UNDERSTANDING THE STRATEGIC BENEFITS OF FEDERAL RECEIVERSHIPS IN THE US
Receiverships are typically not a dish on the proverbial litigation menu. Often overlooked, receiverships can be an extremely valuable and potent tool that litigants can use to change the dynamics in a case, protect potential litigation recoveries, and prevent further fraud, waste and dissipation of assets.
While most practitioners think of receiverships as a creature of state law, receiverships are also available under federal law in certain circumstances – and not just in connection with bank failures or securities enforcement actions.
This article discusses the requirements for appointing a federal receiver in the US, how the appointment process works, and the scope of the receiver’s authority, as well as providing some suggestions for situations where litigants may want to consider seeking a federal receiver.
What is a federal receivership?
When disputes regarding a company’s operations or property arise, the parties involved could initiate and engage in litigation – where litigants argue about their rights and courts rule and make decisions – or even seek bankruptcy to gain leverage or maximise value. While such processes can produce equitable outcomes, they are often expensive and time consuming.
A federal receivership, however, is an alternative that provides cheaper, time-efficient options for the parties involved. When a court appoints a receiver, the court empowers an individual to act as an officer of the court. That officer is neither an agent nor an employee of the parties but, rather, is appointed to be an independent neutral who reports to the court. A receiver is empowered to safeguard disputed assets, administer the property and assist the court in achieving a final, equitable distribution of the assets if necessary. In essence, the court appoints someone to ensure disputed assets do not disappear and are not mismanaged or dissipated.
Jan-Mar 2024 issue
King & Spalding LLP