Readers of this blog know that we often post about business litigation topics. One such topic that we have posted about in the past is receivership. Indeed, in a recent post, we explained how receivership can cost Plano, Texas, business owners their businesses, even before a finding of liability. However, in this post, we will detail receivership law in Texas.
Who can appoint a receiver?
As explained in Section 64.001(a) of the Texas Civil Practice and Remedies Code, any court of “competent jurisdiction” can appoint a receiver. And, a receiver can be appointed under any rules of equity. This includes fraud, creditor lawsuits, partnership lawsuits, foreclosures, lawsuits to foreclosure corporate interests, etc.
How are they appointed?
Theoretically, a judge could unilaterally appoint a receiver, but usually, a receiver is appointed after the application of a party within the lawsuit. That party must allege they have an interest (probable or actual) in the property or business that is to be under receivership. And, they must present some evidence that the property is in danger of being materially injured, removed or in some way lost.
Internal disputes
It may surprise business owners, but receiverships are most common during internal disputes, which are outlined in Section 64.002, among others. This is where the partners, corporate shareholders, etc., cannot agree on how to run the company. As a result, by default, only a third party can be trusted to run the company. This is a reason why your formation documents should include some language to avoid receivership or at least some way of appointing a mutually agreeable receiver, not one dictated by a randomly assigned judge.
The takeaway
As we said in our last blog post, always take business litigation seriously. Avoid it all together by having a Collin County attorney review contracts, employment policies and practices. You can even go as far as having them do a business review to find problems and potential liabilities.
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