Courts can place a corporation under the control of an independent person, the receiver, so that the business can be preserved during litigation or to help creditors get paid. The judge’s appointment will describe the receiver’s powers and obligations. As an officer of the court, the receiver is answerable to the judge and subject to the court’s orders.
Receivers can be appointed in disputes among corporate shareholders or in LLC disputes among members. Receivers are often requested when those in control of a business are misappropriating or wasting corporate funds, or imperiling customer, vendor, or investor relationships.
There are three main types of receivers: provisional directors, statutory receivers, and custodial receivers. A provisional director is appointed by the court to settle disputes or ties between shareholders when a deadlock exists among them. A custodial receiver is appointed to manage the affairs of a corporation during litigation. Finally, when a corporation is experiencing financial difficulties, the court can appoint a statutory receiver. This receiver acquires legal title of the corporation’s assets and is empowered to dissolve and wind up the corporation’s affairs. Courts generally only appoint statutory receivers when a business is being operated in a manner that prejudices the corporation’s creditors.
Choosing the proper receiver can be crucial to ensuring the longevity of a business. If the parties seek to take that decision out of the court’s hands, the parties can file a motion to select a mutually agreed upon receiver to manage the corporation. Second, the receiver can objectively listen to both parties to a dispute and seek to implement changes to pacify both sides. Third, the receiver can make the operations of the corporation transparent, enabling the parties and the judge to examine the operations of the corporation in resolving the underlying litigation that led to his or her appointment. Finally, a receiver can stop the looting of a business or an improper effort to destroy it.
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