State Court Receivership 101: How to Get a Receiver Appointed

Receiverships are most often commenced by creditors, but it can be commenced by an equity holder as well.  The first step towards a receivership is to initiate a lawsuit. Most commonly the lawsuit is filed for breach of contract and is seeking foreclosure or repayment of collateral. Appointment can also be sought as an independent action but is less common.

The next step is to bring a motion for the appointment of receiver. A good tip to remember is that with a good relationship between creditor and borrower it’s a great idea to seek mutual appointment.

A lender who is commencing the action should keep in mind that the receiver will look to the lender for funding of the receivership if funding is not available within the receivership.

In Minnesota, a receiver’s appointment is treated as a dispositive motion and must be served at least 28 days in advance of the hearing. It can also be done on an ex parte basis where the court may order a temporary appointment until the hearing takes place. This occurs in an emergency situation generally when a creditor can demonstrate irreparable harm without immediate action.

A motion for appointment should include:

• Grounds for appointment
• Type of receivership being requested
• Description of property over which receiver is being appointed
• Credentials of receiver
• Powers and duties assigned to receiver

When proposing a receivership it is critical to develop a proposed receivership order. If receivership order does not describe property, receiver is deemed to have responsibility over all property within the entity. The courts have exclusive authority to appoint a receiver, direct a receiver, prescribe powers & duties, and authority over all property. One of the most critical things that can be done is to learn the judge’s background. Many state court judges do not have a background in receivership, or even in business practices. Thus it is critical to explain the receivership proceedings and roles and responsibilities of the receiver.

If a receivership order does not specify a type of receivership, it will be deemed to be a limited receivership. A limited receivership is an appointment over a specific asset(s). The receiver steps in to preserve and protect the property.  General receiverships are given control over the full organization. A general receiver essentially steps in as the CEO of a company. Typically, in a General Receivership a receiver has the full right to sell the property if authorized by the courts.

In both a limited and general receivership a receiver has the right to:

• Incur and manage expenses
• Control and manage property

Only a General Receiver Can:

• Pursue claims under avoidable transactions act
• Operate the business as a going concern
• Sell receivership property if authorized by the court

Limited or general receivers may be appointed as a part of a judgement to see the judgement through. Receivers can be appointed when a corporation is dissolved or will be dissolved. Receivers may also be appointed over corporations involving fraud as a protection of the assets.

Receivership is an equitable remedy taken through the state courts for a variety of reasons, getting the right receiver appointed can be extremely beneficial to the long-term viability of the case and ultimately the conclusion of the receivership.

This article and it’s accompanying video are part of the Receivership 101 series, created in partnership with the Commercial Receivership Association.