Determining the Scope and Powers Within a Receivership

Understanding the Powers Granted to a Receiver

Receiverships are effective business solutions to many problems faced by courts, lenders, and investors engaged in attempting to maintain a distressed asset. Generally speaking, receivers have the power to take control of and protect assets, provide visibility on the financial affairs of a business, and stabilize operations. But what specific powers do receivers have to accomplish these ends?

States vary in their approaches. For instance, some states make a distinction between limited and general receivers. A limited receiver is a receiver that takes control over a discrete asset or assets. Typically, they are subject to restrictions in scope and authority. General receivers on the other hand control substantially all of the property of the receivership entity, including the management rights of the company at large. Some states provide default powers available to receivers upon appointment. Other states require courts to detail the specific powers assigned to the receiver being appointed. The appointment of a receiver could provide the receiver with all statutorily available powers, and all statutory duties and responsibilities. Because of the breadth of such an appointment, it is important to have a firm understanding of how the appointment order and the type of receivership being initiated affects how a receivership estate will be administered under court supervision. This article will examine the different processes states use for defining the scope of receiverships.

Distinguishing Between Limited and General Receivers

A limited receiver is one that is only responsible for a portion of a debtor’s assets rather than all of the debtor’s assets. For example, if the debtor were to have multiple real properties and the receiver is appointed as the custodian of one specific property, the receiver is limited to controlling the single property and has no right to direct other property or assets belonging to the debtor.

Missouri is an example of a state that distinguishes between limited and general receivers. Other states make similar differentiations. If statutorily the distinction is not made, it is important that the appointment order provide specifically what the parameters are that govern a receiver’s powers and duties.

Powers and Scope of Receivership Defined by Court Order

While Missouri, and other states, provide a statutorily defined structure that neatly distinguishes receiverships into categories, other states offer a more variable approach. It is common for states to provide a non-exhaustive list of powers to receivers on appointment and permit courts to definitively outline the power and scope of the receivership by court order every time a receiver is appointed. In states that do not make a bright line distinction between limited and general receivers and instead provide a number of powers to receivers on appointment, it is then up to the court to define the scope of the receivership.

For instance, in Maryland, a receiver is provided all of the powers enumerated in its statutes unless restricted in the appointment order.¹ Rhode Island follows a similar path. In Rhode Island, a receiver may exercise any of the enumerated powers unless the court chooses to limit the powers of the receiver.² This method of providing authority to receivers provides some structure by way of enumerated powers, but it also allows courts to further tailor the receiver’s authority to fit a specific case. Notably, many statutes like these focus on the powers of the receiver and provide less guidance on clear demarcations of the assets to be administered.

In Florida, a list of enumerated powers is provided, but deference to the court is provided to define the power and scope of the receivership applicable in a given case.  In Florida, the court ordering the appointment of the receiver may describe the powers and duties of the receiver with specificity or in general.³ The statute provides a non-exclusive, a-la-carte list of powers the court may bestow on the receiver. Ohio operates similarly.⁴

Colorado provides less statutory guidance to courts. Rule 66 of Colorado’s Rules of Civil Procedure provides that the court shall direct the receiver as to his or her duties.⁵ While, as noted above, some states provide lengthy receivership statutes that delineate a list of powers, limits, and other guidance, Colorado’s rules require practitioners to supply such details, upon review of common law precepts applicable in the state. The Colorado common law supplements the codified receivership rules providing that the “order of appointment of a receiver is the measure of the receiver’s power.”⁶ This system places the onus of determining the powers of the receiver on the court appointing the receiver. No receivership is guaranteed to have the powers or scope that previous receiverships may have had and that the court starts with a blank slate in considering the needs of each case.

Across jurisdictions, there are a variety of ways that receivership statutes assign powers and define the scope of a receivership. The added flexibility of those that require the court to enumerate the powers of the receiver by court order may seem an advantage (and it very well may be) to some. It does, however, introduce some level of uncertainty since each case in some ways reimagines the means of receivership administration, albeit in a way that is informed by precedent. Notwithstanding the different approaches each state takes, receiverships remain a dynamic alternative for insolvency situations, and for cases involving management disputes, among other things. It often affords professionals a meaningful alternative to bankruptcy or other forms of dispute resolution.

Conclusion

The court appointing the receiver is central to all receivership actions. When a receiver is appointed, the court exercises a significant degree of influence over how an asset will be maintained and administered. The judicial control provided by a receivership can yield significant improvements in transparency and stability. This control, transparency, and stability is a significant reason why the use of receivership is expanding nationally, and why receiverships, when guided by experienced professionals, can be highly effective at securing and protecting distressed assets. Approximately seventeen (17) states have in recent years updated their receivership statutes in recognition of this reality, thus ensuring that receiverships will continue to play an effective and important role in the future of creditor disputes, insolvency, and other situations.

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[Editors’ Note: The authors are members of the Commercial Receivers Association, which seeks to develop a nationwide network of professionals who play key roles in receiverships. Members of the Commercial Receivers Association are quite familiar with the ins and outs of receiverships.

You can access the pertinent receivership statutes for all 50 states at the Commercial Receivers Association website. Just choose your state from the drop-down list. If you are interested in learning more about receiverships or the Commercial Receivers Association, please visit www.commercialreceiver.org.

To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Bad Debtor Owes Me Money!
2. Federal Equity Receiverships 101]

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1. See Md. Code § 24-301.
2. See RI ST § 10-21-12.
3. See Fla. Sta. 607.1432.
4. Ohio Rev. Code. § 2735.04.
5. Colo. R. Civ. P. 66.
6. Midland Bank v. Galley Co., 971 P.2d 273, 277 (Colo. App. 1998).