What is Receivership?

A receivership is a situation in which someone is appointed to take control of a failed business, with the goal of recouping as many losses as possible. A less severe form of control known as a conservatorship involves appointing a person or entity to supervise a company which appears to be struggling, with the goal of helping the company get back on its feet. As a general rule, when a company passes into receivership, it is bad news for that company and for the people who have investments entangled in the company or its interests.

A number of situations can lead to a receivership. Sometimes, the creditors of a company insist on the appointment of a receiver, with the goal being as much preservation of assets as possible so that they will be repaid. In other instances, a court may appoint a receiver as part of the terms of a bankruptcy ruling. A government may also place a company into receivership. In the United States, for example, the Office of the Comptroller of the Currency has the authority to place banks under receivership if they fail.

Usually, once a company is placed into receivership, the receiver liquidates the company's assets. This is typically the most rapid way to recoup the company's losses and compensate the investors involved in the company, although it also leads to the termination of a company as an entity. Since receivership often occurs as a result of a bankruptcy filing, most companies are prepared to be dissolved at the end of a receivership.

Financial institutions, corporations, and regular companies can all be placed into receivership. While a company is in this state, its charter is typically left intact. The receiver has authority over the operations and disposition of the company, determining how, when, and where assets are to be sold. He or she may also have the power to make agreements with major creditors if it becomes clear that the company's assets will not fully compensate all of the creditors.

Conservatorship is viewed as a less extreme option than receivership, because it is designed to maintain the company, and to end when someone demonstrates the capability to take over from the conservator. In some cases, a government may appoint a government agency or official as a conservator, effectively nationalizing the company involved. In this process, the company is controlled by the government, but it gets a chance to survive, rather than being liquidated. In the future, there is also a chance that the conservatorship will be relinquished, allowing the company to return to the private sector.