breeder, or a mechanic with tools and/or machinery. A receiver would make sense to many judges, who would look at the debtor with compassion because they are trying to do the debtor a favor by protecting the value of the assets, more than just grabbing them would.

Some assets lend themselves to the remedy of using a receiver, more than others. Examples of where a receiver might be used include selling alcoholic beverage licenses, patents, a judgment debtor’s stock interest in a closely held corporation, or in a limited liability company.

Because of the high cost of appointing a receiver, courts will usually require a strong showing of good cause. They should used for judgments that are for at least $50K, or in cases where the debtor owns a liquor license or owns a patent, or where having a receiver appointed is the only viable or allowed remedy.

A receiver has much more latitude in a judgment collection effort than the sheriff does. The sheriff can seize, levy, attach or otherwise take control of assets. A receiver can manipulate the assets as needed. A receiver has the court authority to do whatever needs to be done to make payments toward the judgment possible.

A receiver can put the debtor’s business into liquidation mode. This means running it at a loss; in order to maximize the value of the company’s assets, instead of liquidating those assets at auction prices.

State legislators should consider promoting the use of receivers in their collection codes, because using them would benefit both the creditors and debtors. A receiver can get the fair market value, rather than only take whatever a forced auction might bring.

I know of a case where a receiver was appointed; and they walked into the debtor’s company office one morning, took control of their bank accounts, the cash on hand, the business’s computers and other assets; and in just one day, had control of enough assets to pay the creditor’s judgment.

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