What Is a Receiver in Bankruptcy?

In the process of bankruptcy, the law sets down certain procedures that must be followed by the court, the debtor and the creditors. One of the most important roles is that of receiver, or trustee, who serves as an officer of the court and controls the distribution of assets or payments by the debtor, as arranged by the court. While "official receiver" is the most common term used in Canada, Australia and the United Kingdom, "trustee" is the synonymous term used by U.S. courts.

The receiver works either directly for the bankruptcy court or is an agent appointed by the court to handle the case. A receiver may also be appointed to handle the affairs of a company under investigation for fraud or other financial malfeasance. The receiver answers to the bankruptcy court, and is paid for his services out of public funds allocated for the management of the court.

After the bankruptcy case is filed, the receiver is appointed by the court to manage the financial affairs of the company or person who filed the bankruptcy. He reviews the assets and income of the debtor, drawing up an inventory of property and funds that may either be exempt -- sheltered -- or nonexempt, subject to distribution to creditors.

If the company or debtor has contracted loans, he draws up a plan to repay those loans to creditors, who must be notified by the court of the bankruptcy and who must file claims on the property and assets. The receiver, working with a trustee, then liquidates assets and distributes income to the creditors until their claims are satisfied to the extent the court has allowed. In a Chapter 13 bankruptcy in the U.S., this role is fulfilled by a trustee, who sets up a repayment schedule, receives monthly payments from the debtor and distributes the money to creditors according to a plan drawn up by the court.

A company under the control of a court-appointed receiver is said to be “in receivership.” A private company or public agency can be placed into receivership, either in case of a financial failure or mismanagement. A receiver can be responsible for the day-to-day operations of a company that remains in business despite the bankruptcy, and can sometimes be responsible for important operation decisions, such as hiring and firing, the signing of contracts, and the negotiation of loans and credit.