If you are involved in receiverships, you are part of a long history of common law solutions developed by the English courts nearly 1000 years ago.  It is amazing to think that the millennium-old concept is relevant and effective today in helping to resolve complex and intractable problems.

Receiverships, in general, tend to become more prominent in distressed economic times and, when used properly, can become flexible and creative avenues to assist in the restructuring or turnaround of a business, real property or other asset.  In other instances, a receivership can provide the parties with an additional layer of insulation from liabilities, in that a receiver enjoys quasi-judicial immunity and takes instructions solely from the court that appointed him or her.  Therefore, the legal liability of actions taken by a receiver, such as the remediation of an environmental hazard or the eviction of tenants, falls not on the lender or aggrieved party that sought the receiver’s appointment, nor does it necessarily fall on the party being dispossessed of its business or assets—rather such liability belongs to the receiver and the court.

The Establishment of Courts of Equity

The concept of the receiver took form after the Norman invasion of England in 1066. Receivers were an extension of the Norman curia regis, or King's Council, maintained by most early rulers of England after 1066. Available records reference “receivers” during the reign of William the Conqueror who used “receivers” as extensions of his royal court to resolve disputes between feuding land holders.  These “receivers” later evolved into “chancellors” or “officers” in the later Court of Chancery.

The Court of Chancery was a court of equity in England and Wales that followed a set of flexible rules to avoid inequities of the common law.  Until the 19th century, the Court of Chancery was able to apply a far wider range of remedies than the common law courts, such as the appointment of a receiver, specific performance and injunctions, and also had some power to grant damages in special circumstances.

The Court of Chancery appointed “chancellors” to manage assets of debtors and landowners so that their debts could be paid efficiently. The term “Receiver” in this context began to be used commonly in England in the mid-16th century.

The Equitable Powers Found in American Courts¹

The United States traces its equitable courts to Article 3, Section², of the Constitution where the judicial power of the federal government was established to all cases “at law and in equity.”  The United States Supreme Court holds that the administration of insolvent enterprises, investigations into the reasonableness of public utility rates, and the performance of other judicial functions often require the special services of masters in chancery, referees, auditors, and other special aids.

In Heckers, the Court held that the practice of referring pending actions to a referee is coequal with the organization of the federal courts under Article III.  The leading case of Ex Parte Peterson centers on a United States district court’s appointment of an auditor with power to compel the attendance of witnesses and the production of testimony.  The court authorized the “auditor” to conduct a preliminary investigation of facts and file a report thereon for the purpose of simplifying the issues for the jury.  This action was neither authorized nor prohibited by statute, but rather emanated from the court’s equitable powers.

In sustaining the action of the district judge, Justice Brandeis, speaking for the Court, declared: “Courts have (at least in the absence of legislation to the contrary) inherent power to provide themselves with appropriate instruments required for the performance of their duties. . . . This power includes authority to appoint persons unconnected with the court to aid judges in the performance of specific judicial duties, as they may arise in the progress of a cause.”⁴. The power to appoint auditors by federal courts sitting in equity has been exercised from their very beginning, and here it was held that this power is the same whether the court sits in law or equity.

In general, the appointment of a receiver is an equitable procedure wherein a court believes that a party to an action is not in a position (or, in some circumstances, refuses) to comply with the desires of the court. Appointment of a receiver is also a provisional remedy that allows courts to preserve and/or maintain assets, so that “waste” does not occur and the value of an asset in dispute can be preserved pending final adjudication.  A receiver is a ministerial officer, agent, creature, hand, or arm of, and a temporary occupant and caretaker of the property for the court.

England and most other Common Law nations also still maintain some sort of equitable solution through receivership.  Today, each of our fifty states and the federal government have statutory or common law that provides their respective courts with the equitable power and authority to establish a receivership estate and appoint a receiver over the business, real property, personal property (whether tangible or intangible) of what is usually a distressed litigant, and to maintain those assets for the benefit of the parties involved in the dispute.  Moreover, some states confer considerably broad power to the receiver to operate a business, sell real and personal property and, in some instances, even seek to restructure debt or liquidate the assets of a business.  Receivers can also collect and enforce accounts receivable, obtain and sell trademarks and domain names, and transfer liquor licenses, among other broad powers.

It is truly amazing that all of us are torchbearers for this long tradition, a tradition developed to solve problems, preserve value and to maintain continuity.  All of us have the highest duty to continue this tradition and practice to the highest standards so that judges and litigants continue to put their trust and faith in our unique and ancient skills.

1 This section focuses primarily on Federal and California authorities. It is recommended that practitioners consult the governing laws in their jurisdiction when appropriate.
2 Heckers v. Fowler, 2 Wall. (69 U.S.) 123, 128–129 (1864).
3 253 U.S. 300 (1920).
4 Id. at 312.

*Richard Ormond is a shareholder at Buchalter, APC, in its Los Angeles office and Co-chair of the firm’s Receivership Industry Group.  He is also the 2018 Co-chair of the LA/OC Chapter of the California Receiver’s Forum and a member of the CRF’s state board.