December 2009

What is Receivership?

by DWC Team on December 8, 2009

A receivership is a situation in which someone is appointed to take control of a distressed business, with the goal of preserving any business operations that are salvageable and recouping as many losses as possible. A number of situations can lead to a receivership. Sometimes, the creditors of a company insist on the appointment of a receiver, with the goal being as much preservation of assets as possible so that they will be repaid. In other instances, a court may appoint a receiver as part of the terms of a bankruptcy ruling. A government may also place a company into receivership. In the United States, for example, the Office of the Comptroller of the Currency has the authority to place banks under receivership if they fail.

Financial institutions, corporations, and regular companies can all be placed into receivership. While a company is in this state, its charter is typically left intact. The receiver has authority over the operations and disposition of the company, determining how, when, and where assets are to be sold. He or she may also have the power to make agreements with major creditors if it becomes clear that the company’s assets will not fully compensate all of the creditors.

Many people believe that once a company is placed into receivership, the assets of the company will be liquidated and company as an entity is dissolved. However, a skilled receiver often can continue the services the business provided without ever letting customers know there is a change in management. Using the revenue from the well-managed business operations, receivers can often help nurture a struggling business back to health rather than into bankruptcy.