When a business dispute threatens company assets, ordinary litigation may not move quickly enough to protect them. A California court can appoint a receiver to preserve property and, in some cases, operate a business while the dispute continues. A business receivership can substantially limit an owner’s control, but it does not automatically decide who owns the company or who will prevail. This article explains when receivership may be available, what a receiver does, and what businesses and individuals should consider before requesting or opposing one.
What is a business receivership?
A receivership places specified property or business operations under the supervision of a court-appointed receiver. The receiver acts as an officer of the court, not as an advocate for the person who requested the appointment. The appointment order defines the receiver’s authority, and the judge retains oversight.
Depending on that order, a receiver might secure bank accounts, collect receivables, maintain insurance, supervise employees, or keep a business operating. In a narrower appointment, the receiver may control only a particular asset or income stream rather than the entire company.
Receivership is generally a remedy within a legal proceeding, not a substitute for proving the underlying claims. It is also distinct from bankruptcy. A state-court appointment does not, by itself, create the broad automatic stay associated with a bankruptcy filing.
When can a California court appoint a receiver?
California Code of Civil Procedure section 564 identifies circumstances in which a court may appoint a receiver. In certain disputes involving jointly owned or interested property, section 564(b)(1) permits appointment when the applicant’s interest is probable and the property is in danger of being lost, removed, or materially injured. Section 564(b)(9) also permits appointment “in all other cases where necessary to preserve the property or rights of any party.”
These provisions do not mean every ownership disagreement justifies receivership. Courts generally view the remedy as extraordinary because it can displace management and impose substantial costs. Relevant circumstances may include:
- Dissipation of assets: Evidence that someone is diverting company funds or transferring property beyond the reach of the dispute.
- Operational paralysis: An ownership conflict that threatens payroll, insurance, essential contracts, or the preservation of business property.
- Threatened loss of records or income: Conduct that jeopardizes reliable financial records or an identifiable revenue stream.
- Other statutory grounds: Certain foreclosure, dissolution, and judgment-enforcement proceedings may support appointment under applicable law.
California businesses considering receivership need evidence connecting the requested relief to a legally recognized ground. Suspicion, personal hostility, or a desire to pressure another owner is not enough.
Requesting or opposing a business receivership
A request should identify the property at risk, explain why intervention is necessary, and propose an order tailored to that risk. Declarations, bank statements, accounting records, ownership documents, and specific transaction histories can help establish the facts. The application should also address why less intrusive measures would be inadequate.
Ordinarily, the opposing party receives notice and an opportunity to respond. Urgent applications require compliance with applicable notice rules and a concrete explanation of the emergency. A party should not assume that labeling a dispute urgent permits appointment without notice.
An owner opposing appointment can challenge the statutory basis, disputed facts, or proposed scope. Practical alternatives might include:
- An injunction restricting transfers or withdrawals.
- A neutral accounting or inspection of financial records.
- Agreed spending limits and reporting requirements.
- Protection of particular assets without transferring control of the entire business.
California Code of Civil Procedure section 567 requires the receiver to take an oath and provide an undertaking, in an amount directed by the court, before entering upon the receiver’s duties. For an appointment made ex parte, section 566(b) also requires an undertaking from the applicant before the court makes the appointment order. Both sides should examine the proposed receiver’s qualifications, independence, compensation, and operational plan. Advice about business litigation can help place the application within the broader ownership, contract, or fiduciary-duty dispute.
What changes after a receiver is appointed?
The appointment order is the starting point. California Code of Civil Procedure section 568 describes receiver powers subject to court control, including taking possession of property, collecting debts, and bringing or defending actions. Owners should not assume the receiver has unlimited authority—or that management retains authority the order transfers.
Employees, customers, and vendors may need clear instructions about authorized payments, account access, and approval of contracts. Owners should preserve records and comply with turnover obligations while raising objections through the court. Interfering with court-directed control can create additional legal exposure.
A receiver does not automatically become the owner of the business. Under California Code of Civil Procedure section 568.5, a receiver’s sale of real or personal property in the receiver’s possession requires a court order and must follow the statutory notice and sale procedures unless the court otherwise orders. The sale is not final until confirmed by the court. Existing contracts, licenses, and regulatory obligations still require attention; appointment alone does not resolve them.
Costs, duration, and preparing your next steps
Receivership can preserve value, but it also consumes resources. Receiver compensation, legal fees, accounting work, insurance, and operating expenses can reduce the assets available to stakeholders. Payment arrangements depend on the orders and circumstances; owners should not assume the applicant alone pays.
There is no standard duration. The appointment may continue until assets are secured, a sale is completed, the dispute is resolved, or the court determines that supervision is no longer necessary. Termination commonly involves accounting and further court orders.
Before seeking or opposing appointment, organize ownership agreements, financial statements, bank records, tax information, and evidence of threatened losses. Identify upcoming payroll, loan, lease, and insurance deadlines. Those details help evaluate both the urgency and whether a narrower remedy could protect the business.
Talk to a California business attorney
If a receivership could affect your company, investment, or disputed property, a free consultation with Itkin Law can help you assess the legal issues and available options. Schedule a free consultation or call (424) 603-8888.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. The law changes, and this article reflects the law as of its publication date. Every situation is different — contact us to discuss how the law applies to your exact circumstances. See our full disclaimer.
