For most companies, everyday business is challenging, whether or not they are successful and profitable. Running a business is not for the faint of heart! Conflicts arise fairly regularly for even the most effective companies, such as legal claims or financial disputes that may require assistance from neutral financial experts. In these cases, a business may turn to a receivership as a method for avoiding bankruptcy, resolving complex disputes and solving litigations. Or when a situation has escalated to the point of legal remedy or regulatory oversight, a receiver may be court appointed.
Moving quickly when a dispute arises is essential, so determining if you should go forward with a receivership should be first on your list of to-dos. In other cases, you may be dealing with an court appointed receiver. Either way, find out more about receiverships and how they may benefit your business below.
The Basics of Receiverships
In the past, receiverships were utilized to resolve unpaid debts and protect property on behalf of creditors who were looking to recover outstanding amounts on a defaulted loan payment. While this still happens today, receiverships are now used for expanded reasons, especially when it comes to businesses. Generally speaking, a receivership is a process used to protect a company and it serves as an umbrella of sorts to keep a troubled company from going under, or to help equitably disburse funds from a failed company or organization.
A court-appointed fiduciary, or the receiver, is given the task of taking over for the business temporarily to help manage assets, financial and operating decisions or to ensure that creditors are able to recover defaulted loan funds. In cases of bankruptcy prevention, the receiver is often a financial professional who can help the company return to profitability.
How Do Most Companies Use Receiverships?
While receiverships are used as a solution for many different issues, they frequently involve financial disputes between partners of a company, its shareholders, its creditors or lenders or in some cases of high-asset divorces. Three of the most common uses of receiverships include the following:
1. Shareholder Disputes
There are sometimes instances in which one or more shareholders are unhappy with a company’s dealings or financials. A receivership functions as a neutral third party that comes in to settle those disputes by making smart corporate decisions that benefit the value of the business rather than one side or the other. This helps avoid the loss of company value as a result of litigation.
2. Fraud
When fraud is suspected, a court may appoint a receiver to gain access to a company’s finances. This may be done through subpoenas or other methods of discovery. If the company’s assets were obtained through fraud, the receiver may be granted possession in order to redistribute those funds legally.
3. Business Insolvency
Unfortunately, some businesses face hard financial situations in which they may have to consider bankruptcy. A receivership functions as a solution in these cases by taking over the company’s finances and operations. The receivership may sell assets as a way to get the company back into the black and may also settle any litigations from creditors so that the business can return to solvency.
Does Your Business Need a Receivership?
Again, receiverships are most often assigned and or court appointed. If you ever find yourself in a situation where you are working with a receiver, it is best to be cooperative, honest, patient and forthcoming. After all, there are people and we all tend to treat others with the same respect with which we are shown.