RECEIVERSHIP: A FLEXIBLE AND VALUE-ADDING SOLUTION

Receiverships provide considerable flexibility not available in bankruptcy and a substantially less adversarial environment. This most often translates into less time and improved outcomes. The time, cost, and litigiousness of bankruptcy can make it a less than optimum alternative in a troubled company situation. A properly conducted receivership very often provides a more viable, effective, and value-adding solution.

ELEMENTS OF A SUCCESSFUL RECEIVERSHIP

There are four elements of equal importance in conducting a successful receivership: 
  • A competent and experienced receiver.
  • Legal counsel who understand insolvency and its urgency.
  • Open and thorough communication.
  • A properly constructed appointment order.

WHAT DEFINES A COMPETENT RECEIVER?

The best receivers are skilled turnaround consultants, but not all turnaround consultants are equipped to be receivers. Receivers must have an inherent understanding of the law, be quick on their feet, resourceful, ingenious, and top-drawer business managers.

RECEIVER OR RECEIVER MANAGER?

As a practical matter, the terms receiver and receiver manager are interchangeable. Traditionally a receiver manager has been appointed where there is an expectation that the business will continue to operate, and a receiver has been appointed to give effect to a sale transaction, to conduct an orderly winding up, to act as a custodian in a dispute, etc. However, this is generally a distinction without a difference. When commercially reasonable to do so, both a receiver and receiver manager can continue the operations of the business.

KEY EXPECTATIONS IN A RECEIVERSHIP

  1. A receivership should deliver a solution with commercial speed, in a professional and orderly manner, without surprises, and at a notably reduced cost compared with a bankruptcy.
  2. A receivership should be a process driven by business issues rather than legal ones. The contributing problems are generally commercial in nature and call for a commercial resolution.
  3. A properly conducted receivership provides for a level and secure playing field based on the general ranking of creditor claims. And it can do so without unnecessary dissipation of asset values through the time and costs often associated with bankruptcy.

OTHER CONSIDERATIONS

  1. Some receiver appointments may be on an emergency basis, where a payroll must be met in an uncertain business environment, or where an appointment is required to stabilize a rapidly deteriorating or hostile situation.
  2. On the continuum of troubled company solutions, an out-of-court arrangement should be considered first, with bankruptcy being at the last resort end of the continuum. If an out-of-court arrangement is not workable, and a formal controlled process is required, then a receivership is the next least invasive.
  3. There may be circumstances where the most reasonable course is a sale transaction or liquidation, and a receiver is sought to complete this process, and to provide a referee and buffer between stakeholders. It is important to note that receivers can deliver free and clear title to assets.
  4. If the greatest value for the property of the business is on a break-up basis, then the receiver should move quickly to accomplish a liquidation. And liquidation always remains an option if operations do not meet goals set out in the receiver’s business plan.

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