In law, receivership is a situation in which an institution or enterprise is held by a receiver—a person "placed in the custodial responsibility for the

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...

of others, including tangible and intangible

asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that c ...

s and rights"—especially in cases where a company cannot meet its financial obligations and is said to be insolvent.Philip, Ken, and Kerin Kaminski

''Secured Lender'', January/February 2007, Vol. 63 Issue 1, pages 30-34,36. The receivership remedy is an equitable remedy that emerged in the English

chancery court The Court of Chancery was a court of equity in England and Wales that followed a set of loose rules to avoid a slow pace of change and possible harshness (or "inequity") of the common law. The Chancery had jurisdiction over all matters of equ ...

s, where receivers were appointed to protect real property. Receiverships are also a remedy of last resort in litigation involving the conduct of executive agencies that fail to comply with constitutional or statutory obligations to populations that rely on those agencies for their basic

human rights Human rights are moral principles or normsJames Nickel, with assistance from Thomas Pogge, M.B.E. Smith, and Leif Wenar, 13 December 2013, Stanford Encyclopedia of PhilosophyHuman Rights Retrieved 14 August 2014 for certain standards of hu ...

. Receiverships can be broadly divided into two types: *Those related to

insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...

or enforcement of a

security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the ''collateral'') which enables the creditor to have recourse to the property if the debtor defaults in makin ...

. *Those where either **One is Incapable of managing one's affairs and so the court appoints a receiver to manage the property on one's behalf—for example a receiver appointed by a

Court of Protection The Court of Protection in English law is a superior court of record created under the Mental Capacity Act 2005. It has jurisdiction over the property, financial affairs and personal welfare of people who lack mental capacity to make decisi ...

under mental health legislation (in some jurisdictions, called

conservatorship Under U.S. law, conservatorship is the appointment of a guardian or a protector by a judge to manage the financial affairs and/or daily life of another person due to old age or physical or mental limitations. A person under conservatorship is a ...

). **The court seizes control of property due to breaches of law or regulation. Receiverships relating to insolvency are subdivided into two further categories: administrative/equity receivership, where the receiver is appointed wide management powers over all or most of the property of a business, and other receiverships (sometimes misleadingly called ''fixed charge receiverships'') where the receiver has limited control over specific property, with no broader powers beyond managing or selling the individual asset. Receivers are appointed in different ways: *Government regulator appointed *Privately appointed *Court-appointed The receiver's powers "flow from the document(s) underlying his appointment"—i.e., a

statute A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made by ...

, financing agreement, or

court order A court order is an official proclamation by a judge (or panel of judges) that defines the legal relationships between the parties to a hearing, a trial, an appeal or other court proceedings. Such ruling requires or authorizes the carrying out ...

Duties of a receiver

The receiver may: *Run the company to maximize the value of the company's assets, sell the company as a whole, or sell part of the company and close unprofitable divisions *Secure the assets of the company or entity *Realize the assets of the company or entity *Manage company affairs to pay debts

United States process

Several regulatory entities have been granted power by the

Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...

to place banking and financial institutions into receivership like the

Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all nat ...

for failing nationally chartered commercial

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

s; the Office of Thrift Supervision for failing

savings and loan association A savings and loan association (S&L), or thrift institution, is a financial institution that specializes in accepting savings deposits and making mortgage and other loans. The terms "S&L" or "thrift" are mainly used in the United States; simi ...

s (thrift institutions); and the Federal Housing Finance Agency (FHFA) for government-sponsored enterprises (GSEs) such as

Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...

Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.Federal Home Loan Banks. Most individual states also have granted receivership authority to their own bank regulatory agencies and insurance regulators. State Insurance Departments are accredited by the National Association of Insurance Commissioners (NAIC)—which states, "State law should set forth a receivership scheme for the administration, by the insurance commissioner, of insurance companies found to be insolvent as set forth in the NAIC’s Insurer Receivership Model Act." Some organizations have come into existence on the state level to alter the proceedings. An example is the California Receivers Forum, which is a non-profit organization "formed by interested receivers, attorneys, accountants, and property managers, with support from the Los Angeles Superior Court, to address the needs and concerns of receivers, to facilitate communication between the receivership community and the courts, and to assist in raising the level of professionalism of receivers..." The California Receivers Forum reports five local affiliates in the state: Bay Area, Central California, LA/Orange County, Sacramento Valley and San Diego. Court-appointed receivers are "the most powerful and independent of the judicially appointed managers."Bradley, Catherine Megan
Old Remedies Are New Again: Deliberate Indifference and the Receivership in ''Plata v. Schwarzenegger''.
62 N.Y.U. Ann. Surv. Am. L. 703 (2007). Unlike special masters and monitors, "the receiver completely displaces the defendants: the receiver makes large and small decisions, spends the organization’s funds, and controls hiring and firing determinations." Examples of court-appointed receivers include: *In the

District of Columbia ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument and Lincoln Memorial on the National Mall, United States Capitol, Logan Circle (Washington, D.C.), Logan Circle, Jefferson Memoria ...

, the D.C. Jail's medical care facility "was placed under court-ordered receivership in August 1995, after the District was held in contempt for repeatedly failing to implement court orders...intended to ensure adequate medical services to jail inmates". The receivership ended in September 2000. *An insolvent fuel company is managed by a court-appointed receiver. *A U.S. District Judge appointed a receiver for the

multi-level marketing Multi-level marketing (MLM), also called network marketing or pyramid selling, is a controversial marketing strategy for the sale of products or services in which the revenue of the MLM company is derived from a non-salaried workforce selling th ...

company Equinox International in August 1999. As of 2007, the receiver was authorized to distribute

settlement Settlement may refer to: * Human settlement, a community where people live *Settlement (structural), the distortion or disruption of parts of a building *Closing (real estate), the final step in executing a real estate transaction *Settlement (fin ...

funds from the now-defunct company to approved claimants. *After placing the California state prison health care system into receivership in June 2005, a U.S. District Judge appointed a receiver for it in February 2006.Moore, Solomon
Using Muscle to Improve Health Care for Prisoners.
''The New York Times'', 27 August 2007. California Correctional Health Care Services (under control of the California Correctional Health Care Receivership) attempts "to bring medical care in California prisons up to constitutional standards". *In February 2007, a judge in

Florida Florida is a state located in the Southeastern region of the United States. Florida is bordered to the west by the Gulf of Mexico, to the northwest by Alabama, to the north by Georgia, to the east by the Bahamas and Atlantic Ocean, and ...

appointed a receiver for companies owned by

Lou Pearlman Louis Jay Pearlman (June 19, 1954 – August 19, 2016) was an American record producer. He was the person behind many successful 1990s boy bands, having formed and funded the Backstreet Boys. After their massive success, he then developed NSYNC. ...

that defrauded investors. The receiver later said about the companies "I don't see much in the way of hard assets that are worth anything or are not already fully encumbered ith debt"

Administrative receivership

Administrative receivership is a procedure in the United Kingdom and certain other

common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...

jurisdictions Jurisdiction (from Latin 'law' + 'declaration') is the legal term for the legal authority granted to a legal entity to enact justice. In federations like the United States, areas of jurisdiction apply to local, state, and federal levels. Ju ...

whereby a creditor can enforce

security" \n\n\nsecurity.txt is a proposed standard for websites' security information that is meant to allow security researchers to easily report security vulnerabilities. The standard prescribes a text file called \"security.txt\" in the well known locat ...

against a company's assets in an effort to obtain repayment of the secured debt. It used to be the most popular method of enforcement by

secured creditor A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor. In the event of the bankruptcy of the debtor, the secured creditor can enforce security against the assets of the debtor and av ...

s, but recent legislative reform in many jurisdictions has reduced its significance considerably in certain countries. Administrative receivership differs from simple receivership in that an administrative receiver is appointed over all of the assets and undertaking of the company. This means that an administrative receiver can normally only be appointed by the holder of a

floating charge A floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of an ambulato ...

. Because of this unusual role, insolvency legislation usually grants wider powers to administrative receivers, but also controls the exercise of those powers to try to mitigate potential prejudice to unsecured creditors. Typically, an administrative receiver is an

accountant An accountant is a practitioner of accounting or accountancy. Accountants who have demonstrated competency through their professional associations' certification exams are certified to use titles such as Chartered Accountant, Chartered Certifi ...

with considerable experience of insolvency matters.

History

The

has long recognised the concept of a receiver. Following the development of the

creditors were effectively able to take security over a company's entire business by means of a floating charge over the undertaking. Security documents generally contained very wide powers of appointment such that on default the creditor could take over the business immediately and without the input of any court. A receiver appointed to the entire business became known as a ''receiver and manager''. The receiver and manager would typically have extensive powers over the business, including the power to sell it at a time and on terms that suited the appointing creditor. The ability to appoint a receiver and manager was a very powerful remedy, but it came to be considered unsatisfactory in that it was entirely a creature of the contract between the creditor and the borrower. There was no general ability on the part of the borrower or any other party to review the actions of the receiver (who would generally be acting on behalf of ''the borrower'' under the security document) or seek the supervision of the court. A general review of UK insolvency law in the 1980s began with the

Cork Report ''Report of the Review Committee on Insolvency Law and Practice'' (1982) Cmnd 8558, also known as the "Cork Report" was an investigation and set of recommendations on modernisation and reform of UK insolvency law. It was chaired by Kenneth Cork an ...

and culminated in the

Insolvency Act 1986 The Insolvency Act 1986c 45 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication and ...

. It put forward two major reforms. First, it put the receiver and manager on a statutory footing: a receiver appointed to all or substantially all of a company's property was now an ''administrative receiver'' and subject to some statutory responsibilities. Second, it introduced an "

administration order As a legal concept, administration is a procedure under the insolvency laws of a number of common law jurisdictions, similar to bankruptcy in the United States. It functions as a rescue mechanism for insolvent entities and allows them to carry on ...

" as an equivalent process to administrative receivership—but available to any company by court order independent of any particular security arrangement. Parliament expected that companies and creditors would use administration in preference to administrative receivership. Crucially, however, Parliament had conceded in the Insolvency Act that administrative receivership should have priority – that is, a secured creditor with a floating charge could defeat any attempt to commence an administration by appointing an administrative receiver. As a result, administration was not as popular as lawmakers had envisaged, and secured creditors habitually appointed administrative receivers to enforce security rights. Parliament took more drastic action in the

Enterprise Act 2002 The Enterprise Act 2002 is an Act of the Parliament of the United Kingdom which made major changes to UK competition law with respect to mergers and also changed the law governing insolvency bankruptcy. It made cartels illegal with a maximum pri ...

. They changed the administration regime to make it more attractive, but also barred the right to appoint administrative receivers in any security created after 15 September 2003 (subject to certain specific exceptions). Any attempt to do so takes effect as a power to appoint an administrator.

Present significance

Administrative receivership still forms part of modern insolvency practice. Companies that get into financial difficulty today may well have security packages that were created before 15 September 2003, a situation likely to remain common for some years. Enforcement is also a significant aspect of the situations where administrative receivership is still permitted – for example, the ability to take control of the entirety of the assets is important in structuring insolvency-remote special purpose companies that issue securities or operate infrastructure projects. In common law jurisdictions outside of the United Kingdom, administrative receivership remains alive and well. A number of offshore jurisdictions market transaction structures to banks on the basis that they still retain the freedom to appoint administrative receivers in those jurisdictions. Because of their unique role, insolvency legislation usually confers wide powers upon administrative receivers under applicable insolvency law (which is usually concurrent with powers granted under the security document). However, the corollary is that administrative receivers are usually required under applicable legislation to file reports in relation to the period of their receivership.

Ireland process

Similarly to the United Kingdom process, methods for receiver appointment in

Ireland Ireland ( ; ga, Éire ; Ulster-Scots: ) is an island in the North Atlantic Ocean, in north-western Europe. It is separated from Great Britain to its east by the North Channel, the Irish Sea, and St George's Channel. Ireland is the s ...

are: *Creditor appointed receiver, on providing debenture document. This is the most common method. *The High Court may appoint a receiver under the Conveyancing Act 1881 or the Supreme Court of Judicature Act (Ireland) 1877 *A receiver may be appointed under the Rules of the Superior Courts.

References

External links

Resolutions Handbook of the Federal Deposit Insurance CorporationCalifornia Receivers Forumnafer.orgSample Court Receiver Cases
{{Authority control Bankruptcy Legal professions United States bankruptcy law Law of the United Kingdom Insolvency de:Insolvenzverwalter fr:Redressement judiciaire