When people hear the term receiver they may think of NFL Hall of Famer Jerry Rice, but a Court-Appointed Receiver is a whole other ball game.
The use of Court-Appointed Receivers began in the Old English Chancery Courts and were often used to take control of an estate that did not have an heir. For example, in the 1500s when a King died without a son or heir to take over the kingdom, what happened to his knights, his treasury, his staff, the castle, etc? In these situations the Chancery Court would appoint an educated, qualified, and responsible person, known as a receiver, to take control of and run the castle until a successor for the king was found.
The use of Court-Appointed Receivers continued into America and receivers are called upon today when something is out of control. Therefore, receivership can arise in a variety of ways—ranging from abating the issues presented by a nuisance property in a residential neighborhood to winding down Bernie Madoff’s Ponzi schemes.
In summary, whenever something is out of control a Receiver is appointed by the Court to take control of it and bring it to order. The Receiver is a neutral agent of the Court that must act in the best interest of all parties to achieve a just result. The Receiver has extremely broad powers, which include being able to sell and even demolish property. However, the Receiver must use these broad powers to act in the best interest of all parties, or face being removed from the court. Furthermore, the Receiver must promptly report his or her actions to the Court and all parties to ensure he or she is acting in the best interest of all parties. Once the receiver brings the situation back to a state of normalcy, he or she seeks discharge from the Court.
Bay Area Receivership Group handles a few specific types of receiverships, which are explained below:
As it relates to specific receivership examples, cities and counties in California often use health and safety receiverships to abate nuisance conditions. A few reasons cities and counties might use the health and safety receivership remedy are when a property is abandoned, occupied by a hoarder, the site of criminal activity, or the owner passed away without any heirs. If typical code enforcement efforts by a City or County are unsuccessful then a receiver can be appointed to abate the dangerous conditions. The Receiver then borrows money from lenders with Court approval to abate the nuisance conditions and then decides to do one of the following with the property.
- Sell the property as-is to a responsible owner with conditions
- Demolish the property and sell the vacant lot
- Fully rehabilitate and sell the property
Just as the banks collapsed in the 2000’s as a result of the subprime mortgage crisis, companies and corporations can collapse for a variety of reasons. As an example, a lumber mill in Colorado was struggling economically and about to go under, but before it went under a receiver was appointed to preserve the company. In this case, the Receiver was able to negotiate new contracts and keep most of the sawmill employees employed. Eventually the saw mill was sold to a responsible owner. California courts have appointed receivers to wind-down corporations on numerous occasions, and in these situations courts have appointed receivers on their own motion to achieve judicial objectives.
The case of Gold v. Gold involved a family business started by family patriarch Morris Gold who was an extremely successful businessman. Several years later his son and son-in law became involved in the business. In 1992 the patriarch Morris passed away. Thereafter, Morris’s son and Morris’ son-in law began to disagree, and eventually Morris’s son in-law sued Morris’s son for control of the corporation. Years of litigation between the two parties ensued and eventually the court decided it was best to appoint a Receiver to dissolve the corporation. The court then decided it was appropriate for the Receiver to liquidate and sell the corporate assets.
The situations above are just two examples of how a corporation can fall apart and how a receiver can be appointed to fix the problem. As discussed above, receivers are appointed to bring order to a situation that is out of control and receivers are often called upon to do this when companies and corporations fail.
Another way to utilize the receivership remedy is to preserve property that is involved in criminal activity and pay restitution to the victims of the criminal activity. Often if a person is arrested and incarcerated the question becomes what happens to their assets? A recent example of when a receiver was sought is in a criminal case is when Bernie Madoff was incarcerated for his multi-billion dollar ponzi scheme. Although, the ponzi scheme fell apart Mr. Madoff still had substantial assets to be seized and distributed to his victims, which is why the SEC sought the appointment of a receiver.
California has its own statute to appoint a receiver in these situations, which is known as the “freeze and seize law.” In California if a receiver is appointed pursuant to the penal code they have the ability to sell the receivership assets in the same manner as they do in typical civil law receivership cases. Therefore, district attorneys throughout the state can use the freeze and seize laws to appoint a receiver over the assets of criminal defendant, and the receiver can then sell the assets to assist the victims of fraud. The receiver can also be appointed to preserve the assets of the criminal defendant from falling into disrepair. For example, if a criminal defendant owns ten properties and is incarcerated, these properties must still be maintained, in this case a receiver can be appointed to preserve and eventually sell the holdings.
The intersection of trusts, wills and other estate documents and receiverships is a common occurrence. For example, a common reason that health and safety receiverships occur is that an owner passes away without any known heirs, or intestate. In situations where an owner passes away without any known heirs or intestate the property becomes abandoned and overrun, which makes the appointment of a health and safety receiver necessary.
Another common occurrence is that a trustee can become irresponsible, incapacitated, or engage in illegal activity. In such situations a trustee can be removed and a receiver appointed to take over the trust. This can be critical as often a trust may be in possession of numerous properties and with an irresponsible trustee in charge of the properties dire consequences could result.
As the California Supreme Court recognized in 2008 a health and safety receiver is empowered to sell and even demolish properties under their control. The California Supreme Court giving a receiver the power to demolish a property is an example of a court sitting in equity giving a receiver broad power to advance the requirements of justice. Health and safety receiverships are used throughout the state and they are an effective way for Cities and Counties to abate nuisance properties. It is also worth noting that Cities and Counties are entitled to recover their attorney’s fees and enforcement costs.