The Journal of The DuPage County Bar Association

Back Issues > Vol. 21 (2008-09)

The Appointment of a Receiver
By Ryan M. Kipfer

Odds are pretty high that if you thought about your caseload, you would discover at least one case that started with a "break up". It could be a divorce, it could be the distribution of a probate estate to a group of beneficiaries, or it could be the winding up of a business. Sometimes there is cooperation and the process of going separate ways is a smooth one. On other occasions, one or both sides will not cooperate. A lack of cooperation could lead to a lack of proper disclosures, delay and accusations of one side hiding, stealing or wasting assets. In these extreme cases, such obstacles can be resolved through the appointment of a receiver. A receiver is appointed by the court to hold and manage property to preserve it from destruction during pending litigation.1 When considering a request for a receiver, it is important to have a clearly defined plan and a strategy to make sure your receiver does not become permanent.

Clearing the Appointment Hurdle

The appointment of a receiver is considered an extraordinary and drastic remedy which is in derogation of the fundamental rights of the owner to possession of his property.2 Accordingly, the power of the court to appoint a receiver should be exercised only when the court is satisfied that receivership is necessary to circumvent the imminent danger of loss.3 To appoint a receiver, the applicant must satisfy a two-pronged test. First, the applicant must show that he has a clear right to the property itself or has some lien upon it, or that the property constitutes a special fund to which he has a right to resort for the satisfaction of his claim. Second, the applicant must show that the possession of the property by the defendant was obtained by fraud, or that the property itself, or the income arising from it, is in danger of loss from neglect, waste, misconduct or insolvency.4

Showing that an applicant has a clear right to the property itself can be as simple as looking to a statute or, in the alternative, it could be very complex. In Silverstein, showing the applicant had a clear right to the property was not a challenge for the applicant.5 In Silverstein, the subject of the litigation was property of a museum that was publicly funded. As a matter of statutory right, the people of the State of Illinois had a right to the property controlled by the Museum and the Museum’s directors. In other instances, the determination of whether or not the applicant has a clear right to the property is not as obvious. In Kennedy v. Miller, the Court held that there was no clear showing that the property at issue was partnership property, as the applicant had claimed.6

In order to show that one can pass the second part of the two part test, one must set forth specific facts and not just mere legal conclusions.7 In Silverstein, the State of Illinois alleged that the directors of The George F. Harding Museum were mismanaging the museum, self-dealing and causing waste. The State of Illinois supported the allegations with facts. Namely, the Museum’s directors were paying themselves inordinately high salaries, borrowing money from a financial institution that one of the directors had an interest in, and the State also identified that approximately 80 of the Museum’s artifacts were missing. The Appellate Court held that such facts are sufficient to support a motion to appoint a receiver.8

When filing a motion to appoint a receiver, one should keep in mind that the appointment of a receiver is an equitable remedy, and the moving party will have to demonstrate a likelihood of success on the merits.9 "A sound judicial discretion in appointing receivers is based upon the fact that there is no other adequate remedy or means of accomplishing the desired result, and there should be a reasonable probability that the plaintiff will ultimately prevail in the suit."10

Bond Requirement

In an action for receivership the applicant is usually required to post a bond.11 However, the matter of a bond requirement need not be considered unless and until the trial court determines appointment of a receiver is an appropriate remedy.12 The amount of the bond is determined by the trial court. The amount is set at a level that would pay for all damages including reasonable attorney’s fees sustained by reason of the appointment and acts of such receiver- in the event the court sets aside or revokes the appointment of the receiver.13 A court should act to appoint a receiver, without bond, only upon the showing of good cause and upon notice and full hearing.14 In Witters v. Hicks, after appropriate notice and a full hearing, the Circuit Court determined that there was no requirement for the posting of a bond.15 On appeal, however, the Fifth District remanded the case to the Circuit Court to assess a reasonable bond to be posted by plaintiffs; the complexities of liquidation, the path of the litigation and the nature of the proceedings demonstrated that a bond was required to protect all interests.16 Thus, the discretion of the trial court is broad in determining the amount of the bond, or even if one should be posted. However, the Witters decision seems to set something of a guideline for when a bond should be required.

Defining the Scope of the Receiver

Perhaps the most important decision to make with respect to a receivership is the responsibilities of the receiver. When a receiver is appointed in cases where the property at issue is an on-going business, there are special concerns that should be carefully contemplated. To illustrate some of the special problems with a receiver, consider the case of Oliver Owner, Skilled Sally, and your client, Sister Sue.
Oliver Owner built a highly-specialized, service-based business, OliverCo, over the course of 30 years. The business had no meaningful fungible assets; the business’s worth was primarily based on a single long term contract that it received from its only client. Oliver primarily did the work himself, but later in life brought his daughter, Skilled Sally, into the business and introduced Sally to his one and only client. Oliver made Sally an officer of OliverCo but did not give Sally any stock in the company. Sally’s sister Sue is your client. Sister Sue did not work for OliverCo and did not have the best relationship with her sister Sally.

When Oliver died, Sally and Sue found out that Oliver’s last will and testament stated that the shares in OliverCo would be divided evenly between the two of them. After learning of the distribution, Sally and Sue’s relationship soured even further. Sally had taken on additional responsibilities at the office following Oliver’s death and did not like the fact that Sue, who never worked for OliverCo a day in her life, would be entitled to half of the profits from Sally’s skilled work.

When Sue asked for information about the business and hired an appraiser to value her shares (which she intended to sell), Sally refused to let the appraiser in the door, called Sue and told her that she would never see a nickel out of the business. Sally ignored all further requests for information about OliverCo. One day, Sue drove past OliverCo’s office and noticed painters outside the front of the building changing the sign to read SallyCo. Needless to say, Sue called your office in a panic. When you checked with the Secretary of State, you discovered that SallyCo is a new LLC and not merely a doing-business-as name for OliverCo. Because OliverCo has only one client, it appears the only explanation is that Sally wants to take over OliverCo and create SallyCo with OliverCo’s assets.

When discussing your options with Sue, you tell Sue that petitioning the Court for appointment of a receiver may be the best option. You might consider pointing out to Sue that the burden on the moving party in an action to appoint a receiver is heavy and a receiver is "only for the prevention of manifest wrong and injury."17 That said, you feel Sue has a right to the property itself, and the changing of the name to SallyCo shows an intent to steal assets from OliverCo and convert the assets to SallyCo assets, thereby, rendering the OliverCo stock worthless.

As you consider a receiver for OliverCo, you quickly discover that your biggest obstacle will not be prevailing on your motion to appoint, but rather your biggest obstacle will be running OliverCo given that the only person who can do the work of OliverCo is Sally. Keep in mind Sue’s goal: to get a fair assessment of the value of OliverCo and come up with a way to sell her share of OliverCo. Because Sally will want to keep her job, Sally will be the most likely buyer. Therefore your goal should be to keep the business functioning at an optimal level and keep Sally happy enough to effectively run OliverCo. In so doing Sue can obtain the maximum value for her share of OliverCo. Defining the scope of what the receiver can and cannot do becomes your most important job.

Because the relationship between Sue and Sally has greatly deteriorated (and Sally’s cooperation seems unlikely) Sally will likely oppose the actions of a receiver. Sally’s opposition may mean costly, protracted litigation for all parties. If you can come up with limits as to what the receiver may do, then Sally may be less likely to oppose the actions of a receiver and also less likely to interfere with the receiver’s duties. If that can be accomplished, OliverCo will run smoothly and Sue will be able to get the maximum value for her shares.

Limiting the authority of your receiver may lead to cooperation from Sally. For example, your receiver appointment order can state that the receiver does not have the authority to alter the compensation of officers without court approval. This provision alone might make the entire concept of a receivership easier for Sally to accept. Sally’s biggest concern is probably that she will be forced to take a reduced salary and that she will not be fairly compensated for all the work she put in over the years. If Sally feels her compensation is protected, then Sally will probably be more willing to cooperate, or at least negotiate, other aspects of the litigation.

However, there is the possibility that Sue might find that provision very hard with which to agree. Sue might feel that Sally is merely keeping the business going that their father built, and that Sally is doing almost nothing to earn her salary. Sue should be reminded that Sally is entitled to a salary and that Sally is operating a profitable business, so she will be compensated in an amount commensurate with that of other successful business officers. If both Sally and Sue can agree that Sally’s compensation will not be affected by the receivership, then further negotiations and agreements are more likely.

Another aspect of the receivership that Sally might find upsetting is the control a receiver will have over the company’s finances. Once a receiver is in place, the receiver will essentially be in charge of OliverCo. Considering the likelihood that Sally will not want to give up the control that she has been enjoying, you may want to allow Sally to spend a certain amount of money each year on business expenses. There will be times when certain expenses will need to be paid, and taking the time to contact the receiver will seem like a waste of time to Sally.

If Sally is allowed to spend a certain amount of money each year everyone may benefit. For example, if each year you see that OliverCo spends $50,000 on capital expenses, which are not related to day-to-day operating expenses, then setting a $50,000 spending limit might be reasonable. Once Sally reaches the $50,000 annual limit she will need to seek permission from the receiver before she will be allowed to incur any other capital expense.

Sue’s benefits here are two-fold. Firstly, Sue can now be assured that OliverCo’s assets will not be wasted because of a personal dispute between Sue and Sally. Secondly, Sally will be able to operate the business without incurring receiver’s fees that will be payable by the business because of minor capital concerns. Thus, both Sue and Sally would benefit from this provision. Since a receiver’s fees are paid from the property that is in the receivership,18 profits will be greater because the parties are able to keep the receiver’s fees low.Once a receiver is in place, the receiver will be able to provide Sue with the information she needs to determine the value of OliverCo. Sometimes, even if a corporation says it turned over all responsive documents in discovery, the client may believe that something has been hidden, or held back, due to the bad blood between the parties. With a receiver in place, you have better assurance that you have access to all current transactions and corporate documents. Now Sue can be sure that Sally will no longer be able to withhold information from Sue because a court is now in possession of that information through the receiver.19 If Sue is able to determine the value of OliverCo, then Sally can buy Sue’s share of OliverCo and OliverCo will no longer be in receivership.


The appointment of a receiver may be the only means of resolving the break up with which your client is dealing. If that is the only option for your client, then you will have to have a plan. You will have to determine if your client can pass the test for appointment of a receiver and what the duties of the receiver will be. Receiverships are often shunned as being drastic, expensive remedies; however, if used in a limited way, and if the appointment of a receiver results in full transparency of a business’s books and records, the appointment of a receiver can be a useful tool to maximize the value of a business to your client. Remember your goal is to help your client protect her rights as she navigates through the break up.

1 In re Hilkovitch, 124 Ill.App.3d 401 (1st Dist. 1984).

2 Kennedy v. Miller, 174 Ill.App.3d 48 (2nd Dist. 1988).

3 Id.

4 Citcorp Savings of Ill., F.A., v. Occhipinti, 136 Ill.App.3d 835, 840 (2nd Dist. 1985).

5 People ex rel. Scott v. Silverstein, 86 Ill. App. 3d 605, 610 (Ill. App. Ct. 1st Dist. 1980).

6 Kennedy v. Miller, 174 Ill.App.3d 48 (2nd Dist. 1988).

7People ex rel. Scott v. Silverstein, 86 Ill. App. 3d 605, 610 (Ill. App. Ct. 1st Dist. 1980).
Id. at 611.

9 People ex rel. Scott v. Pintozzi, 50 Ill. 2d 115, 123 (Ill. 1971).

10 Fox v. Fox Valley Trotting Club, Inc., 349 Ill. App. 132, 137 (1st Dist. 1953).

11 735 ILCS 5/2-415

12 People ex rel. Scott v. Silverstein, 86 Ill. App. 3d 605, 611 (1st Dist. 1980).

13 Id.

14 Steinwart v. Susman, 94 Ill. App. 2d 471, 478 (2nd Dist. 1968).

15 Witters v. Hicks, 338 Ill. App. 3d 751 (5th Dist. 2003).

16 Id. at 760.

17 Wolf v. Greek American Realty Co., 40 Ill. App. 2d 292, 297 (1st Dist. 1963), citing

18 Chicago v. Kideys, 246 Ill. App. 3d 1077, 1082 (1st Dist. 1993).

19 Wiswall v. Kunz, 173 Ill. 110, 111 (1898).

Mr. Kipfer is an attorney with the Law Firm of Roberts & Caruso in Wheaton, Illinois. He received his J.D. from the Northern Illinois University College of Law in 2008. Ryan also holds a B.A. in Philosophy from Northern Illinois University, where he graduated in 2002.

He served in the Illinois Air National Guard for nine years, four of which were active duty service. During that time he served in the Iraq War from March 2003 through November 2003. He also received the 169 ASOS Outstanding Airman Award in 2001. In 2004 he was awarded the Air Force Commendation Medal for his service in the Iraq War.

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