A partnership falls apart. A lender stops trusting management. A regulator finds enough evidence of fraud to act. In each case, one of the interested parties can file a motion asking the court to place a business, property, or set of assets under the control of a neutral third party. That process is called a receivership.

For the parties involved, the questions that follow are usually the same. What does the receiver actually do? How long does it last? Will the business survive? Here is a straightforward guide based on 20+ years of doing this work.

A Receivership Practice Built on Hundreds of Court-Appointed Engagements

Our partners have acted as receiver, financial advisor to receivers, partition referee, liquidating trustee, and independent fiduciary across hundreds of court-appointed engagements. Our work spans matters involving single-property cases to multi-hundred-million-dollar disputes.

Examples from our caseload include:

• A $300 million real estate portfolio of eight large properties, with Howard Grobstein acting as an independent fiduciary
• A federal equity receivership in which Josh Teeple was appointed by the Federal Trade Commission over a subscription business that violated consumer protection rules
• Howard Grobstein was appointed by court’s special master to calculate and segregate worldwide net income involving an intellectual property dispute between two international toy manufacturers
• Financial advisors to a receiver wherein we conducted the day-to-day operations, financial reporting, and sales of six large car dealerships

Receiverships rarely look the same from one case to the next. The thread that runs through all of them is neutrality, financial expertise, and court supervision. That is the lens GT works through.

The Two Roles GT Play

In any given receivership, GT steps into one of two positions. Both require the same financial discipline. The difference is who holds the court-appointed authority.

Acting as the receiver

When the court appoints one of GT’s partners as receiver, GT assumes custodial control over the business, property, or assets in question. From that point forward, the receiver answers to the court alone. Even the party that filed the motion to have GT appointed cannot expect favorable treatment.

Howard Grobstein explains, “Even though one party got you appointed and they were the ones that filed the motion, you are now neutral, and you can’t favor one side or the other.”

The receiver usually is given the authority to retain other professionals, including lawyers, financial advisors, real estate brokers, and others necessary to satisfy the objectives of the receivership.

Acting as the financial advisor to a receiver

In many cases, the appointed receiver is a lawyer or a business specialist who needs accounting and forensic consulting capabilities behind them. “That is where much of our receivership work sits,” Josh Teeple puts it plainly. “We often act as financial advisors and accountants to receivers.”

In that role, GT typically handles the forensic reconstruction, monthly financial reporting, and tax compliance for the receiver.

The Receivership Process

A receivership begins with a motion and ends with a court discharge. The path between those two points is where all the challenging work is performed.

1. A motion to appoint a receiver is filed

A party files the motion with the court providing evidence supporting the request. A lender will show that its collateral is at risk. A partner may show they have been cut out of the business. A regulator will present evidence of fraud or regulatory violations. 

2. The court rules on the motion

The judge has three options. They can deny the motion, continue it pending further evidence  or modification of the receiver’s potential duties, or approve the motion. The moving party usually submits a draft order spelling out the receiver’s authority.

3. The order defines full or limited authority

The judge can grant a full receivership or limit specific powers and create a limited receivership. When the scope is narrowed, the parties must weigh whether the limitations of  authority are sufficient to achieve the objectives of the receivership.

4. The receiver takes control immediately

Once appointed, the receiver is responsible for the business from that moment. Cash and accounts are secured. Records are reviewed. Operations are stabilized or wound down depending on the order.

5. The receiver reports to the court

Detailed accounting, regular status reports, and approval of any major decisions flow through the court throughout the process.

6. Resolution and discharge

The matter resolves through a sale, a buyout, a distribution to creditors, or a transition to bankruptcy. The receiver is discharged when the court is satisfied that the mandate has been fulfilled.

What Triggers a Receivership

There are three primary reasons a receiver gets appointed.

A dispute between owners, shareholders, or partners

A receivership is often the result of a dispute between business owners. One party feels aggrieved, has lost access or control, or believes the other side is mismanaging or siphoning money. They go to court and ask for a neutral receiver to step in while the underlying dispute is litigated.

A lender protecting its collateral

A bank or secured lender becomes concerned that the business securing its loan is being mismanaged. Rather than wait for the borrower to fail, the lender files a motion asking the court to appoint a receiver to protect the collateral. This is one of the most common types of receivership.

Regulatory enforcement by a government agency

The Securities and Exchange Commission, the Federal Trade Commission, the FBI, or a similar agency builds a case against an entity for fraud or for violating regulatory rules. They typically go to court on an emergency basis and ask for the appointment of a receiver. These are sometimes called regulatory receiverships.

Other types

Courts also appoint receivers in narrower contexts. A rents and profits receiver collects rents on a building when a lender is concerned about its collateral. A partition referee is appointed to sell a property when co-owners cannot agree on the disposition of the real estate. A health and safety code receiver is fast-tracked at the county or state level when a building fails safety standards. These engagements are typically smaller in scope than the three primary categories above.

The two processes can intersect. A receiver may have an obligation to put a company into bankruptcy if the situation calls for it. A bankruptcy court can sometimes allow the receiver to continue serving as the trustee. They are separate court systems running on separate tracks, but a single matter can move between them.

What Happens to the Business During a Receivership

When the receiver is appointed, existing management typically loses control. The receiver makes decisions about operations, staffing, contracts, and assets. In some cases, the business continues to operate under the receiver’s supervision. In others, the receiver begins an orderly wind-down or sale.

The receiver’s job is to manage the transition in a way that preserves value and fulfils the court’s mandate. Throughout the process, the receiver is accountable to the court, not to any individual creditor or owner.

Frequently Asked Questions

What is the difference between a trustee and a receiver?

A trustee is appointed within the bankruptcy system, usually to manage a financially distressed company through bankruptcy or liquidation. A receiver is appointed by a court outside the bankruptcy system, usually in a civil dispute, a lender enforcement action, or a regulatory matter.

Can a business survive a receivership?

Yes. In a partner dispute, one partner may end up buying the other out. In a lender case, the business may be sold as a going concern. In a regulatory case, a sale or wind-down is more likely. The outcome depends on the type of receivership and what the court orders.

How long does a receivership last?

A simple property receivership might last a few months. Regulatory receiverships and complex business cases involving litigation, tax issues, and multiple creditor claims can run for years. The receiver is discharged when the court is satisfied that the mandate has been fulfilled.

Who pays for the receiver?

The receiver is generally paid from the assets under receivership, and the compensation is subject to court approval. Where there is no operating business, the secured creditor or the moving party can fund the work, sometimes through receiver certificates that document  loans to the receivership estate.

What triggers a receivership in real estate?

The most common trigger is a loan default on a commercial or income-producing property. The lender files a motion asking the court to appoint a receiver to take control of the property, collect rents, and preserve the asset’s value during a sale process.

When You Need an Experienced Receiver

The judge and the receiver appointed in the case will set the tone for everything that follows. Experience, neutrality, and financial depth are essential qualities for a receiver in any type or size matter. 

GT’s professionals regularly assume the roles of receiver, provisional director, partition referee, financial advisor to the receiver, and financial advisor to outside parties involved in the receivership. GT also serves as liquidating trustee, estate trustee, and disbursing agent. We turn complicated financial problems into practical solutions and stay with you from the first court order through to discharge.

If you are an attorney, lender, or business owner facing a situation that may involve a receivership, it’s go time. We go all out for you.

Contact us to speak with a receivership expert.

We provide expert restructuring and insolvency services coast to coast. Learn more about our Restructuring and Insolvency practice or our Independent Fiduciary services.