Robbins: Receivers and receiverships

What, you may ask, is a receiver?

OK, you think you know. Football season is, after all, just around the corner. And with Bo Nix at the helm, the sky’s the limit. The Broncos’ Marvin Mims is a receiver. Courtland Sutton, Troy Franklin, and Devaughn Vele, too.  Receivers, one and all.

Right, but, um … wrong, at least in legalese.

Let’s try again. A “receivership” must have something to do, then, with the Merchant Marines. The Exxon Valdez was a receiver ship. Well, maybe. But not at law anyway.

So what, then, is a receiver in the world of law? What is a receiver and what is a receivership?

Support Local Journalism

Donate

A “receiver” is — brace yourself — someone who receives. Piece of cake. And you thought the law was complicated.

But that’s just the start. 

At law, to “receive” means to take into possession and control. Under that definition, “to receive” can either be lawful or not. For example, to receive stolen property 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.

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 appointing him and is the medium through which the court acts.  A receiver is an indifferent or neutral person between the parties embroiled in a dispute who is appointed by the court to receive and preserve the property or fund which is the subject of the litigation, and 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 should hold them. 

A receiver is a fiduciary of the court (in other words, one who acts in other than his self-interest and on behalf of others), who is appointed 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 is a fiduciary to all parties: owners, lenders and creditors. He is not the owner’s or lender’s agent, but is, instead, an officer of the court.

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 bankruptcy. 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.

One other way to think about this: a receiver is appointed as the custodian of assets involved in litigation. Title, or actual ownership, of the assets remains in the owner or owners who are parties to the proceedings which led to the appointment of the receiver who then acts as the managing agent of the property. Possession by the receiver is possession by the court for the ultimate benefit of the parties to the dispute.

A quick example may be appropriate. Say you and I are partners. 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? We just can’t get along. Ultimately, our disagreements result in 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 ultimately resolved. As a neutral, she will take control, do what must be done, and do her best to preserve and protect our asset 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 don’t fly off the tracks.

A receivership, then, 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, she is furnished orders which spell out, generally with great specificity, what she may and may not do. Their powers may be very broad or may be more circumscribed. 

As a general rule, receivers are not liable for the lender’s or the owner’s actions nor are they authorized to pay obligations existing before the appointment of the receiver. As a fiduciary to all parties, 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 to creditors whose continued services are crucial to the operation of the property or business.

On the application of either party, in proper circumstances, a receiver may be appointed by the court in which the action is pending at any time before judgment is rendered.

While application for a receivership may, at times, seem a hostile act, in fact, the receiver is a white knight charging to the rescue of a dispute. While the disputants fight 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 just get in the way. 

Hey, go long.

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 Caplan & Earnest, LLC. His practice areas include business and commercial transactions; real estate and development; family law, custody, and divorce; and civil litigation. Robbins may be reached at 970-926-4461 or Rrobbins@CELaw.com. His novels, “How to Raise a Shark (an apocryphal tale),” “The Stone Minder’s Daughter,” “Why I Walk so Slow” and “He Said They Came From Mars (stories from the edge of the legal universe)” and “The Theory of Dancing Mice” are currently available at fine booksellers.