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Court-Appointed Receivership: What It Is and Five Reasons Why It's Better Than Bankruptcy

Receivership is a form of debt restructuring that helps the company in dispute avoid bankruptcy or liquidation while the lawsuit is in progress. The receiver is a neutral, legally-appointed professional who is entrusted to manage a company's operations, finances, and property in the event that they default on their loan payments.

The main goals of receivership are to:

  • Repay debts to creditors
  • Negotiate with creditors to secure lower interest rates
  • Maximize profits
  • Enforce compliance with government standards and regulations
  • If necessary, hire new management to run the business more efficiently and profitably

The Role, Rights, and Powers of the Receiver

A receiver's role is to assess a company's viability, creditors investments, and existing debt in order to develop a strategy to repay what is owed without completely liquidating the company. The ultimate goal is to bring the business into a period of financial recovery. However, the receiver has the right to take possession of and sell property or other assets as a way to pay creditors and reduce debt, as well as to collect company income from profits for disbursement to creditors.

Other powers include maintaining a bank account, entering into leases, deeds, and contracts, and engaging in any other business activity that is deemed necessary and reasonable to ensure the maintenance of the property during the court process.

Privately-Appointed Receivers vs. Court-Appointed Receivers

The key difference between the two types of receiver is whose interests they represent. Privately-appointed receiver only act on behalf of the creditor (usually a bank) that appointed them to reclaim the money it is owed, similar to trustees in bankruptcy cases. Court-appointed receivers, on the other hand, are neutral third-party officers of the appointing court. They work on behalf of both the company in debt and its creditors to reach a mutual agreement that benefits all parties involved, ideally with the aim to repay debts while continuing to maintain business operations.

Five Reasons Why Court-Appointed Receivership is a Preferred Alternative to Bankruptcy

1. Less Expensive

When there are not enough funds or assets available for the insolvent company to afford filing for bankruptcy, creditors and lenders often seek receivership. Although the receiver charges a fee for managing the debt payment process, pursuing receivership is considerably less expensive than funding a bankruptcy proceeding. Receivership requires fewer hearings, filing requirements, and fees, which translates into lower court costs and expenses for each party.

2. Neutral Third Party

A court-appointed receiver offer professional suggestions and a fresh perspective that the Plaintiff(s) and Defendant(s) re more likely to trust and respect. Because a court-appointed receiver works as a mediator to preserve the company's property and other assets while restructuring debt to repay creditors, both parties' interests are represented and a mutually favorable outcome can often be reached much more quickly and easily than under bankruptcy.

3. Greater Flexibility

When managing the assets and liabilities of a company under litigation is beyond the scope of bankruptcy, receivership is preferred. A receiver can develop and implement strategies for paying company debts with a simpler process that is typically unavailable under bankruptcy. Debt restructuring and improved asset management can secure more money for creditors, lenders, and stockholders, which can potentially save the company from liquidation.

4. Less Publicity

A company under bankruptcy is required to file report of their assets, liabilities, and finances with the court. Under receivership, however,  since state court pleadings are typically filed in paper format, they are less readily available to the public. Receivership therefore minimizes negative publicity and avoids the stigma associated with bankruptcy that could tarnish a company's reputation and result in a loss of customers.

5. Shorter Proceedings

Bankruptcy imposes significant procedural requirements on all parties. Conversely, receivership require fewer hearings and less documentation than bankruptcy, as mentioned earlier. The ABF Journal explains  that with receivership "there is no Section 341 creditors' meeting, no requirement to file a plan and disclosure statement, no solicitation process or confirmation hearing." Receivership thus streamlines and expedites the court proceeding, allowing all parties to reach a mutually agreeable outcome more quickly.

Dottore court-appointed receivers have reached successful settlements in hundreds of cases throughout Northeast Ohio and across the country. In virtually any case, Dottore receivers step in to streamline business and legal processes and fight to ensure that a positive outcome is reached every time. If your company is facing potential bankruptcy, contact Dottore Companies today to get your business on the road to recovery.

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