A receiver is a person appointed to take over and run a business or property. The receiver is appointed by the court and, in theory, works for the court. As a practical matter, a receiver is virtually always selected by a creditor, formally appointed by the court, and then works for the creditor.

The receiver’s typical role is to prevent the owner(s) from damaging the creditor and usually occurs when the debtor has already inflicted some harm on the creditor. The link here, is a fairly egregious example of the damage done to a creditor but is a good example of the kind of thing that will get a receiver appointed.

Failing to pay the creditor for months while getting money from the creditor’s collateral and failing to maintain the collateral is exactly the situation why the receivership statutes exist. Upon receiving the appointment, the receiver is supposed to take possession of the property and dispossess the owner, collect any monies due, and protect and preserve the property.

While there are different statutes for receivership for businesses and for property, the basic idea is the same. The receiver is there to basically maintain the status quo and to keep the debtor from wasting the asset and taking money that properly belongs to the creditor.

The appointment of a receiver is a fairly drastic move and is not one lightly taken. After all, the court literally has to eject a debtor from the debtor’s own business or property and turn it over to the receiver, usually before there has even been a judgment entered.

For that reason, receiverships are relatively rare but seem to becoming more common as more and more businesses and property owners struggle. As a result, it is a tool creditors should become familiar with and a weapon that debtors need to take care to avoid.