◀ Back    Trigild eTips Types of Receivership

Question: How many different kinds of receiverships are there?

Answer: While there are many forms of receivership, some specifically dealing with failed railroads, banks or utility companies–most commercial lenders and servicers deal with two:

1. A "Rents and Profits" receiver takes legal possession of only specific assets that are part of the lender’s security, as well as rents or operating income from the principal asset (like a hotel)

2. A "General Assets" receiver is appointed to take possession of an entire legal entity as well as any and all assets in the defendant’s possession.

Question: So if we have a receiver appointed for a company that owns a group of restaurants, what exactly does the receiver take control of?

Answer: The assets that are part of the lender’s security are what the receiver can take possession of . It could be the entire company, or a "General Assets" receivership, but only if the loan documents specifically include the parent company. Typic ally the receivership will fall under the "Rents and Profits" category because the lender has a secured interest in land, buildings, inventories, income and other assets, but not in the parent company itself.

Even though the foreclosure suit might be titled "ABC Bank v. XYZ Company," it does not in itself mean that the receiver acts as a receiver for the entire company, even if the company owns these restaurants and nothing else. The receiver may, however, take records and other items from the corporate off ice if they pertain to the restaurant assets. Logically, with the restaurants and all related income gone, the parent company has no viable business. The company does continue to exist, however, and ret ains all of the bills, wages and other debts. The receiver takes all of the receivership related asset’s income on hand, including any income earned prior to the receiver’s appointment.

Legal Definitions

Receiver: A disinterested person appointed by a court, or by a corporation or other person, for the protection or collection of property that is the subject of diverse claims.