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CREDITOR'S ACE IN THE HOLE:
APPOINTMENT OF A CORPORATE RECEIVER
By
Glenn R. Reiser © 2006
If
your debtor is a New Jersey corporation, there is perhaps no better
creditors’
remedy than seeking the appointment of a receiver. Similar to a
bankruptcy trustee, a receiver is usually vested with complete
authority to operate the business under the jurisdiction of the
court and must act in the best interests of the corporation’s
creditors and shareholders.
Pursuant to N.J.S.A.
14A:14-2(a), “a
creditor whose claim is for a sum certain”
has the right to bring a receivership action in the Superior Court
of New Jersey.
Id.
The statute provides
creditors with the following grounds to seek appointment of a
receiver:
(a) the
corporation is insolvent;
(b) the
corporation has suspended its ordinary business for lack of funds;
(c) the
business of the corporation is being conducted at a great loss and
greatly prejudicial to the interests of its creditors or
shareholders.
N.J.S.A.
14A:14-2(2).
In addition, N.J.S.A. 2A:17-66 also authorizes the Superior
Court to appoint a receiver to aid in the execution on behalf of a
judgment creditor. This statute states, in pertinent part, that:
In aid of execution, the superior court may, on
application of either the judgment creditor or the defendant and in
its discretion, order the appointment of a receiver of the property
and things in action belonging or due to or held in trust for the
judgment debtor as aforesaid, at the time of the recovery of the
judgment or at any time thereafter. Ibid.
It is well settled under
New Jersey law that the appointment of a fiscal agent and/or
receiver is within the sound discretion of the court. Roach v.
Margulies, 42 N.J. Super. 243,245 (App.Div.1956); Neff
v. Progress Building Materials Co. 139 N.J.Eq. 356 (Chan.
1947); Gillies v. Pappas Brothers, 138 N.J.Eq. 202,
205 (Ch. 1946). Indeed, where the corporate defendant’s
business cannot be conducted with safety to the public and its
creditors, the court should intervene and appoint a receiver.
Tachna v. Pressed Steel Car Co., 112 N.J. Eq. 411
(E. & A. 1932).
Since
the appointment of a receiver is a rather extraordinary remedy, depending upon the particular circumstances creditors
should first attempt to exhaust collection efforts by pursuing the
more routine collection remedies provided by New Jersey law, such as
asset seizures and bank account levies through the assistance of the
local county sheriff or court constable, demanding asset information
through the issuance of written questions in the form of an
Information Subpoena, and deposing the principals of the debtor
corporation.
In many instances,
the debtor corporation will fail to comply with a creditor’s
post-judgment discovery demands. In those situations, the creditor
can petition the court and obtain an order compelling the debtor
corporation to comply with the discovery demands. If the debtor
corporation fails to comply with a court order, the creditor can
then file contempt proceedings and obtain orders and warrants of
arrest as to the company principals/officers. If and when
enforced, an order of arrest and warrant of arrest will require the
sheriff to bring the company principals/officers to the county
courthouse where the business is located so that the creditor can
examine the company as to its assets and liabilities under oath.
It is
the pursuit of these routine creditor remedies that should establish
the foundation to apply for the appointment of a receiver. A court
will likely be more inclined to appoint a receiver when a defendant
corporation has shown disrespect for the judicial process and court
orders.
Disclaimer:
This article is provided for general information purposes only, and
should not be interpreted as creating an attorney-client
relationship between the reader and LoFaro & Reiser, L.L.P.
Every case is decided on its own facts. The reader
should not construe this article as providing legal advice to any
specific set of facts or situation.
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