Receivership

What Is a Receivership?

A receivership is a legal arrangement in which a court, regulator, or lender appoints an independent person, called a receiver, to take control of a company's property or business. The receiver's job is to protect and manage the assets, collect what is owed, and distribute the proceeds to creditors according to their legal priority. The company's owners and managers usually lose day-to-day control while the receivership lasts.

How a Receivership Works

Receiverships often begin when a business cannot meet its debts, a condition known as insolvency, or when its assets are at risk of being lost or wasted. A secured creditor holding a claim against specific property, such as real estate or equipment, may ask a court to appoint a receiver to take control of that property. Once appointed, the receiver may keep the business running, sell assets, and pay creditors in the order set by law and the loan agreements. Any money left after creditors are paid generally goes to the owners.

Receivership in Practice

In the United States, when a federally insured bank fails, the Federal Deposit Insurance Corporation is typically appointed as receiver. It takes control of the bank's assets, pays insured depositors, and works to sell or wind down the remaining assets. Receiverships can also be used for other businesses, and they may end in a restructuring, a sale of the company, or a liquidation. Some receiverships are part of a broader process that also involves bankruptcy filings.

Why It Matters to Investors

Receivership creates real uncertainty for investors. Shareholders generally rank behind creditors, so equity holders often recover little or nothing when assets are sold. Trading in the company's shares may be halted or may continue at much lower prices. Receivership can sometimes preserve value, for example by selling a business as a going concern, which may bring more than a forced sale of its parts.

• Creditors are generally paid before shareholders.
• The outcome depends on how the assets are valued and sold.
• Court filings and regulator announcements are the main public sources of updates.