By R. Scott Alagood
A receivership is an equitable and legal remedy that may be used to acquire possession of property by a court appointed party known as a receiver. A receiver’s powers are derived directly from the appointing court. The receiver is a disinterested party who represents and protects the interests of all other persons for the receivership property.
A court appointed receiver is an extremely harsh remedy. The remedy allows the State to take possession and control of private property and place it in the hands of a third party. A court will appoint a receiver only if there are no other less harsh remedies available.
Basis for Receivership.
A receivership in Texas may be installed under rules of equity (“fairness”) or pursuant to a specific statute. Under equity, a receivership must be “ancillary” to an otherwise apparently valid claim or remedy and to protect or preserve property during the pendency of a lawsuit. Where the receivership arises out of a statute, it doesn’t matter if ancillary claims exist.
Types of Receiverships.
Equitable Receiverships. A court may appoint a receiver in any case in which a receiver may be appointed under the rules of equity.
General Receivership Statute. Chapter 64 of the Texas Civil Practice & Remedies Code allows a court to appoint a receiver under any of the following circumstances:
- Action by vendor to vacate a fraudulent purchase of property;
- Action by creditor to subject any property or fund to his claim;
- Action between partners or other jointly owning or interested in any property or fund;
- Action by a mortgagee for foreclosure and sale of mortgaged property; or
- Corporation that is insolvent, or is in imminent danger of insolvency, has been dissolved, or has forfeited its corporate rights.
Family Law Receiverships. In conjunction with a divorce proceeding, a court may appoint a receiver as a temporary order for the preservation and protection of spousal property.
Post Judgment Receiverships. Judgment creditors may seek the appointment of a receiver to assist in the satisfaction of a judgment in certain circumstances.
Business Entity Receiverships. A receiver may be appointed for a corporation that is insolvent, is in imminent danger of insolvency, has been dissolved, or has forfeited its corporate rights. The Texas Business Organizations Code deals with the appointment or a receiver for any domestic entity (including corporations, partnerships, limited liability companies, and associations) or its property.
Mineral Receiverships. A receiver may be appointed where a mineral interest or mineral leasehold interest is owned by a nonresident or absent defendant, and upon the application of a person who has a vested, contingent, or possible interest in land or an estate subject to a contingent future interest in order to lease the land for development pending the vesting of the contingent interest.
Congregational Receiverships. A receiver may be appointed for a religious congregation which had maintained regular forms of work and worship in a community at regular intervals, but ceased to function in such capacities for at least one year.
To qualify as a receiver a candidate must be a citizen and qualified voter of Texas at the time of the appointment. A candidate must not be a party, attorney, or other person interested in the action in which the receiver is sought.
Absent the appointment of a receiver upon the court’s own motion, a party seeking such appointment must file an application with a court having proper jurisdiction over the subject matter of the suit. Except in certain extreme circumstances, notice and opportunity to be heard must be provided to all adverse parties prior to the appointment. An ex parte appointment should rarely be sought, and very well may constitute an unlawful taking of property the Texas and U.S. Constitution.
The receiver must take an oath to faithfully perform all duties of the receivership and execute a good and sufficient bond. The applicant must file a bond approved by the clerk payable to the defendant in an amount determined by the court. A court may dispense with the issuance of the applicant’s bond in a divorce.
Receivership Powers and Duties.
A receiver may take charge and keep possession of receivership property, receive rents, collect and compromise demands, make transfers, and perform other acts as authorized by the court. The act of the receiver does not bind the receivership property unless first authorized and subsequently approved by the court.
Following the appointment, a receiver must take an inventory of the property received and report it to the court. Where a party or other person subject to the receivership fails to release possession of receivership property, the receiver may bring an action to obtain possession.
A receiver may only sell the interest that it has in the receivership property at the time the receiver was appointed. Any receiver sale is a judicial sale and must be authorized and confirmed by the court before title will transfer.
Once all property has been disposed of and all proceeds distributed, then the receiver should be discharged. The final discharge order should include the final accounting of the receivership, a determination of the receiver’s fees, the restoration of any remaining property to the rightful owners, and a final discharge the receiver.
R. Scott Alagood is board certified in Commercial and Residential Real Estate Law by the Texas Board of Legal Specialization and can be reached at [email protected] and www.dentonlaw.com.