Vail Daily column: Explaining receivership at law
OK, you think you know. Organized team activities have begun and football season is just around the corner. The Broncs own Demaryius Thomas is a receiver. Julio Jones, Antonio Brown, Larry Fitzgerald. Receivers, one and all. Right but, um… wrong.
Let’s try again. A “receivership” must have something to do, then, with the merchant marines. However ill-fated, the El Faro was a receiver ship. Well, maybe. But not at law.
So what, then, are these things in the wild world of law? What is a receiver and what is a receivership?
Allow me to explain.
A “receiver” is—now brace yourselves—someone who receives. Piece of cake. And you thought law was complicated.
But that’s just the start. At law, to “receive” means to take into possession and control. By that definition, to receive can either be lawful or not. To receive stolen property, for example, means to take stolen property into one’s possession and control, which is a legal no-no. A receiver is, however, different and is fully lawful.
For our purposes here, a receiver is a ministerial officer or agent who acts as the temporary occupant and caretaker of property for the court. He represents the court and is the medium through which the court may act. A receiver is neutral person who is appointed by the court to receive and preserve the property or certain funds which are the subject of on-going litigation. He may be appointed to receive rents, issues and profits, and apply or dispose of them at the direction of the court when it does not seem reasonable that either party to the controversy should hold them. Let’s say, for example, that there is a dispute over the ownership of a business, or at least who is entitled to what share of the proceeds of the business. A receiver may oversee the enterprise during the term of the dispute, collect the earnings, and hold on to them in the name of the court until the whole mess is sorted out.
A receiver is a fiduciary (that is, one who acts outside his own self-interest and on behalf of others), who is appointed by the court to oversee, manage and preserve property or interests when it seems likely that the contestants to the dispute are unlikely or unwilling to appropriately do so on their own. He acts neutrally as to all parties: owners, lenders and creditors. He is not the owners’ or lender’s agent but is instead an officer of the court and it is the court whom the receiver represents.
A receiver may be either a person appointed by a court to manage property in litigation or one appointed to manage the affairs of a bankrupt. In bankruptcy or state court proceedings, a receiver is empowered to take charge of the assets of an insolvent person or business and preserve them for sale and distribution to creditors.
Another way to think about this is that a receiver is appointed as the custodian of the assets involved in litigation. Title or actual ownership of the assets remains in the owner’s name, while the receiver acts as the managing agent of the property. Possession by the receiver is possession by the court for the benefit of the parties to the dispute.
Say you and I are partners in an undertaking. Together, we own an apartment building. We disagree about a lot of things, preeminently how to run the business: What capital improvements are necessary? What repairs are needed? What rent should be charged? What should be paid out as profits and what should be reinvested? In the immortal words of Rodney King, we just can’t get along. Ultimately, our disagreements lead to a lawsuit.
In such an instance, a receiver may be appointed to take the helm of our business and to run it until the suit is resolved. The receiver will take control, do what must be done and do their best to preserve and protect our assets while we duke it out in court. While she may feel like a bull in our china shop, in fact, she is charged by the court with looking out for our best interests and making sure the wheels or our personal commerce stay on the tracks.
A “receivership” may mean either the proceeding in which a receiver is appointed or the state or condition of a receiver having taken control. In the first sense, a receivership is the process by which the receiver is appointed. In the second, it is the fact that a receiver has been appointed and is currently in place.
When a receiver is appointed by the court, they are furnished orders that spell out—generally with great specificity—what he may or may not do. His powers may be very broad or more circumscribed.
Generally, receivers are not liable for the lender’s or the owner’s actions nor are they authorized to pay obligations existing prior to their appointment. As a fiduciary, a receiver cannot prefer one group of creditors over another. Prior lien holders are not to be enriched at the expense of general creditors. However, the receiver may seek judicial authorization to pay debts with creditors whose continued services are crucial to the operation of an on-going concern.
A receiver is required to use reasonable business judgment in the operation and control of the property. He may be appointed by the court during the dispute upon the application of either party when that party’s interest in the property is clear and where the party establishes that, absent appointment of a receiver, the property, or its rents, issues, and profits are in danger of being lost, removed beyond the jurisdiction of the court, or materially injured or impaired.
While application for a receivership may, at times, seem a hostile act, in fact, the receiver is a white knight charging to the rescue. While the disputants duke it out, a receiver keeps their financial interests on an even keel and endeavors to preserve them where and when disagreement, obstinacy and passion might otherwise get in the way.
Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley with the law firm of Stevens, Littman, Biddision, Tharp and Weinberg LLC. His practice areas include business and commercial transactions, real estate and development, family law, custody, divorce and civil litigation. Robbins may be reached at 970-926-4461 and at either of his email addresses, email@example.com and firstname.lastname@example.org.