Receivership 101: What You Need To Know About This Popular Alternative To Bankruptcy

Although receiverships are frequently used by Wisconsin businesses in financial distress, they are not as well known or understood as the bankruptcy process. In this post, the Hanson & Payne team, which has helped numerous business owners in the Milwaukee area navigate the receivership process, will give an overview of receivership and discuss some of its pros and cons. 

What is a receivership? 

While bankruptcy is federal law, and cases are handled in the federal courts, a Chapter 128 receivership is a creature of Wisconsin law. Wisconsin lawmakers created the Chapter 128 receivership process to provide an additional option to local companies in financial distress. All the cases are handled in our state courts. 

A receivership may be initiated by a business owner, much like a bankruptcy, or secured creditors may petition the court to appoint a Chapter 128 receiver involuntarily. No matter how the case begins, the court appoints a receiver to take over the business and run it with the interest of the company’s creditors in mind. 

The receiver has the flexibility to facilitate the quick closing, sale, or restructuring of troubled businesses. However, the court will provide some oversight. 

When a business is closing down, the receiver is in charge of managing the sale of company assets. Oftentimes the assets are heavily discounted in order to get the money needed to pay off financial obligations and wind down operations as quickly as possible. 

When the business is not closing, it is the receiver’s job to dig into the company’s financial records and take a look at its operations in order to determine if the business can be effectively restructured and turned back over to the current owners, or if it is better to sell the whole thing as a going concern.

If the business is being sold as a going concern, the receiver may choose to appoint an agent who will be tasked with managing the day-to-day operations of the business. 

The receiver has much more flexibility than a bankruptcy trustee when it comes to determining which assets can be sold off, what debts should be renegotiated, and how to move forward. 

What is a receiver? 

The court-appointed receiver is an attorney experienced with the Chapter 128 process. 

He or she is an agent of the court, but has a fiduciary duty to the business he or she is tasked with overseeing. The receiver’s powers and responsibilities are laid out in statute, and further described in the court order appointing them to their current role. 

Receivers are generally paid on an hourly basis, with their fees coming from the business.

What are the pros and cons of receivership? 

Compared to Chapter 7 or Chapter 11 bankruptcy, a Chapter 128 receivership may be a faster and cheaper way to resolve a business’s financial woes. The receiver has much more flexibility than the trustee in a bankruptcy case, which can mean there are more options available for moving forward. 

Receiverships may not be the best option for a business that is intent on shutting down. Bankruptcy may also be a better option if the business has an overwhelming amount of debt. 

Helping Businesses In the Milwaukee Area Find A Path Forward

Hanson & Payne team has advised numerous business owners in the Milwaukee area that are unsure if receivership or bankruptcy is the best option based on their goals. We have experience with both processes, so our firm can help business owners understand what their options are, and what choosing one over the other would mean for their business. Contact us today to schedule an initial consultation.