The dissolution of a corporation can be a difficult situation for the parties involved as well as the court. There may be allegations of fraud, mismanagement, waste and various other issues among adverse members in a corporation in litigation related to the corporation’s dissolution. As a result, courts may choose to appoint a receiver, a neutral third party, so that the assets of a corporation are fairly distributed while litigation is pending.
A receiver is a court appointed neutral party who takes possession of property for the preservation of the property’s value and for the benefit of the person or entity entitled to the property. This party is appointed during the pendency of a lawsuit. Should the court appoint a receiver, the powers and duties of a receiver are described in an appointing order issued by the court. While there are no statutory requirements for who can be appointed a receiver, a party to the lawsuit, a party’s attorney, an interested person or relative of the judge cannot serve as a receiver. Often times, parties can nominate a receiver, but it is ultimately up to the judge.
Cases that often require the appointment of receivers include real estate loans that are in default; to collect rents, a responsible person who can care for distressed assets and someone who can collect assets and liquidate collateral. While duties generally include disposing of any or all of the assets of the corporation, courts can expand the duties of a receiver to include more than asset disposal when necessary to protect the corporation’s assets.
In some cases, the courts will decline to appoint a receiver if the courts deem the appointment to be unnecessary for the protection of property interests at stake. The purpose of receiver appointments is for the preservation of contested property until all legal or equitable questions are resolved. If the contested property does not need protection, the courts will not intervene as Georgia law requires the prudent and cautious exercise of receiver appointments. Although receiver appointments aid corporations in their dissolution by ensuring that property interests are fairly distributed, it is an equitable remedy that will only be utilized by courts once there is a showing of imminent, irreparable harm to the assets of a corporation.
Sources:
- 75 C.J.S. § 1
- Georgia Rehabilitation Center, Inc. v. Newnan Hosp., 285 Ga. 68 (2008) (Court allowed for the expansion of receiver’s duties as both owners of the corporation provided inconsistent accounting information and the receiver needed to “track down, control, and protect the assets” of the corporation)
- Jones v. Wilson, 195 Ga. 310 (1945)
- O.C.G.A. § 9-8-4