Purchase by receiver: Overview, definition, and example
What is a purchase by receiver?
A purchase by receiver refers to the process in which a receiver—an individual or entity appointed by a court or creditor to manage and control the assets of a company in financial distress or during a bankruptcy—purchases assets or property of the distressed company. The receiver’s role is to protect the interests of creditors and ensure that assets are properly managed, sold, or distributed during the liquidation or restructuring process.
The purchase of assets by a receiver often occurs in cases where the company is being liquidated or its assets are being sold off to settle debts. In such cases, the receiver may purchase the assets on behalf of the company’s creditors or other interested parties. The transaction is typically subject to court approval or oversight to ensure fairness and to protect the interests of all stakeholders involved.
Why is a purchase by receiver important?
A purchase by receiver is important because it allows for the orderly disposal of a distressed company’s assets in a way that maximizes the value for creditors and other stakeholders. This process helps ensure that the company’s assets are sold at fair market value, rather than being undervalued due to the company’s financial difficulties. It also helps protect the rights of creditors and shareholders, ensuring they receive a portion of the proceeds from the sale, when applicable.
In some cases, a receiver might also use their authority to purchase certain assets themselves, particularly when the assets are needed to stabilize the financial situation or continue operations, possibly as part of a reorganization effort.
Understanding purchase by receiver through an example
Consider a manufacturing company, ABC Corp., that has filed for bankruptcy. The court appoints a receiver to manage the liquidation of the company’s assets. The receiver assesses the company’s machinery, inventory, and real estate and determines that certain assets could be sold to recover money for the creditors.
The receiver may decide to purchase certain assets for the benefit of the creditors or may facilitate the sale of these assets to third parties. For example, the receiver might buy machinery that is essential for ongoing operations or might auction off the company’s real estate holdings to generate cash. These transactions must often be approved by the court to ensure they are fair and in the best interests of the creditors.
Example of a purchase by receiver clause in a legal agreement
Here’s an example of how a purchase by receiver might be described in a legal agreement or court order:
“The Receiver, appointed by the Court, is authorized to purchase the assets of ABC Corp., including but not limited to machinery, inventory, and real estate, at fair market value. The purchase of these assets shall be conducted in accordance with applicable laws, subject to Court approval, and any proceeds from the sale or purchase will be used to satisfy the company’s outstanding debts in the order of priority established by the Bankruptcy Code.”
Conclusion
A purchase by receiver is a critical process in bankruptcy, insolvency, and distressed asset management. It allows the receiver to manage, sell, or acquire assets in a way that maximizes value for creditors while complying with legal and regulatory requirements. Whether the receiver is buying assets to continue business operations or selling off assets for liquidation, this process is crucial for ensuring that the rights of all stakeholders are respected during a company’s financial restructuring or liquidation. Understanding the role of the receiver and the purchase process is essential for companies, creditors, and investors involved in insolvency proceedings.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.