Facts About Receivership and Why It Is Different from Bankruptcy

On Behalf of | Jul 13, 2020 | Business Disputes |

Sometimes a company overextends itself financially and discovers that it cannot pay its creditors. Companies are governed by strict government regulations, so all business behavior must be ethical, too. There are times when it is necessary for the courts to step and assign a receivership to a business in Wilkes Barre, Pennsylvania, which is not the same as a bankruptcy proceeding. Here are some basics about receivership.

A receivership is a tool used by the courts to help creditors recover funds from companies that are not paying their bills for whatever reason. The process falls under the category of business litigation and disputes because the creditors are attempting to recoup their funds. If a loan is in default, for example, the receivership is appointed to help the company avoid bankruptcy. The goal of receivership is to help a company get back to a financially healthy state. If all goes well, there is no reason why the company could not become profitable again. Once the receiver, or the trustee, is appointed by the court, he is placed in charge of the company’s assets.

The receiver’s job is to takeover the company’s financials from assets to the financial decisions. A company’s leadership remains in place, but their decision-making power is severely limited. This remains true until the company gets back to a positive financial footing.

When a receivership is appointed to a company, the aim is to prevent the organization from sinking lower into financial distress. The purpose is to keep the company from declaring bankruptcy, so it is a preventive measure. Companies that find themselves in the middle of business litigation and disputes are advised to seek legal counsel. This helps keep everyone on the same page and provides a legal road map. Plus, a professional helps make sense of everything that is happening.