In many ways, lending to businesses can seem like a safer option than lending to individuals. Unfortunately, organizations can default on what they owe as easily as people might. A business that provided financing or goods and services without immediate payment in full could end up struggling to secure repayment. The strategies for collecting on a debt are innately different when the party that owes money is a business, not an individual.
Pursuing a receivership is one potential option for a business owed money by another organization that wants full repayments of the amount due. The receivership involves the courts appointing a creditor of the new party running a business that has fallen behind on substantial debts. How can receivership benefit a creditor?
Access to crucial company information
Businesses that owe other organizations a substantial amount of money may try to obfuscate their circumstances and avoid financial responsibility. During a receivership, the creditor helping to manage the business has access to financial records. It is possible to establish what assets the organization has and how it has previously used its resources. That information can help ensure that the creditor can secure appropriate payment for the goods or services previously provided.
Control over business operations
Some people are so eager to avoid personal financial responsibility that they might intentionally operate their companies in an improper manner. They allow the company to struggle so that they can justify their refusal to pay creditors what they should. When a creditor acts as a receiver, that outside entity could potentially help correct business issues, leading to more revenue and a faster repayment of the debt. Financial obligations that may have taken years to resolve could become non-issues after a few months of the creditor’s service at the debtor organization.
Compensation for services
Helping to run a struggling or insolvent company is quite stressful. The party appointed as the receiver has the right to compensation for the services they provide. They can bill the debtor organization hourly for the work that they perform. In other words, receivership can lead to compensation for work in addition to repayment of the initial debt.
Seeking appointment as a receiver due to a business debt is a complex process. Leadership at an organization considering this option may need assistance navigating the California court system. Seeking personalized legal guidance is a good way to get started.