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What Is the Difference Between Receivership & Liquidation?

All business owners naturally fear the terms "receivership" and "liquidation". Oftentimes, these terms are used interchangeably to describe the downfall of a company. That comparison is misleading. While it's true that appointing either a receiver or a liquidator indicates that a company is in serious financial trouble, there are crucial differences between these two processes. In this article, we'll discuss what receivership and liquidation have in common and what sets them apart.

Defining Receivership & Liquidation

In a previous blog article, we explained that receivership is a debt restructuring process. A court-appointed receiver is a neutral, third-party professional whose duty is to manage the company's assets during the lawsuit in an effort to repay creditors and resume profitable operations.

Liquidation, also known as "winding up", is the process in which a liquidator collects and sells the company's assets and then distributes the proceeds among the creditors to pay off debts owed. Once the interests of the creditors are met, the company is officially dissolved.

What Do Receivership & Liquidation Have in Common?

  • Management Relinquishes Control. The company's management will need to step down and hand over legal control of their business operations and its assets to either the receiver or the liquidator.
  • Repaying Debt is the Primary Objective. The ultimate goal of both court-appointed receivership and liquidation is to pay off accrued debts to all of the company's creditors, according to their priority.
  • Each Process is Well-Documented. The appointed professional, whether a receiver or a liquidator, is responsible for regularly filing reports to document the company's progress in repaying debts.

What Sets Them Apart?

  • The Outcomes. Receivership offers an insolvent company the opportunity to recover and resume business operations. Once the receiver has fulfilled their appointed role, the company can oftentimes be handed back to its directors and shareholders. In contrast, liquidation always ends in the termination of the business and its removal from the registrar of companies.
  • Whose Interests are Represented. A court-appointed receiver acts on behalf of both the company and the creditors in order to reach repayment negotiations that benefit both parties. A liquidator, on the other hand, purely represents the interests of the creditors and shareholders.
  • Management's Involvement. In receivership, the owner of a company maintains a limited role in the debt restructuring process. Liquidation completely eliminates the roles of the owner and directors and operates without their input.
  • Trading Ability. Since a receiver strives to keep the company afloat and viable, they can continue to trade while receivership takes place. A liquidator cannot continue trading.

How Can Dottore Companies Help?

If you are a business owner faced with the decision of receivership or liquidation, contact us. Dottore court-appointed receivers have helped to restructure and save hundreds of companies in Northeast Ohio and throughout the United States. With our expert guidance and direction, your company can avoid liquidation!

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