Georgia Chopsticks, an American company, captured media attention by shipping chopsticks to China at the rate of about two million per day. One of the company’s creditors, a Kansas concern to whom it allegedly owed $1.3 million, was apparently not impressed, and had Georgia Chopsticks placed into receivership. A temporary restraining order issued in April prevented the removal or destruction of company records. The creditor’s ability to have a receiver appointed to protect and preserve borrower assets is an important creditor right.
Appointing a receiver
A receiver is appointed by court order, usually upon motion of a creditor, to secure the debtor’s property, prevent the dissipation of debtor assets, collect rents and provide periodic accountings. The receiver effectively displaces a debtor and makes all the decisions with respect to the debtor’s:
- Tangible and intangible assets
- Management and operations
- Leasing
- Improvements
- Sales
Duties of the receiver
Initially, the receiver takes control of the property by changing locks, securing operating accounts and gathering relevant documents from the borrower. The receiver must act quickly to prevent harm to the property. The receiver will then inspect the property and compile a report that describes the condition of the property and itemizes the borrower’s personal property. Existing tenants must be notified of the receivership and be given an opportunity to voice concerns.
Receiverships
- Advantages: When a receiver is appointed, creditors have an opportunity to pursue their remedies against the borrower — secured by the thought that there will remain assets to recover if their efforts are successful. In addition to simply maintaining the status quo, a receiver might be able to increase the asset-value of the enterprise. A properly managed property may begin to produce a positive cash flow, which can then be credited against a lender’s out-of-pocket expenses. An Atlanta creditor’s rights attorney can provide guidance as to how to best secure repayment.
- Disadvantages: Receiverships can be costly, racking up fees for the receiver, legal counsel and third-party managers. These fees will either come from the cash generated by the property or from the lender, if cash is not available. The lender will add the receiver fees to the principal loan amount. Another disadvantage is loss of control of the property. The creditor and the debtor cede control to the receiver, who is an agent of the court and seeks to preserve the assets rather than to serve the interests of any individual party. Thus, a receiver may determine that sale of an asset is an appropriate strategy, and they will sell the asset with court approval, even if both the borrower and lender object.
In addition to legal expertise, the attorneys at Hartman Simons and Wood LLP bring business acumen garnered from their extensive experience in the business world, providing sophisticated advice to creditors.