The position of the receiver

Pending final disposition of the debtor's estate the receiver assumes full jurisdiction over it. The receiver derives his power from the court and his function is to conserve the assets and protect them in the interests of all parties involved. He is in no sense a representative of the interests of creditors even though they have brought about his appointment by their actions. Since the public welfare may be involved directly or indirectly the receiver is often charged with operating the corporation, e.g., a railway company. And incident to the power granted by the court to operate the company, the receiver was sometimes given the power to borrow money through the sale of securities known as receiver's certificates. During his incumbency the receiver is charged with operating the property efficiently and collecting the revenues therefrom in the interests of all parties concerned.

Since, theoretically at least, the purpose of the receiver is to protect creditors' rights and not nullify them permanently, he must ultimately dispose of the property by sale for the benefit of creditors. And here an important point emerges. It will be recalled that one of the prime reasons for appointing a receiver initially was to prevent the dissipation of asset values through dismemberment and piecemeal sale. Now if the same end result of dismemberment is not to follow, the receiver must dispose of the corporate assets as a unit. But if the corporation be large, the number of possible purchasers at the receiver's sale will be rather narrowly restricted; for few individuals, obviously, will be able to tender a very large sum in payment for the assets as a unit. As the practice has developed it has been only the parties already in interest in the debtor's estate that offer a bid. During the interim of the receivership the various parties in interest usually would have worked out a scheme of compromise between them, the so-called plan of reorganization, and the receiver's sale was a mere step in carrying this plan into effect. Just what the reorganization plan would be was determined in each case by a multitude of considerations: ordinarily, however, the strict letter of the applicable creditors' claims was modified.

Before the receiver's sale actually took place the court fixed a minimum price, called the "upset" price, below which it would refuse to confirm the sale of the assets. From the point of view of the reorganization committee this was an advantage since it indicated roughly how much cash would have to be provided for those claim-holders against the corporation who did not assent to the reorganization plan. The payment of the upset price (or occasionally something more) was not made by the reorganization committee mainly in cash, but in the form of the claims the committee already held against the corporation. Cash was only provided in the amount necessary to pay off the non-assenters their proportionate amount of the sale price of the assets of the corporation. Thus, finally, through the receiver's sale, the creditors were able to levy their claims against the corporate assets that had been temporarily restrained from enforcement by the appointment of the receiver.