At first glance, business divorces and marital divorces may not seem to have much in common other than the “D” word. But the truth is that an underutilized tool – the court appointment of a receiver – can bring both such contentious matters to resolution by injecting an objective third party into the process. Indeed, receivership is much like a Swiss Army knife when it comes to a wide range of business, family law, and contested estate matters that require preservation and protection of property and closely held assets. Receivership is a tailor-made solution for business litigators, divorce attorneys, probate litigators—anyone who needs to level the playing field.
Receivership in Action
A receiver is a court-appointed officer charged with taking possession of, preserving, and protecting assets for the benefit of all interested parties. With oversight and reporting duties, a receiver is a neutral third party who is responsible for marshaling, managing, protecting, preserving and enhancing the receivership assets for the benefit of the receivership estate, with court oversight, and not for any specific party. In Arizona, the right to appoint a receiver is statutory, with specific duties set forth in the receivership order issued by the court.
Receivership brings a number of universal benefits to just about any contentious situation.
Triage. The first step is essentially triage, preserve and protect, making sure that money or other assets do not disappear or dissipate due to improper controls over the business or family property/ interests. In a traditional marriage heading into divorce proceedings, for example, you might have a husband running a business and the wife doesn’t have any involvement. Suddenly, money is going to a new related company, but she doesn’t have any control. The same principles apply in a business dispute. Perhaps one of the partners is receiving an unauthorized salary or transferring assets without company authority. If you have a court order and a receiver who’s authorized to seize control of the assets, then everyone has the same information, governed by someone with some distance and objectivity.
Corrective Action. The next step is corrective action. With control over the financials in a business or other property, what’s been deposited or been paid, the receiver can take steps to rectify the situation. This may include building an accounting system that provides all of the information to all interested parties, and submitting reports to the court while doing the ongoing monitoring that is required. In a family law situation, the receiver can take action to ensure that community assets are not dissipated or otherwise threatened.
Resolution. Finally, a receiver will bring matters to resolution. In the case of a business, that may include offering a valuation, recommending dissolution options, or mediating a new operational agreement, up to and including selling the assets. In a divorce, the receiver may be responsible to the court for resolution of a wide range of issues, whether the preservation of assets and family-owned businesses or the sale and disbursement of marital assets, commonly including the liquidation of real estate.
Final Thoughts Whether in family law circumstances, business disputes, probate or trust matters, suspicion, and distrust are frequently at the root of the issue. Receivership is a court-appointed and supervised remedy that is arguably the most effective way for parties to get to the bottom of things and bring them to resolution.
As with so many trends, California is leading the way in receivership, with a body of statutory provisions and case law that lead to, and guide, such appointments. We don’t have that body of case law in Arizona yet. And, while receivership appointments are very common in loan default proceedings, many attorneys are now utilizing this remedy in marital divorces, closely-held business disputes, and contested estates, where there may be a need to seize control of assets, manage and marshal same, and potentially operate business/real estate assets. A well-executed receivership is neither as complex nor as expensive as many lawyers and judges may think, and can actually be less costly than extended litigation, as receiverships level the playing field among parties, and as a result, aid in equitable resolution, on a more expedited basis.