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Q: What is a Court-appointed Receiver?
A: A receiver is the one placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights. Once appointed, the entities of which he is receiver are said to be in receivership?
A receiver is more than the agent of the company. For all practical purposes his role supersedes existing management authority of the entity. The receiver controls all of the assets over which he is appointed, most often being all of the property of the business. The practical effect, therefore, is that only the receiver can run the business, or otherwise deal with the assets. The directors retain their statutory reporting responsibilities and must work with the receiver to fulfill them.
Q: Who determines the Receiver’s authorities?
A: A receiver’s powers flow from the court order.
Q: Who is eligible to request a Receiver?
A: Although court-appointed receivers are most often based on the petition of a secured creditor, anyone with a valid and quantifiable interest in the company can seek a court appointment of a receiver.
Q: Who makes a good Receiver?
A: Receivers must have an inherent understanding of the law, be quick on their feet, resourceful, ingenious and good business managers.
Q: What does a Receiver do?
A: A receiver is responsible as a fiduciary for all of the assets of the receivership. His goal must be to maximize returns from these assets, either through a going-concern sale or liquidation. A receiver’s first actions are aimed at possession, protection and preservation of the assets. An exhaustive discussion of all aspects of these actions is beyond the scope of this article.
Below are some key steps and considerations in this process:
1. Identification of all of the assets and their location(s). This includes bank accounts, accounting records and all other property.
2. Taking possession of the assets, including, as necessary, written notices, changing locks, placing security guards, mail redirection etc. A receiver is fiducially responsible for the receivership assets as soon as he becomes aware of his appointment. As a result, he must move expeditiously in the possession process to avoid any loss and potential negligence.
3. Reviewing insurance policies to be sure they are in force and adequate. Arranging for new or additional insurance as appropriate.
4. Outstanding sales and purchase orders are not binding on the receiver unless he elects to accept them. As a result, in operating environments, incoming goods should be segregated. This will ensure appropriate treatment of pre- and post-receivership obligations.
5. Completion of an inventory of the assets, including accurate descriptions, serial numbers, etc. Depending on the size of the enterprise, this can take some time to finalize and, as a result, might continue after other initial steps are complete. This step also includes obtaining independent valuation(s) of the assets on an appropriate basis to be used in the receivership.
6. Opening new bank account(s) and setting up and maintaining new accounting records.
Q: How do you know what is going on with your Receivership?
A: Reporting is a critical component of any receivership. A receiver should report on some regular cycle appropriate to the business and the purpose of the receivership. Normally this will be in the Court order and can be anywhere from every 30 days to as few as every 90 days depending on the Court.
Special considerations on court appointed receivers
For obvious liability reasons, banks and others do not make receivership applications lightly. When they move for a receiver, it is most often because there are underlying urgent commercial issues. In most circumstances, a receivership order should be granted on application. Always keep in mind, that the Receiver is an independent fiduciary responsible to the court, with an equal duty to all stakeholders to make commercially reasonable and supportable decisions.
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