Description: Discover how receivers and trustees appointed by Texas courts help stakeholders maximize value during business disputes, bankruptcies, and other forms of corporate liquidation.

When a Texas business is involved in a lawsuit, bankruptcy case, or contested succession, a neutral, court-appointed fiduciary may be needed to assume control over the company’s assets, safeguard its value, and facilitate an orderly transition. This fiduciary might be a receiver, trustee, or chief restructuring officer (CRO) appointed by a court, and each of these roles carries its own set of powers and obligations.

For business owners, creditors, and their lawyers, it’s important to understand what each of these roles entails. A court appointment can significantly affect how a business is run, how assets are allocated, and whether it continues in operation or ceases.

How Receivers and Trustees Are Appointed in Texas

The Texas Civil Practice and Remedies Code (Chapter 64) provides that a court may appoint a receiver if “justice requires it, or where property is in danger of being lost, removed, or materially injured.” Texas courts consider a receivership to be an extraordinary remedy available only when there is no other adequate remedy.

Common situations in which a Texas court appoints a receiver or trustee include:

  • Dissolution of a business or partnership, especially when co-owners cannot agree on how to manage or distribute the company’s assets.
  • Enforcement of a judgment, when a creditor seeks a neutral party to identify, manage, and sell assets to satisfy a judgment.
  • Allegations of fraud or mismanagement that threaten the value of a business.
  • Insolvency or bankruptcy, where stakeholders seek an independent fiduciary to oversee operations.
  • Estate and trust disputes, where beneficiaries challenge the management of an estate or trust.

In all of these cases, the goal is to have a competent, disinterested person manage the company to preserve assets, sustain business activities where feasible, and provide an outcome that can withstand scrutiny.

The Functions of a Court-Appointed Receiver

The duties of a receiver are determined by the terms of the appointment order and the applicable law. In general, though, the receiver’s duties are quite expansive, including:

  • Taking possession and control of assets, including bank accounts, accounts receivable, inventory, and intellectual property.
  • Stabilizing operations by evaluating cash flow, maintaining vendor relationships, paying employees, and avoiding further losses.
  • Conducting financial due diligence by investigating asset transfers, analyzing creditor claims, and generating court reports.
  • Managing the company’s assets by determining whether to continue operating the company, reorganize it, sell assets, or dissolve it.
  • Reporting to the court through periodic reports, accountings, and proposals.
  • Distributing assets among creditors as directed by law, the court, or the priority scheme approved by the court.

The receiver or trustee does not serve merely as an advisor. He or she is authorized to make decisions that impact the business and must therefore have appropriate qualifications.

The Purpose of a Chief Restructuring Officer (CRO)

Sometimes, in connection with Chapter 11 or non-bankruptcy reorganizations, the court or parties to the case agree to appoint a CRO instead of a receiver. A CRO may be employed to assist management or to replace it in order to steer a turnaround.

The CRO’s mission is to restore the company’s financial health and operational performance, rather than liquidate it. Duties may include assessing the company’s financial condition and cash needs, negotiating with lenders and creditors, implementing a restructuring plan, and supervising the sale of assets, the acquisition of DIP financing, or a Section 363 sale.

The position calls for an individual with actual experience in managing companies, rather than one who merely studies them. Thus, experience as an operator is a critical qualification.

Why the Background of the Fiduciary Is Important

A court will evaluate various criteria when selecting an individual for appointment, and the parties may propose candidates for the position based on qualifications and experience. A well-rounded fiduciary usually demonstrates financial competency to analyze financial statements and transactions, operational experience running businesses and managing cash flow, fiduciary integrity and objectivity, credibility to testify in court on complex financial issues, and relevant certifications, including Certified Insolvency and Restructuring Advisor (CIRA), and Certified in Distressed Business Valuation (CDBV).

Without those attributes, a report might be insufficient, asset values could diminish, and parties could lose trust, potentially costing time and money.

Receivership, Valuation, and Expert Witness Services: Where They Cross

In many cases, the fiduciary’s court-appointed work will overlap with valuation and litigation services. For instance, a receiver appointed to take over control of a medium-size manufacturing company may be asked to determine the going-concern value of the company, determine if the business is viable to continue operations, and to prepare the business for sale. Each task calls for valuation expertise that can stand on its own.

Where the receivership includes allegations of fraud or dissipation of assets, the fiduciary may be asked to trace transactions, identify preferential or fraudulent transfers, and calculate damages. Those activities also require rigorous analytical skills and credibility in court.

Having a fiduciary with expertise in valuation, transactional tracing, damage analysis, and court testimony provides a comprehensive viewpoint, instead of relying on multiple consultants to fill in the gaps. That approach can prove especially helpful in the mid-market space in Texas where financial problems, disputes over ownership, and court proceedings can arise all at once.

Common Questions

What is the distinction between a receiver and a bankruptcy trustee?

A receiver is appointed under state law, usually Chapter 64 of the Texas Civil Practice and Remedies Code, and answers to the court that made the appointment. A bankruptcy trustee is appointed under the federal Bankruptcy Code and oversees a bankruptcy estate. There may be some functional similarities, but the legal authorities differ.

Does a receiver have to close my company, or can I keep running the business?

It depends. The fiduciary’s duty is to maintain and enhance the value of the estate for all parties involved. In some situations, that entails maintaining ongoing operations. In other instances, it requires closing or downsizing operations. A qualified fiduciary will determine what’s best for the business and the court.

How long will the process take?

It varies widely. Some matters may be wrapped up in a few months, while others could take a year or longer if the business continues to operate, there is extensive asset tracing, or there are additional disputes to resolve. The matter closes once the goals of the appointment are met and the court ratifies the final distribution.

Who covers the costs for the receiver or trustee?

Generally, the receiver or trustee is paid out of the assets they oversee, subject to court approval. The court reviews their billing to ensure it is commensurate with the work done.

What qualities should I evaluate when seeking a receiver or trustee?

Consider their financial and operational background, certifications (e.g. CIRA, CDBV), prior fiduciary experience, and credibility to testify in court. The work should also be performed by the named fiduciary, rather than passed along to someone else.

Selecting a Qualified Fiduciary in Texas

If a fiduciary is required — in Dallas, Fort Worth, Houston, Austin, San Antonio, or elsewhere — the fiduciary’s professional skills and character have a direct impact on the welfare of everyone involved. An ideal candidate balances the ability to manage finances, practical business sense, and fiduciary duty.

With more than 35 years of fiduciary experience, John Tittle, Jr., CPA/CFF/CGMA, CTP, CIRA, CDBV has delivered on these requirements as a trustee, receiver, keeper, and chief restructuring officer for various Texas business matters. He is a former Deloitte Partner and public company CFO who has testified as an expert witness in more than 100 federal and state courts since 1983. All of his engagements are led by him personally.

If you’re looking to engage a fiduciary for your court-related matter, or you’re an attorney recommending a receiver, trustee, or CRO, reach out for a private consultation with John Tittle, Jr. via tittlefinancial.com or by calling (214) 341-6043.