Bankruptcy & Receivership

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Receivership is a form a bankruptcy, usually used by corporations, in which the borrower works under the discretion of a court-appointed receiver to help creditors recoup their loans, according to Investopedia.

Benefits

Unlike in a normal bankruptcy, when an entity enters receivership, it can avoid having to sell off its assets to pay debts. Instead, it can reorganize the company or have the receiver negotiate a more favorable repayment plan with creditors, according to Investor Words.

Fun Fact

According to Slate, a creditor cannot sue a state as it might sue a normal borrower. Thus, if a state could not pay back its debts, it would go into receivership. As of 2010, no state in the United States has ever needed to go into receivership.

Considerations

Because a company loses some autonomy under a receivership, many businesses simply choose to liquidate their assets rather than deal with receivership, according to Investopedia. Selling off assets essentially destroys a company.

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