What a Receiver May and May Not Do

A receiver holds property for a court, not for a client and not for itself. That single proposition explains the shape of the office. Powers are conferred rather than assumed, significant decisions are approved rather than reported, and the estate is administered under supervision until the court discharges the appointment. Counsel who treat a receivership as a change of management, with a new manager free to act commercially, misread it.

The appointing order as the source of authority

New York states the principle directly. The court appointing a receiver may authorize the receiver to take and hold real and personal property, to sue for, collect and sell debts or claims, to compound and compromise them, upon such conditions and for such purposes as the court directs. Powers may afterwards be extended or limited on motion of the receiver or a party, and the receivership may be extended to another action involving the same property.

The same statute contains a pointed limit: a receiver has no power to employ counsel unless expressly authorized by order of the court. That provision exists because legal fees are the expense most likely to consume a small estate, and it illustrates the drafting philosophy. Where a power is not granted, it does not exist, and a receiver that acts beyond the order risks personal exposure as well as removal.

California confers a broader default set: power under the control of the court to bring and defend actions in the receiver's own name, to take and keep possession of the property, to receive rents, to collect debts, to compound and compromise them, to make transfers, and generally to do such acts respecting the property as the court may authorize. Even that formulation ends with a reference back to the court's authorization.

Operating a business, under state law

A receiver that runs a business is not insulated from the obligations the owner would have had. The governing federal statute requires a trustee, receiver or manager appointed in any cause pending in a court of the United States to manage and operate the property according to the requirements of the valid laws of the state in which the property is situated, in the same manner as the owner or possessor would be bound to do.

The consequence is that employment law, environmental requirements, licensing conditions, tax collection duties and safety regulation continue to apply. A receiver cannot direct employees to work unpaid on the theory that the estate is short, and cannot suspend a regulatory obligation because compliance is expensive. Where compliance is impossible the answer is an application to the court, not unilateral abandonment.

The same statute makes receivers suable without leave of the appointing court with respect to acts or transactions in carrying on business connected with the property. That is an exception to the general principle that a court's officer is not to be sued elsewhere without permission, and it exists so that people injured by an ongoing business are not sent to a distant court for leave first. Such actions remain subject to the appointing court's general equity power where the ends of justice require.

Sales, and the conditions attached to them

Federal law prescribes the mechanics. Realty sold under an order or decree of a court of the United States is sold as a whole or in parcels at public sale, at the courthouse of the county where the greater part of the property lies or upon the premises, on terms the court directs. Property in the possession of receivers appointed by more than one district court is sold in the district where a receiver was first appointed.

A private sale is possible but conditioned. The court may order one after a hearing, with notice to all interested parties given by publication or as the court directs, if it finds that the best interests of the estate will be served. Before confirmation the court appoints three disinterested appraisers, and no private sale may be confirmed at a price less than two-thirds of the appraised value. Personal property is sold in accordance with the same section unless the court orders otherwise.

These conditions are why a receivership sale takes longer than a commercial one and why buyers price the delay. They also explain why parties who need a fast disposal of assets sometimes prefer a different procedure entirely, a calculation touched on in the account of what it takes to have a receiver appointed.

Accountability while the appointment runs

Reports are the supervision mechanism. An initial inventory, periodic financial statements, notice of transactions outside the ordinary course and a final account are standard, and orders that omit them create problems that surface only at discharge. Parties are entitled to see the reports, and a receiver that files late or thinly invites applications from both sides.

Removal is the ultimate control, available where the receiver has exceeded its authority, failed to account, or lost the neutrality the office requires. Short of removal, parties can apply to limit the powers granted, and the appointing court can modify the order at any time. A defendant that regards the whole appointment as unjustified has the separate route described in the motion to dissolve a writ already issued.

Finally, the receiver's costs are a first call on the estate, which affects everyone with a claim to the property. A plaintiff that obtained the appointment on an inadequate showing may face a claim on the security it posted, as described in the bond and damages for a wrongful writ, and creditors watching the estate shrink often press for the narrower alternatives set out in the grounds attachment requires.