Winter 2013 • Issue 46, page 19

Can a Corporation be Appointed a Receiver?

By Davidson, Peter *

Q: I was in court last week and the judge appointed a corporation as the receiver in a case. I thought “Ask the Receiver” has stated a receiver cannot be a corporation?

A: In the Winter 2006 issue of Receivership News, “Ask the Receiver” did explain why a corporation could not act as a receiver in California. As explained there, California Financial Code § 106, at the time, defined “trust business” as the “business of acting as an executor, administrator… receiver… under the appointment of any court or by authority of any law of this or any other state or the United States, or as a trustee for any purpose permitted by law.” Financial Code § 1500 went on to provide that no corporation shall engage in the trust business unless it is qualified as required by that section, which required generally that it be a bank. The one exemption was set forth in Financial Code § 1501.2 which provided: “Nothing in this division shall prohibit a non-profit corporation from acting as a receiver pursuant to the appointment of any court.” It was, therefore, clear that, in general, a receiver in California could not be a corporation.

However, unbeknownst to many in the receivership community, last year the legislature amended the Financial Code. It repealed § 106 and replaced it with § 115, which basically says the same thing. It repealed § 1500 and replaced it with § 1550, which basically says the same thing. It repealed § 1501.2 and replaced it with § 1553 which drastically changed the exemptions to the requirement for a corporation to qualify to act as a receiver. In particular, Financial Code § 1553 now provides:

[T]he following persons are exempt from Section 1550:
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(d) Any person appointed as receiver, trustee, or other fiduciary by a court of competent jurisdiction acting pursuant to that authority.

“Person” is defined in § 18 of the Financial Code as “any person, firm, partnership, association, corporation, company, limited liability company, syndicate, estate, trust, business trust, or organization of any kind.” As a result, given the amendments to the Financial Code, a corporation can be appointed as a receiver. Whether that is a good idea is another question. From a receiver’s standpoint, it may be beneficial to have the protection of a corporate entity. From the standpoint of the court and parties to receivership actions, it may raise a number of issues. First, a corporation cannot appear in court without counsel. Second, who at the corporation is acting for the court as receiver – the CEO? the CFO? the CEO’s secretary? any officer of the corporation? We will just have to see how this plays out and how willing courts are to appoint persons who are not natural, breathing, people as their receivers.

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.