Receiverships: An Overlooked Option for Complex Dispute Resolution

Receivership is known as a favored collections tool for creditors, allowing appointed receivers to collect unpaid judgments. It is also used in some cases of divorce, particularly when divisible property needs to be preserved and distributed by the court and its appointed receiver, and in cases involving complex commercial and property litigation.

Though the use of receivership in these capacities is available under rules of equity and Texas statutory law, it is an often overlooked and under-utilized tool for resolving complex disputes. Below, our attorneys at Hendershot Cowart P.C. explain more about receiverships in Texas.

Understanding Receivership

• What is receivership? – Receivership is a remedy which originated in chancery courts in England as a means to protect property. Today, the role of receivers has evolved, and though it may vary by state in some respects, generally facilities a way to resolve matters without the rigidity and formal processes of common law and long-term litigation.
• Appointment of a receiver – Receivers can be appointed in different ways and for different reasons, but are most often court-appointed, either following the filing of a motion or as a form of requested relief. Their powers may also be tailored, limited, or expanded in appointment orders.
• Receivers – Receivers must be neutral and independent parties from those involved in the underlying case, meaning they cannot be an attorney, plaintiff or defendant, or any other party with an interest in the action in which receivership is sought. In Texas, receivers must also be citizens and qualified voters of the state.
• Powers and duties – Court-appointed receivers can be granted custodial responsibility for the assets (both tangible and intangible) and rights of an individual or entity. Considered among the most influential and independent judicially appointed managers (as compared to monitors or special masters), receivers not only have the power to make decisions and spend funds, but also the ability to marshal the structure and guidance parties can’t facilitate on their own.

Types of Receiverships

Texas allows for equitable receiverships as an equitable remedy, as well as receiverships under the Texas Civil Practice & Remedies Code (Ch. 64) in situations involving:

• Vendor actions for vacating fraudulent property purchases
• Creditor actions for claiming property or fund
• Partner, shareholder, and other parties with interest in property or funds
• Mortgage lender actions for foreclosing or selling mortgaged property
• Corporations which are or near insolvency, or which have divorced or forfeited corporate rights

Whether a receiver is appointed in matters involving divorce and spousal property, business litigation involving disputes or insolvency, mineral interests or leases, or judgment creditors, their powers and duties can be modified to the particular circumstances of a case.

Receivership and Practical Uses

Although cases vary, receiverships can provide a means for structure and guidance parties in an underlying action are not able to foster on their own. From locating needed documentation, providing the court with information, and overcoming dysfunctional relationships to selling or liquidating assets and pursuing or defending against lawsuits, the work of receivers can help stabilize and manage business entities and property, and provide a more expeditious path to resolution amid litigation.

Examples of ways receiverships can help facilitate various legal and business objectives and resolve complex disputes include:

• Preserving value – Receiverships were borne from the need to protect and preserve property, and remain a very viable tool for doing so. By assuming custody of assets, receivers can preserve value during litigation, whether such action stems from disputes over property in divorce, between business partners or shareholders, mortgage lenders with foreclosed property, or other complex disputes.
• Shareholder disputes – In matters where shareholder disputes create potentially harmful gridlock and disagreement, receivership may be a viable option for installing a neutral third party to preserve and manage the company’s affairs. Receivers appointed in these situations have the ability to make corporate decisions necessary for the preservation of a company’s value, and for shielding that value from being jeopardized by underlying litigation between shareholders.
• Divorce and family law – Court-appointed receivers can preserve, protect, and manage spousal property in divorce proceedings. They may be of particular use when one of the parties controls a business and has the ability to manipulate or conceal financial information about that business for their own benefit in a divorce case. In such situations, receivers can assist in reporting to the court their findings on the finances of a business. They may also be used to streamline the sale of assets for complex property division, and help facilitate resolutions.
• Post-judgement – Receivers help foster efficient solutions to problems with the satisfaction of judgments, especially when judgment debtors may conceal or transfer assets to the detriment of the judgment creditor. By taking control of the debtor’s non-exempt property and being free from cumbersome collection procedures, receivers are favorably positioned to execute sales and payments of real property, tangible assets, and intangible assets like intellectual property and limited partnership investments; and ultimately to efficiently satisfy judgments.
• Fraud – Receivership can be a powerful tool when matters involve fraud and unfair practices. In addition to assuming control of assets and records to identify fraudulent conduct, receivers also have the power to issue subpoenas, and a broadened ability to assume possession of any assets purchased with proceeds of fraud, pursue lawsuits against third parties to recover assets, manage the claims process, and seek approval for distribution.
• Business insolvency – Receivers can assume custodial responsibility for either an insolvent (or near-insolvent) business entity or its assets, in order to sell and settle liens and liabilities with creditors based on priority.
• Enforcement of court orders – In some cases, receivership may become an option for enforcing court orders. Though it is a more drastic option than others, it can be an effective and necessary tool when one or more parties fail to comply with the court, such as in matters of fraud or divorce.

While receiverships can be a powerful tool for resolving complex disputes and facilitating specific objectives, it’s not a one-size-fits-all solution. Given certain limitations associated with receivership and the unique facts of a particular case, it should be thoroughly explored and considered as a potential option in complex matters, rather than a necessary and automatic solution.

Learn How Hendershot Cowart P.C. Can Help With Your Complex Dispute

Hendershot Cowart P.C. is a Houston-based law firm with Texas roots and a national reputation. Over the years, our attorneys have leveraged more than 130 years of combined experience to guide a range of individuals, families, and businesses through complex cases and disputes in matters involving business litigation, health care, OSHA defense, and more.

If you have questions about a potential case and how our award-winning team may be of assistance, please call (713) 909-7323 to speak with a lawyer or contact us online.