Whilst a business having the legal status of a corporation gives it many advantages and protections under commercial law, that does not mean it is entirely immune from problems and difficulties. One of the most common areas where disputes can arise concerning the finances of a corporation is how its assets are distributed to its shareholders and its secured creditors.
These decisions are usually made by the board, but if there is a disagreement between how the board wish to distribute a corporation’s assets, and its shareholders, then under commercial law a shareholder or group of shareholders can request that the corporation be placed into receivership.
What Is Corporate Receivership?
Receivership means that the legal status of a corporation has been changed by a court. Its effect is to place the assets of a corporation under court-appointed control to ensure assets are not misused or misappropriated by its directors. Receivership is often requested by shareholders or secured creditors when they believe that the assets of a company in which they own shares or are owed money are going to be sold off cheaply or to parties with which they do not agree.
Who Controls A Receivership?
Unsurprisingly the person who is appointed to be in control of receivership is called a receiver. They are appointed by a court via court order and this court order issues them with formal rights and obligations which they must perform during the period of receivership. Apart from them being obliged to use due diligence and act in good faith at all times, specific examples of the main rights and obligations of a receiver include: