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," especially in cases where a company
cannot meet its financial obligations or enters bankruptcy.
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: a receiver appointed by a regulator pursuant
to a statute; a privately appointed receiver; and
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 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.
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 resolve debts owing.
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; and
the Federal Housing Finance Agency for government-sponsored enterprises 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.
The California Receivers Forum is a non-profit organization formed by interested receivers,
attorneys, accountants and property managers, with support from the Los Angeles Superior
Court, to address the needs and concerns of receivers, to facilitate communication between
the receivership community and the courts, and to assist in raising the level of professionalism
of receivers throughout the state.
The California Receivers Forum has five local affiliates: Bay Area, Central California,
LA/Orange County, Sacramento Valley and San Diego.
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 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.
History The common law has long recognised the concept
of a receiver.
Following the development of the floating charge creditors were effectively able to
take security over a company's entire business by means of a floating charge over the undertaking.
Security documents generally contained very wide powers of appointment such that on default
the creditor could take over the business immediately and without the input of any court.
A receiver appointed to the entire business became known as a receiver and manager.
The receiver and manager would typically have extensive powers over the business, including
the power to sell it at a time and on terms that suited the appointing creditor.
The ability to appoint a receiver and manager was a very powerful remedy, but it came to
be considered unsatisfactory that it was entirely a creature of the contract between the creditor
and the borrower.
There was no general ability on the part of the borrower or any other party to review
the actions of the receiver or seek the supervision of the court.
As a part of the general review of UK insolvency law that took place in the 1980s, beginning
with the Cork Report and culminating in the Insolvency Act 1986, two major reforms were
put forward.
First, the receiver and manager was put on a statutory footing: a receiver appointed
to all or substantially all of a company's property was now to be known as an administrative
receiver and subject to some statutory responsibilities.
Second, the "administration order" procedure was introduced, designed as an equivalent
process to administrative receivership but one available to any company by order of the
court, and not dependent upon a particular security arrangement.
The expectation of Parliament was that companies and creditors would utilise administration
in preference to administrative receivership.
Crucially, however, Parliament had conceded in the Insolvency Act that administrative
receivership should have priority – that is, a secured creditor with a floating charge
could defeat any attempt to commence an administration by appointing an administrative receiver.
As a result administration was not as popular as had been envisaged, and secured creditors
habitually appointed administrative receivers to enforce security rights.
More drastic action was taken in the Enterprise Act 2002 – Parliament made changes to the
administration regime in an effort to make it more attractive, but also barred the right
to appoint administrative receivers in any security created after 15 September 2003.
Any attempt to do so takes effect as a power to appoint an administrator.
Present significance Administrative receivership still forms part
of modern insolvency practice.
Companies that get into financial difficulty today may well have security packages that
were created before 15 September 2003, a situation likely to remain common for some years.
Enforcement is also a significant aspect of the situations where administrative receivership
is still permitted – for example, the ability to take control of the entirety of the assets
is important in structuring insolvency-remote special purpose companies that issue securities
or operate infrastructure projects.
In common law jurisdictions outside of the United Kingdom, administrative receivership
remains alive and well.
A number of offshore jurisdictions market transaction structures to banks on the basis
that they still retain the freedom to appoint administrative receivers in those jurisdictions.
Because of their unique role, insolvency legislation usually confers wide powers upon administrative
receivers under applicable insolvency law.
However, the corollary is that administrative receivers are usually required under applicable
legislation to file reports in relation to the period of their receivership.
Ireland process Similarly to the United Kingdom process, methods
for receiver appointment in Ireland are: Creditor appointed receiver, on providing
debenture document.
This is the most common method.
The High Court may appoint a receiver under the Conveyancing Act 1881 or the Supreme Court
of Judicature Act 1877 A receiver may be appointed under the Rules
of the Superior Courts.
See also Administration
Bankruptcy Bailout
Conservatorship Debtor-in-possession financing
Examinership Floating charge
Liquidator Official Receiver
References
External links Resolutions Handbook of the Federal Deposit
Insurance Corporation California Receivers Forum