September 24, 2017

Bankruptcy Attorney: Advising Receivers

In my practice as a bankruptcy lawyer, I also have occasion to work on cases involving receivership and have advised receivers. It is important to note that a receiver must be a neutral third party, with no ties to or interest in the debtor or its business, or its creditors.  The court oversees the  receiver’s actions in accordance with the North Carolina statutes governing receiverships.

Case study: a medical practice in receivership

I recently represented a court-appointed receiver as his attorney, and the case illustrates how receivership works and the need that receivers may have for an experienced bankruptcy attorney to advise them in their work. The receivership was of a medical practice that ceased operating after some of the owner-physicians departed, leaving assets to be collected and debts to be paid.

After three years of complex and protracted litigation within the receivership, the North Carolina Business Court approved in June 2011 a settlement that resulted in the receiver paying all court-approved creditor claims, in full.

This would not have happened, but for the appointment of the receiver, my client, who did the hard work of collecting the assets of the debtor. Part my work was advising the receiver on the lawsuit alleging that certain shareholders of the debtor converted assets of the debtor to their own personal use, for their own personal medical practice (the lawsuit was settled with no admission of liability).

Q: What does it mean that there was litigation “within the receivership”?

A: The receiver has the capacity to sue on behalf of the debtor.  He can file lawsuits on behalf of the debtor, and is in fact charged with that duty pursuant to the statutes.  N.C.G.S. §1-507.2.

Q: How does the court decide who will be the receiver?

A: Under North Carolina law, a receiver may be appointed by a North Carolina district or superior court judge upon

  1. the filing of a complaint and summons, in which the complaint seeks an order appointing a receiver to take charge of the financial affairs of an individual or entity called a debtor, and
  2. a showing that the debtor is actually insolvent, or in danger of insolvency.   N.C.G.S. §§1-501, 1-502, 1-502.1.

The party requesting appointment of a receiver often suggests to the court a candidate suitable for serving as the receiver.  A person or entity can serve as receiver.  Usually, a receiver has a background in accounting, finance, banking or law, and/or some experience in the debtor’s type of business.

If you think a receiver may be an appropriate remedy, you would do well to consult an experienced bankruptcy attorney for advice.