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Do businesses need to worry about California receivership?

On Behalf of | Oct 12, 2022 | Business Disputes

Like every other state, our state allows for receiverships in business litigation. But, for businesses worried about business dispute escalation, do they need to worry about receivership. Unfortunately, yes. About any San Francisco, California, business dispute could, potentially, lead to some receivership dispute, even if it is just over some amount of funds to pay for potential damages.

Receivership, generally

For those that do not know, a receiver is an independent, third-party, who is appointed by a state or federal judge to take legal possession of some asset, entity or a combination of both. They are only appointed when there is a worry that their current owner or holder will in some way fraudulently use them, dispose of them or for some reason, the judge believes the asset or entity need protection. The judge then appoints a receiver whose job it is to protect the assets and entity.

This means that the receiver is an arm of the court. They act according to the judge’s direction, and they are only empowered to do what is specifically outlined in the judge’s receivership order. Receivers then make periodic reports to the court and the litigants.

Receivership is in Section 564

The California Code of Civil Procedure, Section 564, contains the rules for how our state judges appoint receivers. They can be appointed where a fraud in the purchase is alleged, for creditor actions, entity control cases (partnership interests, etc.) or when a right to an asset or interest in an entity is at issue. However, the court must show that the property, funds or entity are in danger of being lost, removed or materially injured.

Government litigation

At the California-state level, governmental entities are empowered to ask for receivers too. Section 564 specifically allows for the Public Utilities Commission, the Office of Statewide Health Planning and Development and the Attorney General. However, litigation with federal entities will commonly involve receivership litigation, which is outlined publicly by some federal agencies, like the Securities and Exchange Commission.

Complex business litigation

The truth about California business litigation is that there is no such thing as simple business litigation. Every time you enter the courthouse, assume it will be complex business litigation, which means you should do everything possible to mitigate and avoid it.