“One of the tools used by creditors to defeat sophisticated asset protection plans is the receiver.”
The role of the receiver is often poorly understood. Many asset protection plans fail to address situations involving receivers. The vulnerable point of an asset protection or estate plan is where the wish to protect assets meets the desire to retain control, creating a weakness a receiver can exploit, says a recent article titled “Understanding Receivers For Collection And While Asset Protection Planning” from Forbes.
The receiver has three roles: an officer of the court, an agent for the debtor’s estate (aka, creditors) and an agent of the debtor.
Receivers are appointed by the court. Most must take an oath to the effect that the receiver will follow the instructions of the court and post a bond against any misconduct. The receiver has no power to do anything until authorized by the court, which is usually part of the original order appointing the receiver.
The receiver reports to the court and usually submits monthly reports detailing their activities, expenditures and collections.
When the receiver’s work is done, they apply to the court for an order of discharge.
The receiver is an agent of the debtor’s estate, similar to how a trustee is the agent of the debtor’s bankruptcy estate. The debtor’s estate includes assets available to creditors for collection – this does not include exempt assets.
When a receiver is appointed, the receiver obtains a tax ID number for the estate and opens a bank account for the estate. As assets are liquidated, they are deposited into the account. Payment to the receiver for fees and expenses are paid from the account.
The receiver is ultimately acting for the benefit of creditors, so the receiver could be said to be an agent of creditors, although only the court may give the receiver instructions.
Third, the receiver is the agent of the debtor. As the agent of the debtor, the receiver becomes the debtor for nearly all purposes and if authorized by the court, can take any legal action the debtor could take.
For example, the receiver may execute deeds using the debtor’s name, exercise voting rights as to shares of stock or demand redemptions of stock or cancel contracts. The receiver may demand bank statements from a bank or give the U.S. Post Office instructions to forward mail to the receiver at their address. The receiver can also demand the debtors credit card statements, utility bills and anything else.
With the permission of the court, the receiver can literally take over the business, liquidate the assets of the business and cause the entity to be dissolved.
The level of intrusiveness of the receiver is such that the average debtor will make the effort to settle with their creditors to stop the receiver’s actions.
As an agent of the debtor’s estate, the receiver is likely to coordinate with the creditor. However, the receiver can only act as instructed by the court.
Asset protection is often a critical part of an estate plan. However, it needs to be done properly to avoid any involvement with a court-appointed receiver.
Reference: Forbes (Nov. 17, 2022) “Understanding Receivers For Collection And While Asset Protection Planning”