Although other countries have attempted to emulate the American bankruptcy system, few can replicate it. Consider the recent bankruptcy of Britain’s Monarch Airlines. The company collapsed so suddenly and completely that 110,000 travelers were stranded abroad, and the government had to charter special flights to bring them home.
While it is possible that something like this could happen to an American company, it is rather unlikely. Even businesses that face a very bleak financial future can use our country’s bankruptcy system to wind down operations rather than halt them abruptly.
Under United States law, troubled businesses can also avoid shutting down by going into receivership. Receivership is a close cousin to bankruptcy in that it allows a troubled company to keep operating as it looks for a buyer or winds down operations. As a bonus, it is generally faster and cheaper than going through bankruptcy, while still offering the company an opportunity to get a business’s fiscal house in order.
Receiverships are not voluntary. Instead of a company filing for receivership, a creditor can ask the court to appoint a neutral third party called a receiver to take over a debtor’s company and keep it running long enough to pay off the creditor.
Instead of liquidating all assets like would be done in a bankruptcy, a receiver can help a company seek buyers who are willing to pay top dollar for part or all of the business. The fact that a business in receivership is being overseen by a neutral third party also reassures those the troubled business is working with, so additional credit is often offered as deals are renegotiated.
Receiverships are also a good option when a creditor suspects the debtor company is committing fraud, has breached their fiduciary duties, or is operating a Ponzi scheme. The receiver is a neutral third party, so they can step in and help victims of the debtor by keeping the business running or by preserving assets while a criminal or civil investigation is ongoing.
There are people that specialize in being receivers and helping turn companies around or wind them down. Our firm helps businesses find such people, and advises such people on legal issues in the companies they are overseeing. We also work with businesses who are in receivership.