Articles: Creditors’ Remedy to Appoint Receiver
A CREDITOR’S ACE IN THE HOLE:
APPOINTMENT OF A CORPORATE RECEIVER
By Glenn R. Reiser © 2006
If your debtor is a New Jersey corporation, there is perhaps no better creditors’ remedy than seeking the appointment of a receiver. Similar to a bankruptcy trustee, a receiver is usually vested with complete authority to operate the business under the jurisdiction of the court and must act in the best interests of the corporation creditors and shareholders.
Pursuant to N.J.S.A. 14A:14-2(a), “a creditor whose claim is for a sum certain” has the right to bring a receivership action in the Superior Court of New Jersey. Id. The statute provides creditors with the following grounds to seek appointment of a receiver:
- The corporation is insolvent
- The corporation has suspended its ordinary business for lack of funds;
- The business of the corporation is being conducted at a great loss and greatly prejudicial to the interests of its creditors or shareholders.
In addition, N.J.S.A. 2A:17-66 also authorizes the Superior Court to appoint a receiver to aid in the execution on behalf of a judgment creditor. This statute states, in pertinent part, that:
In aid of execution, the superior court may, on application of either the judgment creditor or the defendant and in its discretion, order the appointment of a receiver of the property and things in action belonging or due to or held in trust for the judgment debtor as aforesaid, at the time of the recovery of the judgment or at any time thereafter. Ibid.
It is well settled under New Jersey law that the appointment of a fiscal agent and/or receiver is within the sound discretion of the court. Roach v. Margulies, 42 N.J. Super. 243,245 (App.Div.1956); Neff v. Progress Building Materials Co. 139 N.J.Eq. 356 (Chan. 1947); Gillies v. Pappas Brothers, 138 N.J.Eq. 202, 205 (Ch. 1946). Indeed, where the corporate defendant’s business cannot be conducted with safety to the public and its creditors, the court should intervene and appoint a receiver. Tachna v. Pressed Steel Car Co. , 112 N.J.Eq. 411 (E. & A. 1932).
Since the appointment of a receiver is a rather extraordinary remedy, depending upon the particular circumstances creditors should first attempt to exhaust collection efforts by pursuing the more routine collection remedies provided by New Jersey law, such as asset seizures and bank account levies through the assistance of the local county sheriff or court constable, demanding asset information through the issuance of written questions in the form of an Information Subpoena, and deposing the principals of the debtor corporation.
In many instances, the debtor corporation will fail to comply with a creditor’s post-judgment discovery demands. In those situations, the creditor can petition the court and obtain an order compelling the debtor corporation to comply with the discovery demands. If the debtor corporation fails to comply with a court order, the creditor can then file contempt proceedings and obtain orders and warrants of arrest as to the company principals/officers. If and when enforced, an order of arrest and warrant of arrest will require the sheriff to bring the company principals/officers to the county courthouse where the business is located so that the creditor can examine the company as to its assets and liabilities under oath.
It is the pursuit of these routine creditor remedies that should establish the foundation to apply for the appointment of a receiver. A court will likely be more inclined to appoint a receiver when a defendant corporation has shown disrespect for the judicial process and court orders.
Click here to read a sample brief that we filed to seek the appointment of a receiver over a public corporation in New Jersey. The threat of the court appointing a receiver resulted in the defendant corporation paying our client’s $100,000 judgment + legal fees.