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Legal Dictionary

receivership

Legal Definition of receivership

See also


Definition of receivership

Etymology

    receiver +‎ -ship

Noun

receivership (plural receiverships)

  1. (law) The office and duties of a receiver.
  2. (law) The state of being under the control of a receiver.
  3. (law, business) A form trusteeship of bankruptcy administration in which a receiver is appointed to run the company for the benefit of the creditors.

Further reading

In law, receivership is the situation in which an institution or enterprise is being held by a receiver, a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights." The receivership remedy is an equitable remedy that emerged in the English Chancery courts, where receivers were appointed to protect real property. Receiverships are also a remedy of last resort in litigation involving the conduct of executive agencies that fail to comply with constitutional or statutory obligations to populations that rely on those agencies for their basic human rights. Various types of receiver appointments exist:

  1. a receiver appointed by a (government) regulator pursuant to a statute;
  2. a privately appointed receiver; and
  3. a court-appointed receiver.

The receiver's powers "flow from the document(s) underlying his appointment - a statute, financing agreement, or court order.

Duties of a receiver

  • Secure the assets of the company and/or entity.
  • Realize the assets of the company and/or entity.
  • Manage the affairs of the company in order to discharge the debt owing.

The receiver may run the company in order to maximize the value of the company's assets, sell the company as a whole, or sell part of the company and close unprofitable divisions.

United States process

Several regulatory entities have been granted power by the Congress to place banking and financial institutions into receivership like the Office of the Comptroller of the Currency for failing nationally chartered commercial banks; the Office of Thrift Supervision for failing savings and loan associations (thrift institutions); and the Federal Housing Finance Agency (FHFA) for government-sponsored enterprises (GSEs) such as Fannie Mae, Freddie Mac, and the 12 Federal Home Loan Banks. Most individual states also have granted receivership authority to their own bank regulatory agencies and insurance regulators.

Court-appointed receivers are "the most powerful and independent of the judicially appointed managers." Unlike special masters and monitors, "the receiver completely displaces the defendants: the receiver makes large and small decisions, spends the organization's funds, and controls hiring and firing determinations." Examples of court-appointed receivers include:

  • In the District of Columbia, the jail's medical care facility "was placed under court-ordered receivership in August 1995, after the District was held in contempt for repeatedly failing to implement court orders... intended to ensure adequate medical services to jail inmates." The receivership ended in September 2000.
  • An insolvent fuel company is managed by a court-appointed receiver.
  • A U.S. District Judge appointed a receiver for the multi-level marketing company Equinox International in August 1999. As of 2007, the receiver was authorized to distribute settlement funds from the now-defunct company to approved claimants.
  • After placing the California state prison health care system into receivership in June 2005, a U.S. District Judge appointed a receiver for it in February 2006. California Prison Health Care Services (under control of the California Prison Health Care Receivership) attempts "to bring medical care in California prisons up to constitutional standards."
  • In February 2007, a judge in Florida appointed a receiver for companies owned by Lou Pearlman that defrauded investors. The receiver later said about the companies "I don't see much in the way of hard assets that are worth anything or are not already fully encumbered [with debt]."

United Kingdom process

Administrative receivership is a procedure in the United Kingdom whereby a creditor can enforce security against a company's assets in an effort to obtain repayment of the secured debt. It used to be the most popular method of enforcement by secured creditors, but recent legislative reform in many jurisdictions has reduced its significance considerably in certain countries.

Administrative receivership differs from simple receivership in that an administrative receiver is appointed over all of the assets and undertaking of the company. This means that an administrative receiver can normally only be appointed by the holder of a floating charge. Because of this unusual role, insolvency legislation usually grants wider powers to administrative receivers, but also controls the exercise of those powers to try to mitigate potential prejudice to unsecured creditors.

Characteristically an administrative receiver will be an accountant with considerable experience of insolvency matters.

References:

  1. Wiktionary. Published under the Creative Commons Attribution/Share-Alike License.



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