Now that you have obtained a judgment, how do you collect from the judgment debtor? There are always the traditional methods of enforcement, such as obtaining a writ of attachment, wage garnishment, filing an abstract of judgment or utilizing the sheriff’s department to garnish wages or rental income. However, each of those methods is limited in their scope and may not provide the desired result, which is the collection of your judgment.

If you are faced with a more complex collection situation that involves fraud, the illegal transfer of assets, hiding of assets or other activities that might make the traditional method of enforcing a judgment ineffective, the appointment of a receiver is an option worth considering.

Pursuant to Article 7, section 708.620 of the California Code of Civil Procedure, titled Receiver to Enforcement Judgment, “The court may appoint a receiver to enforce the judgment where the judgment creditor shows that, considering the interests of both the judgment creditor and judgment debtor, the appointment of a receiver is a reasonable method to obtain the fair and orderly satisfaction of the judgment.”

Although there are numerous examples of how a receiver can be utilized to enforce a judgment for the benefit of the judgment creditor, the following are some more common examples:

1. Take possession of real property

2. Take possession of a judgment debtor’s liquor license

3. Seize the assets of a business

4. Take control of a partnership interest

As stated above, the traditional methods of enforcing a judgment are limited and defined, so why is a receiver different and how can a receiver be more effective?

By carefully crafting the Order Appointing Receiver (“Order”), the receiver will have broad based powers to collect the judgment on behalf of the judgment creditor. Assuming the Order is granted, some of the more common tools available to a receiver are as follows:

Immediate Possession of Real Property: The receiver can immediately take possession of and secure real property being held by the judgment debtor. In the case of an income producing property, the receiver can collect the rents and preserve and maintain the property so the rental income stream can continue until the judgment is fulfilled, or the receiver can simply sell the property.

Access to Accounting Records: The receiver can access and review the accounting and banking records of the judgment debtor. This is important because the receiver may discover hidden assets or improperly transferred assets since it is not uncommon for a judgment debtor to be uncooperative or attempt to conceal assets. If the receiver is able to uncover improper cash or collateral transfers, the receiver can recover those assets. This is one of the many powers that a receiver has which increases the probability of a successful recovery.  

Seize Possession of Bank Accounts: The Order Appointing Receiver should contain language giving the receiver the authority to immediately freeze and take control of the judgment debtor’s bank accounts. This is accomplished by simply serving the bank(s) with a copy of the Order. Once served, the bank is required to freeze the account(s) and turnover the balance(s) in the account(s) to the receiver.

Collect Accounts Receivable: If the existing assets will not satisfy the judgment and the judgment debtor has accounts receivables from its customers, the receiver can collect the receivables to satisfy the judgment. This can be an important source of income for the receiver’s collection efforts.

Liquidate the Assets: Inventory, trade equipment, or other assets of the judgment debtor can be sold or auctioned to the highest bidder. The proceeds, after payment to any secured creditors with a priority lien, can be used to satisfy the judgment. Many times, the assets or business inventory can be sold at their current location eliminating the logistics costs of transportation and storage. The assets of a business may also include a liquor license. Based on the location and nature of the business, a liquor license may hold considerable value.

Since each case presents unique and unanticipated challenges, a receiver also has the ability to return to court and have the Order amended to include additional provisions and remedies that a receiver can use to aid in the collection efforts. Unlike the traditional methods of collecting a judgment, the court authorized powers of a receiver can evolve to deal with any unanticipated roadblocks.

However, there are some risks and drawbacks associated with utilizing a receiver to recover assets. The first of which is the cost of a receiver. A receiver charges for his/her time on an hourly basis and there is no guarantee of a recovery. In the event the receiver is unable to locate assets or the assets have little or no value, the judgment creditor is still responsible for paying for the time and costs incurred by the receiver.

The second risk a judgment creditor faces when utilizing a receiver is the possibility of the judgment debtor filing bankruptcy. In the event of a bankruptcy filing, at a minimum, the judgment creditor will need to petition the bankruptcy court to allow the receiver to proceed with his/her collection efforts and the bankruptcy court may or may not allow this to happen. If the bankruptcy court does not grant the receiver relief from the automatic stay, the receiver will have no option but to cease all collection efforts and terminate the receivership. As with the example above, the judgment creditor will still be responsible for paying the fees and costs of the receiver.

Utilizing a receiver does pose some risks and is not the ideal remedy for all judgment enforcement actions; however, for the cases that prove to be more complex in nature, using a receiver and the broad based powers given to a receiver, is a great alternative to the traditional methods of collecting a judgment and can greatly increase the probability of a successful recovery.  

Todd D. Donell is a state court-appointed receiver and EVP of FedReceiver Inc., in Los Angeles. He can be reached at [email protected]. The views expressed here are the author's own.