When a dispute between business owners becomes serious, winning the lawsuit may not be the only concern. Sometimes the more immediate question is whether the business—and its money, property, and value—will still be there when the lawsuit ends.

One owner may control the bank accounts. Company money may be moving to insiders or related businesses. Taxes, mortgages, or other critical obligations may be going unpaid. Valuable assets may be deteriorating. Or a deadlock between owners may make it impossible to take action necessary to protect the company.

In appropriate circumstances, a New York court can appoint a temporary receiver to take control of and protect property involved in the dispute.

Receivership, however, is an extraordinary remedy. A court generally will not take control away from a business owner merely because the owners are fighting or one side alleges mismanagement. The party requesting a receiver needs evidence demonstrating that property is actually in danger and court intervention is necessary to protect it.

Key Takeaways

A receiver can protect business assets while an ownership dispute is being litigated. Depending on the court's order, a receiver may take control of property, collect income, preserve records, manage accounts, and perform other functions necessary to protect the assets at issue.
Receivership is an extraordinary remedy. New York courts require a clear evidentiary showing that the property needs protection; accusations and distrust between business owners ordinarily are not enough.
Financial misconduct can support a request for a receiver. Evidence of diverted funds, questionable insider payments, unpaid obligations, threatened loss of assets, or other conduct placing business property at risk can become particularly important.
A profitable business can still need protection. The relevant question is not simply whether the company is generating revenue, but whether its property or value is in danger.
The court can tailor the receiver's authority to the problem. Appointment of a receiver does not necessarily mean liquidation or permanent loss of the business.
Other remedies may be available. An injunction, accounting, escrow arrangement, restrictions on transfers or distributions, or other targeted relief may sometimes protect the business without placing it under a receiver's control.
Timing matters. If significant money or assets are disappearing, waiting for the underlying lawsuit to be resolved may leave little to protect.

What is a Court-Appointed Receiver?

A receiver is a neutral person appointed by a court to take custody or control of property involved in litigation and protect it while the dispute proceeds.

New York CPLR 6401 permits a court to appoint a temporary receiver where a person with an apparent interest in property that is the subject of the action demonstrates a danger that the property will be removed from the state, lost, materially injured, or destroyed.

In a business dispute, the property at risk may include company funds, receivables, income-producing real estate, or other identifiable business assets.

The receiver's authority comes from the court's order. Depending on the circumstances, the court may authorize a receiver to take and hold property, collect debts or claims, receive income, preserve records, manage assets, or take other actions necessary to protect the property.

That can be a powerful remedy in a business divorce or other dispute between owners.

Why is it Difficult to Get a Receiver?

The reason is straightforward: appointing a receiver can take control of property away from an owner before the underlying lawsuit has been decided.

New York courts therefore consider temporary receivership an extreme remedy. A party seeking one must make a clear evidentiary showing that the property needs to be conserved and that the requesting party's interests need protection.

That distinction is important.

It is not enough to say:

"My business partner can't be trusted."
"My partner is running the company badly."
"We haven't received distributions."
"We disagree about how the business should operate."

Those allegations may be relevant to the underlying business dispute, but they do not necessarily establish that a receiver is needed.

The stronger question is: What evidence shows that the company's money, property, or value is actually in danger?

When Might a Receiver be Appropriate in a Business Dispute?

Receivership can become an issue when there is evidence that those controlling a business are putting company property at substantial risk.

Depending on the circumstances, warning signs might include:

company funds being diverted or disappearing;
unexplained payments to an owner, insider, or related company;
personal expenses being paid from business accounts;
substantial management fees, loan repayments, or reimbursements that lack adequate support;
revenues being deposited into accounts that other owners cannot access or monitor;
mortgages, taxes, insurance, payroll, or other critical obligations going unpaid;
valuable property being allowed to deteriorate;
assets being transferred outside the ordinary course of business;
business or financial records being concealed or destroyed; or
management deadlock creating an actual threat to business property or operations.

No single factor automatically results in a receiver appointment. The court considers the evidence and circumstances of the particular dispute.

But the common issue is danger to the property, not merely conflict between the owners.

Evidence Matters

Because receivership is such significant relief, the quality of the evidence can determine whether an application succeeds.

Consider the difference between these two situations.

One owner says: "My partner is taking money out of the business, and I think something is wrong." Where is the evidence?

Another owner makes the same claim, but also produces bank statements, general ledger entries, cancelled checks, wire transfers, loan-default notices, unpaid tax bills, and records showing substantial unexplained payments to the controlling owner and related entities. Here, the claim is supported by evidence.

Those are very different applications.

In a serious ownership dispute, relevant evidence may include:

bank and credit-card statements;
general ledgers and accounting records;
tax records;
loan and mortgage documents;
notices of default;
insurance records;
invoices and payment records;
owner distributions;
transfers to affiliated businesses;
management agreements;
payroll records; and
emails or other communications concerning financial transactions.

This is one reason early investigation and preservation of financial information can be so important in a business divorce.

Can a Profitable Business Be Put Into Receivership?

Potentially, yes.

Profitability and asset preservation are different questions. A business may continue generating substantial revenue while its underlying value is being jeopardized.

Imagine a company that owns valuable commercial real estate. The properties remain occupied and tenants continue paying rent. On the surface, the business may appear healthy.

But suppose the revenue is being diverted while mortgages, taxes, or insurance obligations go unpaid. The fact that the properties continue producing income does not necessarily mean the assets are adequately protected.

The same principle can apply to other successful businesses.

A professional practice, operating company, family business, or other closely held enterprise can generate substantial revenue while disputes over distributions, insider transactions, debt, or control place its assets or long-term value at risk.

What Can a Receiver Do to the Business?

The answer depends on the court's appointment order.

A receiver does not automatically receive unlimited authority over the company. The court determines what powers are necessary to protect the property.

Depending on the case, those powers may include authority to:

take possession of property;
control designated bank accounts;
collect rents, receivables, or other income;
preserve books and records;
pay authorized business expenses;
collect debts owed to the company;
protect or manage real estate;
retain professionals when authorized by the court; or
take other actions necessary to preserve the assets.

In an operating company, those powers can have immediate consequences. Who can sign checks? Who pays employees? Who communicates with lenders? Who collects receivables? Who approves expenditures? Who has access to accounting systems and company records?

Those issues should be addressed carefully when a party requests a receiver—and equally carefully when a business owner opposes one.

Does Appointment of a Receiver Mean the Business Will Be Shut Down?

Not necessarily.

A receiver can sometimes be used to preserve a business rather than dismantle it.

The immediate objective may be to stabilize property, preserve cash flow, prevent further transfers, maintain important obligations, or protect the company's value while the owners litigate or negotiate a resolution.

The ultimate outcome could be a buyout between owners, sale of an asset, restructuring of ownership, dissolution, settlement, or another resolution.

Receivership is therefore better understood as a tool for protecting property than as synonymous with liquidation.

Are There Alternatives to Appointing a Receiver?

Yes.

A receiver may be unnecessary if a less intrusive remedy adequately protects the property.

Depending on the circumstances, alternatives may include:

a temporary restraining order or preliminary injunction;
restrictions on transferring company assets;
prohibitions on extraordinary distributions;
escrow of disputed funds;
financial reporting requirements;
an accounting;
controls over particular bank accounts; or
other targeted safeguards.

The appropriate strategy depends on the threat.

If the problem involves one disputed transaction, putting an entire operating business under the control of a receiver may be unnecessary.

But if substantial company funds are moving through accounts exclusively controlled by an owner accused of repeated diversion, a narrow prohibition may not adequately protect the business.

The remedy should fit the problem.

What Are the Risks of Seeking a Receiver?

Receivership can protect valuable assets, but it also comes with costs and consequences.

The receiver must be compensated. Attorneys, accountants, property managers, or other professionals may also become involved. Court supervision can make business decisions slower and more complicated.

There may also be practical effects on employees, lenders, customers, vendors, landlords, and other parties who deal with the company.

Financing and other contractual documents should be reviewed as well. Depending on the agreement, appointment of a receiver may have consequences under loan documents or other contracts.

Most importantly, a receiver is an officer of the court. The receiver does not work for the owner who requested the appointment.

That means a business owner considering receivership should think beyond the immediate dispute: If the court grants the request, are you prepared to give up some control too?

What if You Are the Owner Facing a Receivership Application?

The stakes can be significant.

An owner opposing appointment of a receiver may need to demonstrate that the company's property is secure, financial obligations are being satisfied, transactions have legitimate business explanations, and the allegations do not establish the type of danger necessary to justify taking control away from existing management.

Objective evidence matters on this side of the dispute as well.

Current financial statements, bank records, proof of tax and debt payments, insurance coverage, accounting records, explanations for challenged transactions, and evidence of normal business operations may all become important.

It may also be appropriate to propose a narrower remedy that addresses the other owner's legitimate concerns without imposing a full receivership.

The Most Important Question May be What Will Be Left at the End

Business litigation can take months or years.

When a dispute concerns ownership, fiduciary duties, financial misconduct, or control of a valuable closely held business, waiting for a final judgment may not adequately protect the parties.

If money is disappearing today, a judgment two years from now may come too late.

If a valuable asset is lost, a mortgage defaults, insurance lapses, records disappear, or the underlying business deteriorates while the owners litigate, prevailing on the legal claims may provide an incomplete victory.

That is why the strategic question in a serious business dispute is sometimes not simply: Who will ultimately win?

It is also: What needs to be protected now so that there is something worth winning later?

Protecting Business Value During an Ownership Dispute

A court-appointed receiver is among the most significant forms of interim relief available in a New York business dispute. It can protect valuable property when circumstances warrant intervention, but it can also remove substantial control from the business's owners.

The decision to seek—or oppose—a receiver should therefore be part of a broader litigation strategy.

That strategy should consider the available evidence, the assets at risk, the company's governing documents, financial and contractual obligations, alternative forms of emergency relief, and the owners' ultimate objectives for the business.

For owners of successful closely held businesses, the goal should not simply be to win the next motion. It should be to protect the value, income, equity, and strategic position that matter when the dispute is ultimately resolved.

The Glennon Law Firm, P.C. represents business owners, executives, professionals, companies, and other parties in complex business and ownership disputes. If an ownership dispute threatens the control, assets, income, or value of a business, experienced litigation counsel can help evaluate the available options and develop a strategy to protect what is at stake.

With offices in Albany, Buffalo, Rochester, and New York City, we can help you across New York state. 

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This blog post is for informational purposes only and does not constitute legal advice. For specific legal counsel, please contact our office directly.  