Receivership
Candlefocus EditorIn most cases, a receivership is initiated when a secured creditor to the troubled company files a motion in court seeking to appoint a receiver. The receiver, who is generally chosen from a panel approved by the court, is given authority over the operations and assets of the company. The expected costs of the receivership are usually born by the debtor company, and attorneys' fees are generally negotiated before the appointment of the receiver.
A receiver is charged with winding down the company’s affairs in an orderly manner, while preserving and maximizing the value of the company’s assets for creditors. This is accomplished by the receiver identifying and evaluating the claims of the creditors, and by collecting or liquidating the debtor’s assets. The receiver also takes a thorough review of the company’s operations, with the goal of restructing, reorganizing, and restoring it to financial stability.
Generally speaking, a receivership can provide a company with the opportunity to create a payment structure that is acceptable to all creditors. Additionally, a receiver may be able to negotiate more favorable terms with creditors, such as reduced interest rates or a longer period of repayment. Receiverships also offer companies the chance to restructure their senior debt, as well as to modify or rewrite lease contracts or other contracts.
If the company is able to successfully complete the receivership, and is able to achieve a formal reorganization of debt, it will be returned to ordinary status. On the other hand, if the company is facing financial constraints that it cannot resolve, liquidation may become the only option.
Receiverships can be complicated, and the legal and financial considerations need to be carefully weighed. They are, however, becoming increasingly popular, as they offer companies with much-needed protection from bankruptcy and often provide the chance for successful turnaround.