Disclaimer: This video is designed to be educational and informative, but it is not legal advice. Collection law is constantly evolving and subject to change. Each situation is unique, and each case should be addressed to fit the unique situation.
Most standard loan documents state that the debtor consents to the appointment of a receiver. But, whether to request a receiver be appointed is the creditor’s discretion.
The effect of a receivership is nearly always to take away control of the debtor’s property or financial affairs and place that control in the hands of a neutral third party.
If a creditor wants a receivership in place, the creditor must pay that neutral third party to act as the receiver, which can be expensive. However, that cost must be weighed against the possibility that the debtor’s cash, collateral or other assets may be deteriorated or wasted during the pendency of a collection action.
Sometimes the threat of a receiver appointment gives the creditor leverage with the debtor, even if the receiver is never, in fact, appointed. Having one’s business taken away and handed over to a third party is a scary proposition for a debtor. Thus, sometimes the threat of the receivership can bring a debtor to the negotiation table during collection.
There may be additional, fact-specific considerations in the decision to appoint a receiver, other than the ones mentioned here. You should speak with your attorney to discuss all issues prior to deciding to seek the appointment of a receiver.