What is Arizona Law Concerning Receivership and Bankruptcy?

receivership and bankruptcyWhen a creditor can see that a business is not making wise financial decisions and it’s hurting that debtor’s ability to pay the creditor, they might seek a receivership. During a receivership, the creditor can take possession temporarily of the property that belongs to them or is owed to them. The most common reason for receivership situations in Arizona bankruptcy law is due to fraud.

If a creditor believes that a business is committing fraud or taking part in malicious acts that could lead to fraud, they might request receivership to protect their stake in the business. The items the creditor can take possession of can include:

  • Business premises
  • Assets related to inventory
  • Property
  • Accounts receivable
  • Rent

Businesses considering bankruptcy should know the factors and challenges that they face related to a filing. Understanding a creditor’s rights to receivership can help businesses make the right financial decision before losing their business to receivership. Here’s what you need to know and how to protect your business.

Click here to find out the difference between receivership and bankruptcy.

Creditor receivership

Receivership differs from involuntary bankruptcy where three creditors must initiate the filing. For a receivership to be considered, only one creditor must petition the court for temporary possession of a business’s assets. As part of the filing, the creditor can request the individual they would like to be the candidate for serving as the receiver, should the courts grant the request.

Generally speaking, the rules around granting a creditor receivership are much more lenient than those related to Arizona bankruptcy law. However, if there are ample grounds for the creditor to be requesting receivership, it will often send the business into bankruptcy to protect their rights and ownership of their business.

Once the creditor has filed a motion that requests a receivership, there might be an evidentiary hearing. During this hearing, the creditor must put forth evidence for the need to appoint a receiver in the case.

Arizona bankruptcy law for businesses

Facing the temporary loss of control of your business is terrifying. You’ve worked hard to build what you have and you need to protect it. During hearings related to creditor receivership, you have the option to file for bankruptcy. There is no Arizona law prohibiting you from filing for bankruptcy even when the case of receivership is still pending and under review by the courts.

However, once the courts have granted the receivership, it will be difficult for your company’s directors and officers to initiate a bankruptcy filing. That’s because these directors and officers will no longer have control of the business finances and cannot authorize such a large financial action on the company anymore.

While bankruptcy is not something most people want to think about or consider, it can be a protection from creditors seizing your business or otherwise inhibiting your ability to operate your business.

There is a misconception that filing for bankruptcy means you must close your doors. That is not always the case. In some situations and circumstances, a business can simply restructure its debt and continue moving forward with their operations. The best way to evaluate whether or not an Arizona bankruptcy filing would benefit your business is to speak with an Arizona bankruptcy attorney.

An attorney can walk you through your options, give you a good overview of what to expect should you choose to file bankruptcy, and help ensure that your bankruptcy filing is successful with proper paperwork and documentation. You do not need to simply give up on your business and surrender if you still have ideas and passion for what you do and what you offer your customers. Contact us to learn more about how bankruptcy might help you get back on your feet and find success.

Find out about the bankruptcy 341 Meeting of Creditors.