The basics of a receivership order

On behalf of Macdonald Fernandez LLP posted in business and commercial bankruptcy on Wednesday, April 13, 2016.

One of the most important aspects of a commercial bankruptcy is the preservation of assets that could conceivably be sold to pay off some of the business' debts. To achieve this, bankruptcy court judges have the power to appoint receivers to act as an agent to keep, manage or even sell property that is part of the bankruptcy estate. Receivers can be appointed to preserve the interest of mortgage lenders (when real estate is at issue) or the interests of potential buyers for the business.

Receivers may be general in nature, with the authority to manage all aspects of a distressed business or property, or they can be "special" appointments with limited powers directed toward preserving a specific asset. Nevertheless, before a receiver may take any action, the court must issue a receivership order. This post will highlight some of the basics of such an order.

Essentially, a receiver may only do what it is ordered to by the court. As such, any order must:

- Explain the legal basis for appointing a receiver

- Describe in detail the assets covered by the order

- Detail the rights of the receiver and require the owner to comply

- Allow the receiver to enter into contracts for purposes of preserving or selling the property

- Describe how the receiver will be compensated

- Require the receiver to file appropriate reports to the court

Invariably, the powers of a receiver may be challenged. In these instances, an experienced bankruptcy attorney can be consulted.