Bankruptcy Alternatives: What Is a Receivership?

Receivership is a legal process in which a receiver appointed by a court, creditor, or another authorized party takes control of a troubled company’s operations and assets. The receiver restructures the company and manages its assets and liabilities. In some cases, assets may be liquidated to improve financial flow. The goal is to help the company avoid bankruptcy and return to a profitable state.

Receivership may also occur when a public agency, such as the office of an insurance commissioner, determines that a business (in this case, an insurance company) needs direct supervision and applies for a court order. The receiver manages assets to protect policyholders and creditors while it takes steps to stabilize the company or merge it with another, financially sound, insurer. Public receivers also step in to protect investors and depositors when a financial institution fails.

In other cases, a receiver oversees operations while the company is being sold. They ensure that all operations comply with government regulations and standards while remaining profitable.

Receivership and Chapter 11 Bankruptcy

Although not a form of bankruptcy per se, receivership is a common element in Chapter 11 filings, which allow a distressed company to seek protection from creditors as they restructure or eliminate their debts.

Unlike a bankruptcy trustee, a receiver is directly involved in managing the business. This party is typically an attorney or a specialist in the company’s industry. They audit the books, sell assets when necessary, and address creditor claims. Under their direction, the company continues to provide goods or services and work with clients and vendors to service their accounts. Company directors may still contribute, but their authority is limited. The goal is the business’s steady transition out of bankruptcy into a stronger financial state.

Receivership vs. Liquidation

Liquidation is the selling of all company assets. It occurs if corporate restructuring won’t be sufficient to salvage business operations. After a court-appointed liquidator sells the property, the funds are used to repay creditors and the company closes down.

Contact an Oklahoma Bankruptcy Attorney

Although receivership is a bankruptcy alternative, it can play an important role in restoring a company’s financial health during a Chapter 11 filing. If your business is experiencing financial challenges, an Oklahoma bankruptcy attorney can help you decide whether Chapter 11 can provide the debt relief needed to recover.

At the Law Offices of B. David Sisson, we have provided many distressed companies with the guidance needed to resolve their debt challenges. Attorney Sisson is a board-certified bankruptcy attorney who will provide you with the right advice for your situation. For more information, please contact us today.

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