Can a Corporation be Appointed a Receiver?

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QUESTION: I was in court last week and the judge appointed a corporation as the receiver in a case. I thought a receiver cannot be a corporation. Has something changed?

ANSWER: Previously, California Financial Code § 106, defined “trust business” as the “business of acting as an executor, administrator… receiver… under the appointment of any court or by authority of any law of this or any other state or the United States, or as a trustee for any purpose permitted by law.” Financial Code § 1500 went on to provide that no corporation shall engage in the trust business unless it is qualified as required by that section, which required generally that it be a bank. The one exemption was set forth in Financial Code § 1501.2 which provided: “Nothing in this division shall prohibit a non-profit corporation from acting as a receiver pursuant to the appointment of any court.” It was, therefore, clear that, in general, a receiver in California could not be a corporation.

However, last year the legislature amended the Financial Code. It repealed § 106 and replaced it with § 115, which basically says the same thing. It repealed § 1500 and replaced it with § 1550, which basically says the same thing. It repealed § 1501.2 and replaced it with § 1553 which drastically changed the exemptions to the requirement for a corporation to qualify to act as a receiver. In particular, Financial Code § 1553 now provides:

[T]he following persons are exempt from Section 1550:

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(d) Any person appointed as receiver, trustee, or other fiduciary by a court of competent jurisdiction acting pursuant to that authority.

“Person” is defined in § 18 of the Financial Code as “any person, firm, partnership, association, corporation, company, limited liability company, syndicate, estate, trust, business trust, or organization of any kind.” As a result, given the amendments to the Financial Code, a corporation can be appointed as a receiver. Whether that is a good idea is another question. From a receiver’s standpoint, it may be beneficial to have the protection of a corporate entity. From the standpoint of the court and parties to receivership actions, it may raise a number of issues. First, a corporation cannot appear in court without counsel. Second, who at the corporation is acting for the court as receiver – the CEO? the CFO? the CEO’s secretary? any officer of the corporation? We will just have to see how this plays out and how willing courts are to appoint persons who are not natural, breathing, people as their receivers.

Topics:  Estate Planning, Executors, Exemptions, Receivership

Published In: Business Organization Updates, Civil Procedure Updates, Finance & Banking Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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