Many California businesses are struggling right now. When a company that owes you money faces serious trouble, it’s not good news for you and your prospects of collection. You have many different options for pursuing the unpaid debt, but what is the best option for maximizing your return? In some cases, a receivership is the right answer, but courts see them as an extreme step.
A court will appoint a receiver to step into the business and take over operations in an attempt to improve profits for the business, or at least protect the business’ remaining assets. No company owner ever likes to see his/her company being taken over by an unknown third party, and especially when the company has to pay the receiver to do this work! You, as the creditor, will then be able to collect those profits or assets. The receiver has the power to examine records, direct profits to you and sell or liquidate assets to pay debts.
The difference between receivership and bankruptcy
A receivership is not a bankruptcy, though they can happen at the same time. Often, the receiver’s goal is to help the company avoid bankruptcy. The reason you want to do that is simple: a receivership protects you as the lender or creditor. Bankruptcy protects the debtor. They can be used together, but often the receiver is trying to get the company back on track so they do not end up in bankruptcy.
Companies often use bankruptcy to help them restructure and reduce their debt, which means you may not get everything the company owes you. You may also have to wait a very long time for repayment. In some cases, companies use bankruptcy to completely shut down and liquidate their business. That could leave you with little or nothing.
Why choose receivership?
No doubt, receivership requires time and effort. It may not be the right solution for every case. Certain situations make receivership the best option, however, such as:
- The company is facing bankruptcy
- You are a secured lender seeking foreclosure on assets you want to protect
- You have already tried other collection avenues without success
Pursuing receivership requires a serious discussion with your attorney.
In the current economic climate, you need every advantage to collect the debt owed to you from struggling companies. Asking the court to appoint a receiver could make the difference between a successful collection and a substantial loss.