What Is Receivership? A Complete Guide for Business Owners and Creditors

Business bankruptcies surged 22.1% in 2024, reaching 23,107 filings - the highest level since 2011. 

As financial distress intensifies across multiple sectors, receivership has emerged as an increasingly relevant legal mechanism for managing troubled companies and distressed assets.

This guide explains the receivership process, compares it to bankruptcy, and explores its applications across industries experiencing heightened financial stress.

What Is Receivership?

Receivership is a legal process in which a court appoints a neutral third party - called a receiver - to take custody and control of specific assets, property, or an entire business. The receiver acts as an officer of the court with a primary mandate: to preserve and protect the value of those assets during a period of financial distress, litigation, or dispute.

Unlike bankruptcy, which is typically initiated by a debtor seeking protection from creditors, receivership is generally initiated by creditors, investors, shareholders, or government regulators. 

For example, a secured lender facing borrower default, shareholders locked in corporate deadlock, or a regulatory agency uncovering fraud can petition a court to appoint a receiver.

The receiver's authority comes directly from the court order that appoints them. Depending on how the court structures the appointment, the receiver may have limited powers (such as simply collecting rents from a property) or comprehensive control over an entire business operation. When a receiver assumes operational control, existing management's authority is suspended or eliminated - the receiver literally steps in to run the company.

Receivership is fundamentally an equitable remedy, meaning courts use it when traditional legal remedies (such as money damages or liens) are inadequate to protect the parties' interests. 

It's designed to maintain the status quo and prevent further harm while underlying disputes are resolved through litigation, foreclosure proceedings, or other legal processes.

In the United States, receiverships operate under state law in state courts, or under Federal Rule of Civil Procedure 66 in federal courts. State court jurisdiction is typically limited to assets within that state's borders, while federal receiverships can reach assets nationwide - an important consideration when collateral spans multiple jurisdictions.

How the Receivership Process Works

Understanding the receivership process helps clarify what happens when a receiver is appointed and what stakeholders can expect.

Step 1: Petition and Legal Grounds

The receivership process begins when a party with a legal interest - typically a secured creditor, shareholder, or regulatory agency - files a petition with the court requesting appointment of a receiver. 

This petition is part of a civil lawsuit that must establish legal grounds for the extraordinary remedy of receivership.

Courts consider several factors before granting a receivership petition:

• Imminent risk of asset loss or waste: Is there danger that assets will deteriorate, be mismanaged, or disappear?

• Default under loan agreements: Has a borrower defaulted on obligations secured by specific collateral?

• Fraud or gross mismanagement: Is there evidence that management is acting improperly or incompetently?

• Inadequacy of other remedies: Would traditional legal remedies (like monetary judgments) be insufficient to protect the petitioner's interests?

• Contractual or statutory authority: Does a loan agreement, corporate document, or specific statute authorize receivership?

The petitioning party must demonstrate that receivership is necessary and appropriate given the circumstances. 

Courts don't grant receiverships lightly. This is an aggressive remedy that displaces management and restricts property rights.

Step 2: Court Appointment and Defining Authority

If the court is persuaded that receivership is warranted, it issues an order appointing the receiver and defining their powers and duties. This court order is the receiver's operating authority - it specifies exactly what the receiver can and cannot do.

The order might authorize the receiver to:

• Take possession of specific assets or entire business operations

• Continue operating a business (or cease operations)

• Collect income, rents, or accounts receivable

• Pay necessary operating expenses

• Hire professionals (attorneys, accountants, appraisers)

• Investigate past transactions for fraud or improper transfers

• Sell assets (sometimes requiring additional court approval)

• Pursue litigation on behalf of the receivership estate

The petitioning party often nominates a receiver candidate, subject to court approval. This allows secured creditors, for example, to propose someone with relevant industry experience. 

The court must approve the nominee and will reject candidates with conflicts of interest or inadequate qualifications.

Step 3: Receiver Takes Control

Once appointed, the receiver immediately assumes the authority granted by the court order. 

If the receiver has operational control, existing management's power is suspended. The receiver has a fiduciary duty to act in the best interests of all stakeholders - creditors, owners, and other parties with legal interests in the assets.

The receiver typically must post a bond to protect against improper conduct. They're required to maintain detailed records of all transactions, prepare regular financial reports, and account for every dollar that comes in or goes out. 

The receiver operates under continuing court supervision.

Employees report to the receiver, who makes decisions about operations, hiring, contracts, and strategy. Bank accounts are typically transferred to the receiver's control. Vendors and customers are notified that the receiver is now managing the business.

Step 4: Asset Management and Resolution Strategy

The receiver's core responsibility is preserving and maximizing asset value. How they accomplish this depends on the situation:

For a commercial property in foreclosure, the receiver might collect rents, pay property taxes and insurance, maintain the building, and prepare it for eventual sale while the foreclosure proceeds through court.

For an operating business, the receiver assesses whether the company can be rehabilitated, sold as a going concern, or should be liquidated. They might cut unprofitable operations, renegotiate contracts, collect outstanding receivables, and explore sale opportunities.

In fraud cases, the receiver traces assets, identifies improper transfers, recovers misappropriated funds, and ultimately distributes remaining assets to victims or creditors.

Throughout this process, the receiver reports regularly to the court and interested parties. Major decisions - particularly asset sales - often require specific court approval.

Step 5: Resolution and Conclusion

Receiverships end when the court determines the receiver's work is complete. Common endpoints include:

• Assets sold and proceeds distributed to creditors according to their priority

• Business sold as a going concern to a new owner

• Underlying dispute resolved, allowing assets to be returned to the original owner

• Transition to bankruptcy if receivership proves insufficient to address the situation

The court issues a final order closing the receivership, and the receiver files a final accounting showing what happened to all assets and funds. 

Any remaining surplus goes to the property owner; any deficiency remains the debtor's obligation unless resolved through bankruptcy or settlement.

The duration varies. Some receiverships last only months (such as holding property during a foreclosure). Others continue for years if the receiver is operating a complex business or pursuing litigation to recover assets. There's no fixed timeline - the receivership continues until its purpose is accomplished.

Types of Receivership

Receiverships take different forms depending on the underlying problem and the court's objectives.

Real Estate Receivership

This is among the most common types. When a borrower defaults on a commercial real estate loan, the lender may petition for appointment of a receiver to take control of the property while foreclosure proceedings move forward.

The receiver collects rents from tenants, pays operating expenses (property taxes, insurance, maintenance), and prevents the defaulting owner from diverting income or allowing the property to deteriorate. 

This protects the lender's collateral value during what can be a lengthy foreclosure process, particularly in judicial foreclosure states.

With commercial real estate facing elevated stress - high interest rates, declining valuations, and increased vacancy rates, particularly in office properties - real estate receiverships have become more frequent as loans mature and borrowers lack refinancing options.

Corporate Disputes and Shareholder Deadlocks

Courts sometimes appoint receivers when shareholders or partners in a closely-held business are in serious conflict and the company is suffering as a result. If 50/50 owners are in bitter dispute and the business is being mismanaged or stripped of assets, a receiver can take temporary control.

The receiver acts as a neutral manager, keeping the business operating and preventing harm while the underlying ownership dispute is resolved through litigation or settlement. 

This prevents the company from being destroyed by warring factions.

Fraud and Mismanagement Cases

Receiverships are commonly used when serious fraud or misconduct is alleged. 

Regulatory agencies like the Securities and Exchange Commission (SEC) frequently ask courts to appoint receivers to take control of entities involved in Ponzi schemes, securities fraud, or other illegal activities.

The receiver's job is to marshal assets, freeze accounts, trace where money went, pursue recovery of misappropriated funds, and ultimately distribute remaining assets to defrauded investors or other victims. The receiver may also cooperate with criminal investigations and civil enforcement actions.

Regulatory Receiverships

Government agencies can initiate receiverships under their statutory authority. The Federal Deposit Insurance Corporation (FDIC) acts as receiver for failed banks, taking over the institution's assets and liabilities to minimize disruption to depositors and the financial system.

State insurance regulators can place insurance companies into receivership. Other regulatory agencies can petition for receivership of entities violating laws within their jurisdiction.

Limited vs. General Receivership

Receiverships are also classified by scope:

Limited receivership restricts the receiver's authority to specific assets or functions. A receiver might be appointed solely to collect and hold rental income from a property, with no broader management authority.

General receivership gives the receiver comprehensive control over all business assets and operations. The receiver runs the entire company, makes all strategic and operational decisions, and determines the ultimate disposition of the business.

Courts retain flexibility to expand or narrow the receiver's authority as circumstances change.

Receivership vs. Bankruptcy Comparison

Both receivership and bankruptcy are mechanisms for dealing with financial distress, but they differ fundamentally in structure, purpose, and outcomes.

Receivership is typically creditor-driven. A secured lender, investor, or regulatory agency petitions the court to appoint a receiver, often over the debtor's objection. The petitioning party typically nominates the receiver, giving creditors significant influence over who takes control.

Bankruptcy is predominantly debtor-initiated. The distressed company voluntarily files for Chapter 11 reorganization or Chapter 7 liquidation. While creditors can force involuntary bankruptcy in limited circumstances, this is rare. In Chapter 11, the debtor usually remains in control as "debtor-in-possession," with existing management continuing to operate the business under court oversight.

This difference in control is fundamental. In receivership, management is displaced. In Chapter 11, management usually stays in place unless a trustee is appointed for cause.

Industry-Specific Applications

Several industries are experiencing elevated receivership activity given current financial conditions.

Cannabis Industry: Receivership as the Only Option

Federal bankruptcy courts will not administer cases involving assets used in violation of federal law. Despite state legalization, cannabis remains a Schedule I controlled substance under federal law. This means cannabis companies cannot access Chapter 11 reorganization or Chapter 7 liquidation.

For distressed cannabis operators, state court receivership is the primary legal mechanism for managing financial distress and creditor enforcement.

The cannabis industry faces a substantial maturity wall, with $3 billion to $6 billion in debt coming due by the end of 2026. 

Major multi-state operators have significant near-term maturities:

• Curaleaf: $460 million due December 2026

• Cresco Labs: $400 million due August 2026

• Trulieve: $390 million maturing

• Verano: $350 million due October 2026

The industry generated $32 billion in revenue in 2024 and employs over 400,000 people, but refinancing options remain constrained. 

Traditional banks are largely prohibited from lending to cannabis businesses under federal banking regulations. Alternative lenders provide capital but at rates many operators struggle to service.

As these maturities approach without clear refinancing pathways, receivership will be the mechanism through which secured lenders enforce their rights and distressed operators attempt to preserve value. Cannabis receiverships require navigating state licensing requirements, regulatory approval for changes in control, and complex operational issues unique to heavily regulated industries.

Commercial Real Estate

The commercial real estate sector faces multiple headwinds: elevated interest rates making refinancing expensive, declining property valuations (particularly for office buildings), increased vacancy rates, and a substantial volume of loans that matured in 2024.

Lenders are increasingly requesting receiverships during foreclosure proceedings or as a preventive measure when borrowers are in default. The receiver can:

• Take immediate control of rental income

• Ensure property taxes, insurance, and maintenance are current

• Prevent owners from diverting cash or allowing properties to deteriorate

• Prepare the property for eventual sale

Roughly a dozen U.S. jurisdictions have adopted UCRERA (Uniform Commercial Real Estate Receivership Act), including major markets such as Arizona, Florida, Connecticut, Michigan, Nevada, Utah, Oregon, Maryland, and North Carolina. 

California and Texas have not adopted UCRERA; they rely on state-specific receivership statutes. 

UCRERA standardizes procedures, clarifies receiver powers (including, in many states, the ability to sell property free and clear of junior liens with court approval), and makes outcomes more predictable.

This standardization has made receivership a more reliable enforcement tool for regional and national lenders, reducing legal uncertainty and making it easier to assess enforcement options across their portfolios.

Commercial Finance & Merchant Cash Advance

The alternative commercial finance sector, including merchant cash advance (MCA) providers and other non-bank lenders, reached a market size of $18.41 billion in 2024, projected to grow to $19.73 billion in 2025.

These lenders often have daily or weekly payment structures secured by all business assets. When borrowers default, receivership provides a mechanism to take immediate operational control, manage cash flows directly, and ensure available funds go to the secured lender.

Recent regulatory scrutiny has intensified. In early 2025, the New York Attorney General secured a $1 billion judgment against MCA providers for illegal lending practices disguised as merchant cash advances. As regulatory oversight increases and borrowers face stress from elevated interest rates, receivership provides an alternative lender with a court-supervised process for enforcement, while demonstrating compliance with legal requirements.

Receivership Implications for Stakeholders

Receivership affects various parties differently depending on their role and interests.

For Business Owners and Management

Receivership means losing control of your business or assets. 

The receiver's appointment displaces management's authority over the assets in receivership. If the receiver has general control over the business, you're effectively removed from operational decision-making.

However, directors and officers remain in their legal positions and retain specific duties. You must cooperate with the receiver, provide access to books and records, and respond to the receiver's information requests. Failure to cooperate can result in contempt of court.

In some cases, receivership actually protects owners. Suppose the business is failing due to temporary problems rather than fundamental insolvency. In that case, a skilled receiver can stabilize operations, address immediate issues, and potentially return the business to a healthier state. The receiver's neutral position can also help resolve shareholder disputes or management deadlocks that owners are unable to resolve on their own.

For Secured Creditors

Receivership is primarily a creditor protection tool. It allows you to:

• Install a fiduciary who will preserve your collateral

• Prevent further value deterioration from mismanagement

• Control timing of enforcement actions

• Nominate someone with relevant expertise to manage assets

Receivership can be effective for secured lenders, particularly when speed and collateral preservation matter. 

That said, published recovery studies generally show first-lien/secured recoveries averaging in the mid-60s to high-70s over time (with wide dispersion), not a fixed figure. Results depend on the quality of collateral, documents, and market conditions, whether the case proceeds in receivership or bankruptcy.

However, receiverships aren't free. The receiver and their professionals are paid from the estate, reducing funds available for distribution. You must weigh whether the benefits justify the costs.

For Unsecured Creditors

Unsecured creditors generally fare worse in receivership than bankruptcy. Receivership focuses on preserving assets for secured parties. After the receiver's fees and secured creditor claims are satisfied, little typically remains for unsecured creditors.

In bankruptcy, unsecured creditors have formal representation through a creditors' committee, can object to various actions, and participate in voting on reorganization plans. Receivership offers no such formal role, though you can intervene in the receivership proceeding to protect your interests.

For Employees

If the receiver has operational control, employees effectively work for the receiver. The receiver decides whether to continue operations, which positions to maintain, and how to manage payroll.

In receiverships where the goal is to sell the business as a going concern, employee retention may be critical to preserving value. Receivers often strive to retain key employees and maintain business goodwill.

In liquidation scenarios, employees face job loss. The receiver typically addresses unpaid wages and benefits according to applicable priority rules, though employees rank as unsecured creditors for most obligations.

For Board Members and Fiduciary Stakeholders

Board members and officers face complex considerations when receivership is possible. You have fiduciary duties to the corporation and, in insolvency scenarios, to creditors as well. Cooperating with a receiver may be appropriate even if it's not your preference.

Document your decision-making process, consult with legal counsel, and understand your duties in the specific circumstances. Receivership doesn't eliminate potential liability for past conduct, but cooperation with the receiver can demonstrate good faith going forward.

Advantages and Limitations of Receivership

Understanding the strengths and weaknesses of receivership helps evaluate when it's the appropriate remedy.

Advantages

Speed of Implementation: Receiverships can be established relatively quickly, especially in emergencies. Courts can appoint receivers on shortened notice when immediate intervention is necessary to prevent irreparable harm. This agility matters when asset values are deteriorating rapidly.

Cost Efficiency: Receiverships generally involve lower administrative costs than bankruptcy. The absence of quarterly trustee fees, statutory creditor committees, and complex bankruptcy procedures makes receivership more economical for smaller estates where bankruptcy costs would be disproportionate.

Creditor Control: The petitioning party nominates the receiver, thereby giving secured creditors significant influence over the management of assets. This allows creditors to propose receivers with specific industry expertise and a mandate to protect collateral value.

Asset Preservation: The receiver's fiduciary duty is to preserve asset value. An experienced receiver can stabilize operations, prevent waste, and position assets for maximum recovery - often achieving better outcomes than leaving assets with management that created the problem.

Flexibility: Receiverships can be tailored to specific situations. The court order defines exactly what the receiver can do, allowing for narrow or comprehensive authority as circumstances require. This flexibility makes receivership adaptable to varied scenarios.

Multi-State Reach: Federal receiverships can control assets nationwide without requiring separate proceedings in each state, an advantage over state court proceedings, which are limited to in-state assets.

Limitations

No Debt Discharge: Receivership doesn't eliminate debts. The receiver liquidates assets and pays creditors to the extent possible; however, any remaining deficiencies are the debtor's obligation. For fundamentally insolvent companies, receivership alone won't resolve the debt burden.

No Automatic Stay: Unlike bankruptcy, receivership doesn't automatically halt all creditor actions. The receivership court can issue injunctions to protect assets under the receiver's control; however, these are more limited than the comprehensive stay available in bankruptcy.

Jurisdictional Complexity: State receiverships typically only reach in-state assets. For businesses with multi-state operations, this can require ancillary proceedings or seeking federal receivership, adding complexity to the process.

Procedural Variability: Despite UCRERA's standardization efforts in some states, receivership procedures vary significantly by jurisdiction. This creates uncertainty compared to bankruptcy's uniform federal framework.

Limited Stakeholder Voice: Unsecured creditors and other junior parties typically have less formal representation in receivership than they would in bankruptcy, with fewer opportunities for creditors' committees and limited voting rights on reorganization plans.

Costs Still Exist: While generally less expensive than bankruptcy, receiverships aren't free. Receiver fees and professional costs are paid from the estate, reducing distributions to creditors. For estates with limited assets, even the costs of receivership can be burdensome.

No Guarantee of Success: Receivership preserves and manages assets, but cannot solve fundamental business problems. If the company's core business model isn't viable, receivership merely provides an orderly path to liquidation—not a miraculous rescue.

Conclusion

Receivership serves as a robust legal mechanism for managing distressed assets and businesses, particularly in situations where traditional bankruptcy isn't appropriate or where secured creditors need rapid enforcement. 

The choice between receivership, bankruptcy, negotiated workouts, or other remedies depends on your specific circumstances, objectives, and the nature of the financial distress. 

Each situation requires careful evaluation of the costs, benefits, and likely outcomes under available options.

If you need assistance with receivership proceedings, enforcement of secured creditor rights, restructuring strategies for financially distressed businesses, or strategic guidance on managing corporate distress, please contact Brightpoint to schedule a consultation.

Sources

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