Resolving Corporate Deadlock and Mismanagement: Receiverships (Part II)

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Resolving Corporate Deadlock and Mismanagement: Receiverships (Part II)

February 20, 2017

Resolving-Corporate-Deadlock-and-Mismanagement-ReceivershipsI’ve previously written about Florida business litigation solutions for corporate deadlock, but, in that prior blog post, I addressed only a single method of resolving corporate deadlock and mismanagement: dissolution and liquidation of the corporation.  In this post, I will describe a second, alternative solution: receivership. What is a receivership, and what is a receiver?  According to Investopedia,

a [r]eceivership is a type of corporate bankruptcy in which a receiver is appointed by bankruptcy courts or creditors to run the company. The receiver may be appointed by a bankruptcy court as a matter of private proceedings, or by a governing body. In most cases, the receiver is given ultimate decision-making powers and has full discretion in deciding how the received assets will be managed.

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A receivership provides a business with an opportunity to restructure to avoid liquidation by using a court-appointed trustee, referred to as a receiver, to oversee business operations.  As part of operating the receivership, the receiver assumes rights over the associated business assets and properties and holds the ability to cease all dividend or applicable interest payments. Members of the executive leadership or board of directors lose all decision-making authority.

For the most part, this description of a receivership and a receiver is accurate.  However, it’s important to note that receiverships are not merely creatures of bankruptcy proceedings (although they’re probably most common within that setting); rather, receiverships are also common within the context of state law proceedings arising out of corporate deadlock, mismanagement, or civil theft perpetrated on the corporation.

Indeed, Section 607.1432, Florida Statutes, provides for the appointment of a receiver or custodian during proceedings to dissolve and liquidate a corporation.  In this context, the idea is to hand the corporation over to a neutral third-party (a receiver),with experience and skill within the corporation’s industry, to make the corporation as productive as possible while the corporation winds down its affairs.  Section 607.1434, in turn, authorizes the appointment of a receiver when dissolution of a corporation is not requested or appropriate, “upon a showing of sufficient merit to warrant such a remedy.”  § 607.1434, Fla. Stat. (2016).  Thus, a receivership is virtually always authorized within the context of a Florida corporate dispute.

When determining whether to appoint a receiver, the trial court has a considerable amount of discretion.  In my experience as a Fort Lauderdale business attorney, trial courts are generally disinclined to appoint a receiver, unless the corporation’s profits are sufficiently high, because receivers generally charge several hundred dollars an hour for their services, and monitoring them can create a significant amount of judicial labor.  Thus, when a corporation’s business is not so complicated as to require a person with expertise to run the business, or when there is merely an ongoing theft of corporate assets, it is usually more appropriate to request the Court to enter an Order enjoining any further theft (on pain of being held in contempt of Court), requiring the defendant (the person alleged to have engaged in the corporate theft) to render accountings to the Court on a periodic basis, or to have a disinterested third-person (much like a receiver) supervise the business (or certain aspects of the business), rather than operate it without the assistance of the corporation’s executives.

If you’re involved in a Fort Lauderdale business dispute, or a corporate or shareholder dispute elsewhere in the State of Florida, then please call a business attorney Ft Lauderdale at (9544400901 to schedule a consultation.  The Carlin Law Firm, PLLC regularly provides legal advice to all kinds of business entities and regularly assists clients with litigating business disputes in Florida state and federal courts.

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