When to Appoint a Receiver in California
In certain types of litigation, including litigation involving real property and corporate assets, a party (typically the Plaintiff) will request that the Court appoint a receiver, or the Court may decide to appoint a receiver without being asked.
A receiver is neutral person who is not a party to the litigation who takes possession of and manages property or assets belonging to one or more of the litigants. California Rules of Court Rule 3.1179.
A receiver is an agent for the court, not the litigants. Thus, the receiver holds or manages the property or the assets “for the benefit of all who may have an interest in the receivership property.” California Rules of Court Rule 3.1179.
Generally, a receiver has the power to bring and defend legal actions, to take and keep possession of property, to receive rents, collect debts, to make transfers, and generally do anything with respect to the property that the Court may authorize. Code of Civil Procedure § 568.
There are specific circumstances that control when to appoint a receiver. Code of Civil Procedure § 564. One common circumstance is the appointment of a receiver to manage and hold the property and assets of a corporation that is in the process of being dissolved. Code of Civil Procedure § 565.
At the request of any creditor or stockholder of the corporation, the Court in the county where the corporation conducts business or has its principal place of business may appoint one or more persons to be the receiver of the corporation. The receiver may take charge of the corporation’s property, collect the debts and property due and belonging to the corporation, and to pay the outstanding debts of the corporation as necessary. The receiver may also divide any of the corporation’s income, money, and other property among the stockholders of the corporation.
A receiver is particularly helpful in circumstances where one or more shareholders of a corporation believe that other shareholders are embezzling funds by paying phony accounts payable, transferring assets to other entities, skimming accounts, etc. By appointing a receiver, the Court and the requesting party may be able to stop improper or illegal activity and preserve the remaining assets and property of the corporation. Also, as stated above, the receiver can bring an action to recover assets and property as it sees fit.