Receivership -The Forgotten Judgment Enforcement Remedy

Not often used as a means to collect on a judgment, Section 5228 of New York’s Civil Practice Law and Rules (“CPLR”) provides that a judgment creditor can make an application to the court for the appointment of a receiver “who may be authorized to administer, collect, improve, lease, repair or sell any real or personal property in which the judgment debtor has an interest or to do any other acts designed to satisfy the judgment.” The application requires that notice be given to the judgment debtor and as far as practicable; notice must also be given to other judgment creditors of the judgment debtor. The order appointing the receiver must specify the property to be received and the duties of the receiver. The order will also provide for the duration of the receivership, which may be extended upon further application to the court. The judgment creditor applying for the appointment of a receiver may be appointed receiver but will not be entitled to any compensation for exercising the duties of the receiver.

The appointment of a receiver is desirable in situations where the debtor’s property is small or there are some special considerations where the normal execution and sale will not produce significant value. One situation that makes sense is where the debtor has an interest in jointly held property. Sometimes parsing out ownership can get difficult, but with the appointment of a receiver this process can be made easier. Another situation is where the debtor’s property may not actually have an attractive market value, but the property is income producing. A receiver can manage the property with instructions to allocate a specific percentage to be applied against the judgment. While the is kind of receivership is not always favored by the courts because it involves extended management by the receiver and the court, in a special situation where the amount of the judgment warrants the management and expense of the receiver, the court will allow such an appointment. An alternative approach would be to allow the judgment debtor to continue operating the asset with the proviso that an agreed percentage periodically be applied to the judgment.

Yet another type of asset owned by the debtor which is suitable for management by a receiver is a cause of action that the debtor may have against another person (garnishee). This kind of asset is expressly made subject to enforcement by a judgment creditor under New York law. See CPLR 5201 (a). Not surprisingly, a judgment debtor may well have no incentive to pursue such a claim if the proceeds of the lawsuit are going to be handed over to the judgment creditor. The remedy is to have a receiver appointed who will sue in the name of the judgment debtor and then turn over to the judgment debtor whatever the law suit generates.

While an order appointing a receiver over real property does not create a lien on the real property by virtue of the receivership (only the docketing of a judgment in the county where the realty is situated creates such a lien), it does create a lien when the receivership is over personal property. In order to create the receivership lien, the order appointing the receivership must specify the particular personal property of the judgment debtor. Also, the mere making of a motion to have a receiver appointed does not create the lien. It is the order appointing the receiver that creates the priority or the lien. Finally, the lien of the receivership lasts only sixty (60) days on the assumption that this period should be sufficient for the receiver to take possession of the property and act upon the property. If it is anticipated that more time is required, the order should so provide.

Modern post-judgment enforcement in New York empowers judgment creditors with a wide range of options that might conceivably make the appointment of a receiver unnecessary. But given the special situation – the property that cannot be sold easily, the income producing asset or the lawsuit, which needs to be filed on behalf of the debtor – the option of the receiver should not be overlooked as an effective tool for the judgment creditor.