Creditors attempting to collect on a debt sometimes file lawsuits. Debt-related litigation brought against an individual can yield one of two beneficial outcomes. Frequently, litigation results in a lien placed against valuable property or an order allowing for the garnishment of wages. Both solutions make it easier to collect from a debtor who refuses to voluntarily pay what they owe.
When the party that owes money is a business, not an individual, litigation may seem less useful as a debt collection tool. However, there are still ways that the courts can intervene for the protection of creditors when a debtor is an organization, not an individual. The courts can assign an outside business manager, also known as a receiver, to help address debt issues within the organization.
What is receivership?
In scenarios where creditors and other concerned parties can show that improper business management and questionable financial conduct have resulted in a company’s insolvency, the courts may agree to intervene. The civil courts can initiate a receivership to help address the financial challenges reported at a distressed organization that cannot fulfill its financial obligations.
Receivership is the legal process through which a court-appointed outside party assumes control over business management. During receivership, the court-appointed receiver reviews financial records, adjusts business practices and seeks to help the company become solvent again.
By liquidating assets, streamlining company operations and working outside of the influence of entrenched leadership, receivers can help address a company’s financial woes. A court-ordered receivership is sometimes the only way for creditors to secure payment for the debts owed by an organization.
Reviewing – with the assistance of a skilled legal professional – an original financial obligation and communications with a business debtor can help creditors effectively evaluate their options. Initiating business litigation to request a receivership is sometimes a viable solution for unpaid business debt.
