Receiverships Protect Property in a Variety of Situations

Who or what is a receiver? A receiver is an outside person or entity appointed by the court to manage money or property during the course of a lawsuit. Receiverships date back to the Elizabethan era in the English Court of Chancery, but the passage of time has not changed this basic premise: A receiver exercises powers for the common benefit of all parties in interest, owing loyalty only to the court and acting solely for the benefit of the property concerned, even if recommended by or appointed at the request of a party.

Traditional Receiverships
Ohio law specifies the purposes for which a receiver may be appointed, including:

  • Protecting commonly owned property or funds in dispute or in danger of injury or dissipation;
  • Preserving real property during a foreclosure when the property is in danger of being lost, removed, or materially injured;
  • Enforcing a judgment;
  • Disposing of property according to a judgment or to preserve such property pending appeal;
  • Winding up of a dissolved corporation;
  • Managing the affairs of a corporation whose owners cannot agree or that is facing insolvency

In practice, a receiver is most commonly appointed at the request of the mortgagee in a foreclosure proceeding. This is called a “rents, issues, and profits” receivership. The court appoints the receiver to take charge of and maintain the mortgaged property and to collect the rents, issues, and profits from the property until conclusion of the foreclosure case. Most mortgages contain clauses authorizing the appointment of a receiver. Absent such consent, the mortgage holder must provide evidence that “the mortgaged property is in danger of being lost, removed or materially injured, or that the condition of the mortgage has not been performed, and the property is probably insufficient to discharge the mortgage debt.”

Non-Traditional Receiverships
Ohio Courts have also appointed receivers to assist a creditor who can show that a judgment is unsatisfied and that the debtor refuses to apply property in satisfaction of the judgment. Such a receiver “in aid of execution” is vested with powers to collect funds or assets that could be used to satisfy a judgment. An example of a situation best suited for such a receiver is an action involving a liquor license. Since a liquor license cannot be subject to a security interest or a judgment lien, appointing a receiver is often the only method available to a creditor to reach the value of the license to satisfy the claim.

Other unconventional uses of a receiver include:

  • To bring property into environmental compliance;
  • In criminal cases, to assist prosecutors to protect and preserve property subject to forfeiture;
  • Cases involving intellectual property – such as royalties for patents, trademarks, copyrights, web sites, and domain names. This is because no method of levy exists for general intangibles such as intellectual property;
  • To garnish a delinquent spouse’s wages, if an execution on wages for child support payments cannot be accomplished in the traditional way;
  • To collect certain other types of post judgment payments, such as the loan value of an insurance policy, or wages due from the federal government that are not subject to a garnishment or a wage earnings withholding order. If the judgment debtor has income-producing property, the judgment creditor may want a receiver to collect the income and apply it to the judgment while also   pursuing an execution sale of the underlying property or as an alternative to such a sale;
  • To attach a partnership interests. To reach a debtor’s partnership interest, the judgment creditor must first obtain a court order charging the partnership interest with the amount of the judgment. The court may then appoint a receiver as part of a charging order to manage the partnership and aid in the collection of the amounts due for that interest;
  • To enforce a family law order or judgment. A typical case would be where a party is seeking to enforce spousal or child support orders or to preserve, manage, or safeguard community property pending a property division order;
  • In cases involving businesses with cash assets that can be hidden, diverted, or dissipated, such as a restaurant, bar, or retail store. A receiver can also be utilized to avoid contradictory management by warring spouses or business partners;
  • To marshal property when there have been violations or threatened violations of property division orders;
  • In regulatory cases. Various statutes authorize a court to appoint a general equity receiver to protect the public interest and allow the receiver to take control of the defendant’s assets or business (and, if the defendant is a corporation or partnership, the defendant itself);
  • To avoid fraudulent transfers and to set aside certain types of preferences;
  • In cases brought by regulatory agencies such as the SEC or the Federal Trade Commission;
  • By a county treasurer to take over rents if property taxes are over six months delinquent and use those rents to pay delinquent taxes;
  • In substandard housing cases to remedy unsafe conditions that pose a danger to the health and safety of residents or the public or to remedy a public nuisance.

Conclusion
A common perception is that receiverships are expensive and complicated. However, a detailed analysis of the benefits, remedies, and potential costs will help determine whether a receivership is an appropriate remedy to protect and advance a client’s interest.

Philomena Saldanha Ashdown specializes in insolvency practice, which includes representing court-appointed fiduciaries or serving as one. This article is a combination of two articles she has recently written for the Cincinnati Bar Association Report. To learn more about the benefits of a receivership or other   insolvency options, please contact Mrs. Ashdown directly at (513) 629-9456 or psashdown@strausstroy.com.

This entry was posted in Litigation | Dispute Resolution, Published Articles, Volume 11, Issue 3