How the Appointment of a Receiver Can Help a Distressed Business

distressed business

Unfortunately, out of the 4.2 million small businesses in California, there are numerous closures every year. Businesses fail, corporations go into bankruptcy, and many Californians are left trying to figure out how to weather the storm.

What is a Distressed Business?

A distressed business refers to a company that is experiencing significant financial or operational difficulties and is at risk of insolvency or bankruptcy. When a business is distressed, it typically faces challenges in generating sufficient cash flow to cover its operating expenses and meet its financial obligations, including debt repayments and supplier payments. Distressed businesses may exhibit signs of financial distress, such as mounting losses, declining revenue, deteriorating liquidity, inability to access financing, or defaulting on loan agreements.

Why Businesses Become Distressed

Many factors are affecting today’s small businesses and causing higher rates of insolvency. For example, even though California and the federal government worked to protect small businesses, the COVID-19 pandemic led to decreased profits, higher rates of indebtedness, and a bigger risk of insolvency. 

In the years following the pandemic, supply chain issues have caused small businesses extreme stress–and even closures.  

Of course, there are the usual culprits, too: 

  • Poor sales
  • Bad market trends
  • Quality control issues
  • Poor management
  • Technology failures
  • Insufficient financial planning

Sometimes, businesses fail because of something as simple as bad luck or bad timing. 

It is a somber truth that some companies will survive and eventually thrive again, but many others will not. In some situations, a court-appointed receiver may help to ease the difficult process of liquidating company assets and restructuring corporate frameworks. 

What is a Court-Appointed Receiver?

A court-appointed receiver is a neutral third party appointed by a court at the request of one or more parties when a business has become distressed and not functioning properly. More generally, receivers can also be appointed by courts to handle the following situations:

  • Resolve disputes between property co-owners or business partners
  • Address substandard properties causing health and safety concerns, including nuisance properties, hoarding, abandoned properties and unsafe tenant conditions
  • Enforce judgments as a post-judgment receiver
  • Collect rents and preserve the status quo of real property subject to foreclosure proceedings

A court-appointed receiver carries out the orders of the court. When a business is near insolvent and distressed, a receiver assesses the situation and makes recommendations to the court towards a resolution that takes into account the interests of all stakeholders in the matter. 

Receivership Success Stories 

Richardson “Red” Griswold has been appointed as a receiver by the California courts over 180 times, including for many disputed and distressed properties and businesses. 

Check out our success stories of receiverships of companies and private properties, including a 59-unit motel in Redding, California that Red stepped in and resolved. 

If you have any questions about how a court-appointed receiver may play a role in your situation, reach out to us and let us know! 

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