Both our domestic and foreign clients understandably wish to avoid full-blown litigation in certain cases, especially when the facts are messy, or the relationships are complicated. One successful option we have guided our clients through is the receivership. This is especially useful in the context of partnerships gone bad – if you have a business partner who won’t communicate or is generally disengaged, a receivership may be a great alternative to filing a lawsuit.
What is a Receivership?
Receivers are neutral third-parties that will take over a business’ operations during a pre-litigation period or while it’s actively involved in legal proceedings. A receiver’s sole purpose is to preserve and protect the business during this period – and, if you take care to ensure that your receiver is well-versed in your industry, it can typically handle most everything.
Of course, some clients are hesitant because most don’t like to relinquish control of a business they’ve grown from the bottom up. This is a valid concern, as a receiver’s powers over a business is usually extremely broad – it can manage all funds, replace a management company, hire and fire employees, obtain new legal counsel, etc. However, especially in the case of a partnership dispute, there are definite upsides. If you’re concerned that funds are being commingled, misappropriated, or flat out stolen, putting in a receiver can safeguard against those concerns for the time-being. Similarly, if you suspect that your partner is unmotivated or may be sinking the ship intentionally, a receiver can step in and make sure that the business is being run optimally. And, both sides are protecting themselves from ongoing and future allegations of wrongdoing.
Receiverships Can Be Tailored to Your Situation
We have also worked with our clients to modify receiverships when that makes sense. Even in active litigation, the court may agree to a “limited purpose receiver” to take charge of a defined aspect of a business (hold the funds, collect the accounts, take charge of the accounting functions, prosecute and settle a lawsuit), leaving you and your partner to run the rest of the business. A receivership may also be used in combination with other remedies, such as injunctions, to accomplish your desired results.
But, Receivers Cost Money
Receivers typically bill hourly (like attorneys and accountants), and they take their fees from the business unless another arrangement has been agreed to. Depending on the level of control, a receiver’s total compensation can really range – obviously, another important consideration to keep in mind.
Despite the cost, receivers play a big role in the American judicial system and should always be considered as an option. If you find yourself in a dispute, and particularly a partnership dispute, don’t forget that a receiver might help alleviate many of your business concerns while your attorneys fight for your legal ones.