What is a Receivership?

Receivership statutes are very complex and are often misunderstood, even by experienced attorneys. A receivership is similar to a bankruptcy proceeding, but with a few important differences. First, unlike bankruptcies, receiverships can be filed in either state court or federal court. In a receivership, the person appointed to take control of the assets (the “receiver”) is generally bound by the powers and restrictions contained in the court’s receivership order. In Zeek’s case, the receiver is Ken Bell.

IF I AM OWED MONEY BY A COMPANY IN RECEIVERSHIP, IS IT JUST GONE?

Not necessarily. While each receivership is different, many receiverships return money (called a “distribution”) to its creditors. If you’re reading this, it’s likely that you’re a “creditor” looking for answers regarding your piece of pie. Some receiverships result in a 100% distribution; others result in little or no distribution. A receiver is charged with protecting all receivership assets, liquidating those assets, evaluating all claims filed by the receivership’s creditors, and making a distribution to all legitimate creditors. The receiver is also charge with pursuing assets from some of the “winners” in the scheme i.e. investors that pulled out significant gains. This is known as “Clawback Litigation.” The receiver may also file suit against third-party vendors that profited by supporting the scheme. The receiver ordinarily files periodic reports with the court, updating it on the value of the receivership’s assets and the amount of money spent by the receiver in carrying out his or her duties. A distribution is normally made near the conclusion of the receivership matter, which can be months or even years into the proceeding. In this case, we expect this to be a very long and complicated matter.

IF I AM A CREDITOR OF A RECEIVERSHIP, WHAT CAN I DO TO PROTECT MYSELF?

First, try to stay well-informed. Carefully read any notice or update that you receive from the court or the receiver. If other information is readily available, keep yourself updated on the status of the receivership case. Most importantly, it is vital that you complete a proof of claim form within the timeframe established by the receiver. If you are a creditor of a receivership, you should receive a claim form and instructions in the mail once the claim process has been approved by the court. It is critical that you carefully and accurately provide all of the information requested (including supporting documentation) and return it within the time allotted by the receiver. If you fail to submit a claim, if you submit incorrect or incomplete claim forms, or if you fail to submit the claim form in a timely manner, the receiver may refuse to allow your claim and you may miss out on a distribution.

Phillip Young

Phillip Young is an experienced corporate litigator. Before joining GMY Law in January, 2010, he practiced at Bass, Berry & Sims for eight years and then established his own firm. He works out of the GMY office in Columbia, Tennessee, as well as in the Nashville office. Phillip has represented some of the largest corporate debtors to file Chapter 11 in the Middle District of Tennessee, including Service Merchandise Company, Inc., Murray, Inc. and Regal Cinemas, Inc. He filed, prosecuted and resolved over 1100 adversary proceedings for the Service Merchandise estate.

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