Creditor receivership in Arizona

Receivership

In Arizona, a creditor can seek a receivership to “protect and preserve property or the rights of parties therein” usually in relation to an operating business that is having financial difficulties, where assets are being wasted, and/or where there are concerns regarding fraud. Ariz. Rev. Stat. Ann. § 12-1241.  A receiver is appointed by a court to temporarily possess property belonging to a creditor (e.g. accounts receivable).  Typically, a receiver will secure control of the business’s premises, inventory assets, recover property, and collect accounts receivable and rents.

Pursuing a Receivership

A single creditor can seek a receivership, rather than the three typically required to initiate an involuntary bankruptcy proceeding.  Moreover, the petitioning creditor can recommend an appropriate candidate to serve as the receiver.  And, the rules governing receiverships are fewer and less rigid than the bankruptcy rules.  Yet, the threat of a receivership will often cause a business to seek a voluntary bankruptcy filing to retain control of the business.

A creditor pursuing a receivership must file a motion requesting that a court appoint the receiver.  Typically, receivership is a contested issue and may require an evidentiary hearing where the creditor will be required to show the basis for appointing a receiver.

Receivership and Bankruptcy

As a general rule, a state court’s appointment of a receiver will not disrupt the ability of a debtor, acting with the appropriate corporate consent, to file a voluntary bankruptcy petition.  See In re Corporate & Leisure Event Prods., 351 B.R. 724, 733 (Bankr. D. Ariz. 2006).  Yet, litigation often arises from a somewhat contradictory rule from the Supreme Court’s decision in Price v. Gurney that a corporate debtor’s authority to act is determined by state law.  324 U.S. 100, 106 (1945).  This issue arises because once a receiver is appointed, the directors and officers often no longer have the ability to authorize a business’s actions like initiating a bankruptcy filing.  This issue was left unaddressed by the Supreme Court in Price, and a debtor filing for bankruptcy where a receiver is in place should expect to litigate whether it had appropriate corporate authority to file a bankruptcy petition.

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