State Court Receivership 101: What is a Receivership

Receiverships are essentially an equitable remedy where a court appoints a third party neutral to assist parties in recovery outside of bankruptcy. States are reforming statutes, in Missouri that was the MCRA which codified and streamlined the aspects of receiverships. This creates a guide for practitioners and assists the judges in their decision-making process.

A receivership can be put into place to accomplish all or some of the following:

• Assist parties in recovery;
• Maintain a going concerns value of a business for the benefit of their creditors;
• Protect rights of parties in the receivership as a result of receivership stay in place;
• Provide a mechanism for distributions to creditors according to a set priority.

Through a receivership, a receiver may be able to:

• Can seek financing to fund a receivership;
• Can seek to sell a business through a receivership;
• Can assume or reject contracts or leases based upon benefit to receivership.

Several states have set up statutes that spell out the roles and responsibilities of a receiver and the role of a receivership.  The purpose of this is to provide clear standards for receivership, clarify the duties expected of a receiver, as well as establishes reporting guidelines for receivers.  These acts typically also define and set forth clear powers for both limited and general receiverships.

Receiverships are an equitable remedy through state law.  The powers of the receiver are codified in MO and in several other states through updates made over the past decade.  In 2015 the Uniform Law Commission enacted the Commercial Real Estate Receivership Act.  Since its approval, 13 states have applied the principles of this act to build their own receivership statutes.  These statutes look at when and where a receivership should be put into place, what can be accomplished, as well as what parties can be affected by a receivership.  In total, less than 20 states have updated their receivership statutes since 2000.  However, the interest and statute changes continue to grow in popularity as receivership is increasingly seen as a strategic, efficient alternative to other equitable remedies.

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