Receivership Defined. A receiver is an independent person appointed by the court upon the written application of a judgment creditor. The receiver is a neutral party, charged with the responsibility of fulfilling his/her duties in a manner fair to all parties interested in the property being effected by the receivership. In other words, a receiver is a neutral fiduciary who is supposed to "do what,s fair.
Any disinterested person may be appointed as a receiver, as long as they are not affiliated with an attorney or party, or related to the judge hearing the application for appointment, within the third degree of consanguinity (no close cousins).
Practically speaking, however, there is a large body of professionals who are available for appointment, and most of the larger counties maintain a list or "panel from which to select a receiver. In counties where there is no panel, parties may select any qualified person to serve. In choosing a receiver, you should be mindful of the specific functions that the receiver is expected to perform in the context of a particular business or case, and try to utilize a person experienced in that type of activity.
For example, if you are seeking the appointment of a receiver to liquidate the inventory of a clothing manufacturer you would look for someone with different qualifications than a receiver appointed to quickly sell off perishable foods.
When is a Receiver Appointed? The appointment of a receiver is traditionally viewed as an "equitable remedy. This means that when a judgment creditor can prove to the court that "legal remedies such as an abstract of judgment or bank levy are not sufficient to protect his/her interests (i.e., food rotting in a warehouse or the sale of regulated assets such as a liquor license where the creditor cannot act directly), the court may appoint a neutral person to come in and act quickly.
This traditional common law theme is reflected in the statutes which authorize the appointment of a receiver under certain specific circumstances. The traditional equitable considerations are still followed by most courts in deciding whether to appoint a receiver. If the court is convinced that more traditional methods of judgment satisfaction are adequate, a receiver may not be appointed even though a statute may state that one should be appointed.
For a judgment creditor to obtain the appointment of a receiver, the court considers the interest of both the creditor and the debtor, and must find that the appointment of a receiver is a reasonable method to obtain a fair and orderly satisfaction of the judgment. It is not necessary for the creditor to show that an earlier writ of execution has been returned unsatisfied to make application for the appointment of a receiver. If the case warrants fast action, the immediate application may be the wise course of action.
Another factor considered by the court in determining whether to appoint a receiver is whether the property subject to disposition is in danger of being damaged unless a receiver is appointed. If there is imminent danger of the property being damaged, resulting in it not having enough value to fully discharge the judgment, a creditor may decide that it is worth the added cost of appointing a receiver to protect against the potential loss of value to the property. In fact, the court may rely on this factor in appointing a receiver in a close case.
Since the receiver is a "neutral party, the law requires that both the receiver and the party seeking his/her appointment obtain a bond. This is fairly expensive, relative to other forms of judgment enforcement. For example, compare this with the issuance of a writ of attachment which only requires one bond.
What Does a Receiver Do? Receivers generally act in the place of business of the judgment debtor, act on the property in the possession of the judgment debtor available for liquidation for satisfaction of your judgment, and do so as a "neutral party acting under the authority of the court. As you can imagine, receivers have many uses, and are not limited to post-judgment enforcement. One of the common situations in which the appointment of a receiver is sought is where a secured creditor with a lien against income producing real property seeks to have a receiver appointed to collect income generated by the property. This procedure is generally provided for in most lender,s loan documents in order to protect real property pending foreclosure.
Receivers are paid for from the assets being effected by the receivership. So for example, before utilizing a receiver you should consider whether the assets being liquidated can cover both the amount of your judgment, and the cost of the receiver. In the situation of a real property receiver, a creditor contemplating appointment of a receiver must consider whether the property will generate sufficient income to pay all of the expenses, including the added expense of the receivership.
Another use for a receiver is to maintain the status quo pending completion of post-judgment collection activity, or post-judgment third party litigation. Judgment debtors frequently transfer assets post-judgment in order to avoid execution. Pending post-judgment execution events, a receiver may be appointed to keep things in place if there is a risk of this type of fraudulent transfer activity going on. Receivers are also used to wind up the business affairs of dissolving partnerships or other business entities, and sell off the assets of the entity in a neutral and fair manner.
Advantages to Utilizing a Receiver. There are a number of advantages in utilizing a receiver as an aid to enforcing and protecting the rights of judgment creditors. One distinct advantage arises in the context of perishable goods. Let,s say you have just received a judgment against a food broker, and you know that there are twelve truckloads of avocados sitting in the debtor,s warehouse. The ordinary procedure of obtaining a writ of execution, providing instructions to the levying officer (the sheriff or marshal), executing the writ, transferring possession, advertising the sale, etc., may take forever compared to the shelf life of the avocados.
In this case, if the judgment creditor can demonstrate to the court that the avocados are subject to execution, and that waiting for ordinary process will result in "guacamole, the court may appoint a receiver to immediately take possession of the avocados and sell them before they turn into goo. Use of a receiver in this situation may be the only way to ensure that the perishable property does not decline in value pending the outcome of the execution.
In some circumstances, a receivership may be the only way to realize proceeds from the disposition of certain types of assets. For example, appointing a receiver is the only means of applying a judgment debtor,s interest in an alcoholic beverage license to satisfy a money judgment because "ownership of the license cannot pass directly to the judgment creditor. A receiver can sell the license to a third party buyer without running the risk that the sale itself will render the asset worthless (forfeiture of the license for improper "transfer to the judgment creditor before sale).
There are many other examples, but you get the point. Under the right circumstances, a receiver may be the only way to effectively proceed.
Cost of the Receiver Added to the Judgment. One particularly important advantage to using a post-judgment receiver is that receiver,s fees and costs incurred in enforcing and collecting a judgment may be added to the amount of the judgment. This factor may have a secondary benefit of motivating a judgment debtor to cooperate in the collection of the judgment since the collection "cost is that much higher to the judgment debtor. If there is equity in the property being disposed of, or an ongoing business is involved, the judgment debtor will want to get the receiver out as soon as possible. The one sure way to do this is to promptly pay your judgment.
Also, examine the situation where your judgment does not include an award of attorneys, fees. Here, it may make good business sense to utilize a receiver in conjunction with an attorney to collect your judgment in order to reduce post judgment attorneys fees, as well as pass most of the cost of collection along directly to the judgment debtor through the receivership costs.
Disadvantages to Having a Receiver Appointed. Like all things (well, most things) the utilization of a receiver has some disadvantages. Unlike the issuance of a writ of execution and the recording of an abstract of judgment, which are fairly ministerial and inexpensive, applying to the court for the appointment of a receiver, and then actually putting a receiver in place, is a costly process.
This additional layer compounds collection costs, and may result in your further outlay of time and money before you see penny one towards satisfaction of your judgment. The corollary advantage, however, is that under appropriate circumstances this additional cost may be unavoidable, and may actually result in a recovery where otherwise there would be none.
Another risk of using a receiver is that if the efforts of the receiver result in the generation of insufficient funds to pay the receivership costs, the creditor requesting the receiver must pay those costs. It is therefore important to carefully analyze what the expected value of the property or proceeds will be before you decide to seek the appointment of a receiver.
Conclusion. As stated earlier, the receivership process is complex and expensive. Before seeking the appointment of a receiver you should consider the factors discussed here, and, of course, consult with counsel. The appointment of a receiver is a powerful weapon in the collection arsenal. Prudent use of this device may yield excellent results. |
