A receiver is an unbiased third party appointed by a court to carry its orders into effect. There are a variety of instances where a court might appoint a receiver, but the most significant statutory authority for appointment of receivers, Code of Civil Procedure section 564(b), broadly extends receivership to all cases “where necessary to preserve the property or rights of any party.” Thus, a receiver may be appointed, e.g.:
- When property in which the plaintiff has a “probable” interest is in danger of loss, removal, or material injury (e.g., defrauded vendor; spouse claiming community property interest in property that other spouse holds as partner with others).
- On dissolution or insolvency of a corporation.
- When needed for specific performance of an assignment-of-rents provision in a trust deed or mortgage.
Receiverships are expensive. For example, the receiver may be a manager of a business who must pay attorneys, post a bond, and adhere to prescribed accounting and reporting requirements for an extended period of time, sometimes exceeding years. Generally, a receivership is uneconomical unless the amount of money involved is enough to justify the expense or the potential harm to the property exceeds the receivership costs. Thus, courts employ receivership only when a less drastic, alternative remedy (e.g., injunction, writ of possession, attachment, provisional director, lis pendens) is inadequate.
Generally, receivers’ fees and receivership expenses are covered by the trust corpus. There may be exceptions to this rule under certain circumstances, however, with the result that the plaintiff or even the defendant may be held liable for receivership expenses. Furthermore, the court may even hold the receiver liable for receivership expenses when estate funds are insufficient or when the costs are associated with unapproved or improper activities.
Thus, a receiver must be alert to the fact that a court may object to certain expenditures at the final accounting stage, possibly leaving the receiver “holding the bag.” Court approval of receiver action comes at the end of the underlying action, when the court must approve or disapprove each of the receivership expenditures. The review may provide the receiver with a surprise, as often expenses are accrued in the absence of objections by the parties. But, no receiver should ever assume that the lack of objection will be followed automatically by court approval of each expenditure.