A receivership is type of bankruptcy and is often initiated by the party that is owed rather than the debtor. In a receivership, a person is appointed to manage the business to avoid bankruptcy. This is often called restructuring and the person who is managing the company is usually appointed by the court if the government gains control of the company. If the receivership is initiated by a creditor, they will appoint the person to be in control. The creditor is the one with the authority to make all of the decisions and the manager will act as a representative to handle the daily business or to prepare the company for liquidation.
A receiver usually has three goals that they need to accomplish:
- They secure the assets of the company
- They realize the assets of the company
- They manage the company with the goal of payment of debt
When a creditor appoints a receiver, it basically means the business has no other option to pay its bills and the owner or board has lost control of all decisions regarding the business. The receiver could decide to liquidate the business to receive the amount owed to them. However, they can also choose to keep the business open and just take the proceeds to pay off the debts.
If the receiver chooses to liquidate, that will probably be the end of the company. If they choose to manage the company, they can often get it back on track to being a profitable enterprise again. Once the receivership ends, the business owner can often go on with their business in better financial shape than it was before.
How Receivership Affects Commercial Properties
When a business goes into receivership, the receiver has the right to accept or reject any lease that is currently valid. If they choose to accept it, nothing changes. However, if they choose to reject the lease, the contract is technically terminated. The tenant does have the right to finish the lease at the location. At the same time, the landlord does not have any obligation to make improvements, pay utilities, or maintain the property.
The receiver may decide to hire a real estate agent to market the property if it has empty spaces for rent. They can determine price of rent and negotiate the lease as if they were the owner. They also have the power to raise the rent or change other terms for current tenants.
A receivership is something most businesses avoid. However, it can have positive effects for the business. If the receiver has the ability to turn the business around, it can be successful once it is back in the owner’s hands after all debts have been discharged.
For tenants of a commercial property that has been put in a receivership, this can be an unsettling time. They do not know what changes will happen or who will be their landlord in the future. But they do not need to panic since the terms of their lease may now be void, giving them more options.
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