Generally, receivership is the situation in which an institution or business enterprise is being held by a "receiver," a person appointed with custodial power to manage or distribute assets. Receivers can be appointed by government regulators, through private contract, or by court order.
The focus of this blog entry is to briefly outline New York State law (CPLR § 5228) that aids the judgment creditor to "administer, collect, improve, lease, repair or sell any real or personal property of the judgment debtor." Receivers in this context are usually appointed by court order upon request of the judgment creditor.
Some examples of uses for receivership to aid in the enforcement of a judgment include:
- When a judgment debtor's property is small or unique, a receiver may be appointed to conduct a private auction versus using a Sheriff at a public auction;
- When a judgment debtor's property lacks good value to sell but produces income that could be used towards paying the judgment. For example, a receiver can manage the cash flows of a business or an apartment building; or
- When a judgment debtor has a legal claim against a third person, a receiver could be appointed to sue and recover on that claim.
The remedy of receivership is a rarely exploited one, especially within the landscape of consumer-debt litigation, which remains this firm's core practice.
Basic Procedure for Receivership
Under New York law, judgment creditors have the right to make a motion to the court to appoint a receiver. The creditor can ask to be named the receiver, but this is pretty unusual. Generally, the receiver will be a third party. Once the court appoints a receiver, they have the court's blessing to intercept the debtor's real or personal property and take action to make that property yield funds to pay the judgment. This might mean:
- selling property;
- managing property and collecting rents; or
- improving a property to maximize the sale price;
The court's order appointing a receiver needs to list the property to be received, the duties of the receiver, and the time frame during which the appointment is valid. Receivers can't hire lawyers to help them with their duties unless the court specifically includes that in the order. Third party receivers can get a commission on the funds they collect and reimbursement for expenses. These costs will be paid from the funds being collected, reducing the amount available to apply against the judgment debt.
Notice under New York CPLR § 5228 is a Bit Unusual
The notice provisions for receivership are a bit unusual compared to other sections of New York CPLR § 52. While most sections contain very specific provisions for how and when the judgment debtor needs to be served with notice, NY CPLR § 5228 merely says that "as far as practicable" the court will require that the judgment debtor, and any other creditors with an interest in the property, get notified that a receiver has been appointed. It doesn't contain any specific provisions for when or how a debtor might object to the appointment or to the receiver's actions.
As stated above, use of receivers is fairly rare in modern day New York debt-collection practice. However, when a receiver is appointed, he or she can have a very serious impact on the collection proceeding. Receiver commissions and fees can eat into the funds available to pay off the debt and the receiver's decisions and actions will directly affect the remaining value of any properties they intercept.
Outside of a judgment-enforcement context, some other creative uses of a receivership include the following:
- Completing a broken construction project;
- Selling distressed property;
- Winding down affairs of a closely held business;
- High maintenance operations such as grape growing and whine making; and
- Cure environmental problems with land prior to selling real property.
Article 52 of New York CPLR is entirely devoted to the enforcement of money judgments. It's a fascinating subject. The section discussed here—§ 5228—is one section of 53. We are moving along in our quest to summarize each section for you then hopefully using the knowledge gained to benefit your matter.