Insolvency Services Group (ISG) knows that, for creditors, there are no right or wrong answers – only solutions which structure the best approach at a particular point in time. Increasingly, the most attractive option for secured creditors faced with a faltering business is a state or federal court receivership. From the distressed company’s view point, modern day equity receiverships serve as a valuable tool for restructuring or sale as a going concern – often saving considerable costs that would be attendant if that company were to pursue Chapter 11 reorganization under the Bankruptcy Code. A receivership is commenced by the filing of an action in either a state or federal court. Typically, a collateral receivership begins with the filing of a complaint by a secured creditor seeking to enforce its secured claim. That complaint is followed by a motion or application for the appointment of a receiver to take custody and control of the secured creditor’s collateral. Similarly, organizations facing insolvency or other financial distress can commence an action for dissolution and request the appointment of a receiver pending conclusion of the proceeding.
The receivership option provides four advantages:
- Relatively Easy to Commence. A single secured creditor can choose this court option. By contrast, it takes three unsecured creditors holding unsecured debt to file an involuntary bankruptcy action. If successful, generally, a trustee is appointed who plays a broad role and who is not looking out for the best interests of a secured creditor.
- Immediate Appointment and Security. Appointment of the receiver can be immediate. That means quick action to halt losses and protect assets, proceed to a sale, and in some instances, begin restructuring. This generally results in increased asset value. In fraud cases, the receiver can be a powerful tool for investigation and recovery of diverted assets.
- Flexibility. The process is flexible and allows for custom-making of the receiver’s authority and methodology.
- Selection. The party seeking the appointment of a receiver can recommend a specific receiver to the court. As a result, the parties can tap into a deep pool of expertise when it comes to an operating or transitioning business. In bankruptcy, the U.S. Trustee often appoints the trustee from a limited panel of approved trustees.
ISG is frequently selected as the first choice for receiverships because of its business and legal expertise. With receiverships, courts don’t have many precedents, making legal expertise as important as business knowhow.
To each unique receivership situation, ISG brings:
- Pre-filing analysis, timing and selection of jurisdiction.
- Industry-specific experience.
- Specialization in business receiverships from a legal standpoint.1