When a commercial borrower defaults, creditors have several remedies at their disposal. One such remedy is a receivership — a court-appointed process where a neutral third party, the receiver, takes control of the debtor’s assets to preserve their value and manage operations. Receiverships can be an alternative to bankruptcy, offering more flexibility and potentially quicker resolutions.

While receiverships are available at both the state and federal levels, this article will review the intricacies of initiating a state court commercial receivership.

Legal Grounds for Appointment

Mark Silverman, partner at Troutman Pepper Locke, notes that the appointment of a receiver can be grounded in both contractual agreements and statutory provisions.

• Contractual Provisions: Loan agreements often include clauses allowing for the appointment of a receiver upon default.
• Statutory Authority: Many states have enacted laws governing receiverships. For instance, the Missouri Commercial Receivership Act provides clear guidelines for appointing receivers in commercial cases.

Key Considerations Before Initiation

Sometimes, the mere threat of a receivership can prompt a debtor to negotiate or fulfill obligations. Matthew Brash, Senior Managing Director of Newpoint Advisors Corporation, notes that filing a motion for receivership can serve as a powerful leverage tool, encouraging settlements without the need for full proceedings.

Should you choose to initiate a receivership, however, it is critical to perform a thorough analysis before formally proceeding, according to Emily Cantwell, partner at Lathrop GPM. Such an analysis should include a review of the following:

• Nature of the Dispute: Identify whether the issue is payment default, mismanagement, or fraud.
• Parties Involved: Understand the roles and rights of all stakeholders, including secured and unsecured creditors.
• Asset Profile: Assess the type and value of assets involved, such as real estate, inventory, or intellectual property.
• Legal Framework: Review relevant statutes and contractual provisions that may impact the receivership process.
• Business Structure: Analyze the debtor’s organizational structure, including any affiliated entities or complex ownership arrangements.

Receiverships involve various costs, including receiver fees, legal expenses, and operational costs. These expenses are typically paid from the receivership estate and may take priority over other claims. It’s essential to assess whether the estate has sufficient assets to cover these costs prior to initiating a receivership.

Filing Requirements

Initiating a receivership involves several key filings, including:

1. Complaint: Outlines the basis for the receivership, including details of the default and the need for asset protection.
2. Motion for Appointment: Requests the court to appoint a receiver, detailing the proposed receiver’s qualifications. The receiver should have experience relevant to the debtor’s industry and the complexity of the case. In some jurisdictions, courts may require the selection of receivers from an approved list, which can limit options.
3. Receiver’s Declaration: Provides information on the receiver’s experience and proposed management plan.
4. Proposed Order: Drafts the terms of the receiver’s appointment, including powers and duties. Paige Bar Tinkham, partner at Blank Rome LLP, advises that the proposed order should be comprehensive, clearly delineating the receiver’s authority and responsibilities.
5. Bonding Information: Details any required bonds to protect the parties involved.

Conclusion

Commencing a state court commercial receivership requires careful analysis, a clear understanding of the relevant legal frameworks, and strategic decision-making. By thoroughly evaluating the situation with the appropriate counsel, creditors can effectively utilize receivership as a tool to protect their interests and maximize asset value.

To learn more about this topic view Nuts and Bolts of Commencing a Commercial Receivership Case. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about receiverships. 

This article was originally published on August 7, 2025.

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