Legal Definitions - receiver's certificate

A receiver's certificate is a formal document issued by a court-appointed receiver during a bankruptcy or insolvency proceeding. It serves as official acknowledgment that the holder is owed money for goods, services, or financing provided to the struggling entity after the receiver was appointed. These certificates often grant the holder a high priority for repayment from the assets being managed by the receiver, meaning they are typically paid before many other existing creditors.

Here are some examples to illustrate how a receiver's certificate works:

• Example 1: Emergency Funding for Operations

  A manufacturing company, "Precision Parts Inc.," enters receivership due to severe financial difficulties. To prevent the complete collapse of the business and preserve its value for creditors, the court-appointed receiver determines that a small, immediate loan is necessary to purchase critical raw materials and fulfill existing orders. A lender, "Bridge Capital," agrees to provide the funds. In return, the receiver issues a receiver's certificate to Bridge Capital for the amount of the loan.

  This illustrates the term because the certificate provides Bridge Capital with assurance that their loan, which was essential for the receiver to manage and potentially rehabilitate Precision Parts Inc., will be repaid with high priority from the company's assets, even over many of the company's pre-existing debts.

• Example 2: Essential Professional Services

  A large restaurant chain, "Gourmet Grub," files for bankruptcy, and a receiver is appointed to oversee the sale of its assets. The receiver needs to hire a specialized appraisal firm, "Asset Valuators," to accurately assess the value of kitchen equipment, real estate, and inventory. Asset Valuators completes the work, providing crucial information for the liquidation process. The receiver then issues a receiver's certificate to Asset Valuators for their professional fees.

  This demonstrates the term because the certificate guarantees Asset Valuators that their fees for services rendered *during* the receivership, which were necessary to facilitate the bankruptcy process, will be paid from the proceeds of the asset sales, ahead of many other creditors who were owed money before Gourmet Grub went into receivership.

• Example 3: Maintaining Property Value

  A commercial real estate developer, "Urban Sprawl Properties," goes into receivership with several partially completed buildings. To prevent vandalism, weather damage, and a decline in property value, the receiver needs to secure the sites and maintain basic utilities like electricity and water. A security company, "Guardian Services," is hired to patrol the properties, and the local utility provider, "Metro Power," continues service. The receiver issues receiver's certificates to both Guardian Services and Metro Power for their ongoing costs.

  This shows the term in action because the certificates assure both the security company and the utility provider that their payments for services essential to preserving the value of Urban Sprawl Properties' assets will be prioritized and paid from the funds managed by the receiver.