Q. What is a “receiver”?
A “receiver” is a court officer appointed to protect property in dispute during the pendency of a lawsuit. As a court officer, a receiver has no discretion or personal control over the property he holds, but must obey court orders.
Q. When is a receiver appointed?
Receivership is an extraordinary remedy, which deprives an owner of the right to possess her property. It is only an ancillary and interim remedy, designed to secure property pending the Court’s ruling on the underlying claims. Stated differently, a party cannot file a lawsuit where the appointment of a receiver is the sole primary goal, and the complaint does not state a claim for some other relief.
Courts usually appoint receivers only when necessary to prevent the imminent danger of loss. Illinois recognizes an exception to that general rule in commercial foreclosure cases – where courts commonly appoint receivers.
Q. Do courts appoint receivers in disputes between business owners?
Yes, but reluctantly. Courts will not appoint a receiver for a business unless dissension, fraud, misconduct or mismanagement make it impossible for the business to continue or to preserve its assets. The party seeking a receiver must show an urgent necessity and a “present danger to the interests of the investors, consisting of a serious suspension of the business and an imminent danger of dissipation of the corporate assets.” Mere speculative fear that a business may lose assets at some future date will not justify a receiver’s appointment. Mere dissension and dispute between parties is not sufficient to invoke the remedy. A receiver is warranted only where there is no other adequate way to secure the desired result.
Q. What other factors do courts consider when asked to appoint a receiver?
Courts appoint a receiver to protect assets during the pendency of a lawsuit. If appointing a receiver would cause more harm than good (i.e., triggering a loan default), a judge will likely refuse.
Receivership is a complex legal area. If you find yourself in need of a better explanation, please call us today.