Business Receiverships in Tennessee:
What Happens When a Court Appoints a Receiver

What Is a Business Receivership?

A receivership is a court-supervised remedy in which a judge appoints a neutral third party—the receiver—to take control of a company’s assets and, in many cases, its operations.

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Receiverships in Tennessee may arise:

 

• In state court (often in commercial foreclosure actions)
• In federal district court
• Through enforcement of loan documents granting receivership rights

 

The receiver’s duty is typically to preserve and protect collateral for the benefit of secured creditors—not to advance the interests of existing ownership.

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What Authority Does a Receiver Have?

Once appointed, a receiver may have authority to:

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• Take control of bank accounts
• Operate the business
• Collect accounts receivable
• Hire or terminate personnel
• Market or sell assets
• Report directly to the court

 

In practical terms, operational control shifts away from ownership and management.

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Even if equity remains in place on paper, decision-making authority may no longer rest with the founders or board.

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Why Lenders Seek Receivership

Secured lenders often pursue receivership because it:

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• Removes current management
• Centralizes asset control
• Focuses the process on collateral value
• Can move quickly
• Avoids the broader restructuring framework of bankruptcy

 

From a lender’s perspective, receivership is a collateral protection tool.

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From an owner’s perspective, it is a potential loss of control event.

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Receivership vs. Chapter 11: Who Controls the Process?

A receivership and Chapter 11 operate very differently.

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Control
Receivership: A court-appointed receiver controls assets and operations.
Chapter 11: Management remains in control as debtor-in-possession.

 

Scope
Receivership: Focused primarily on protecting secured collateral.
Chapter 11: Addresses secured and unsecured debt within one court-supervised process.

 

Automatic Stay
Receivership: No automatic stay applies.
Chapter 11: The automatic stay immediately halts enforcement actions.

 

Equity Preservation
Receivership: Equity is rarely preserved.
Chapter 11: Equity is often retained depending on structure and feasibility.

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Timing Is Critical

Once a receiver is appointed, options narrow.

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Although bankruptcy may still be possible after receivership begins, the strategic posture changes significantly once control has shifted.

 

Business owners should evaluate restructuring options if:

 

• A lender files a complaint seeking appointment of a receiver
• A foreclosure action includes receivership language
• Special Assets has assumed control of the loan
• Forbearance agreements are expiring
• Liquidity is deteriorating

 

Early evaluation expands available paths.

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Can Chapter 11 Prevent Receivership?

Yes. Filing Chapter 11 before a receiver is appointed is the most effective way to prevent the transfer of control.

 

The automatic stay halts:

 

• Pending receivership motions
• Foreclosure proceedings
• Collection actions
• Asset seizure efforts

 

In addition, Chapter 11 provides a structured venue to:

 

• Restructure secured debt
• Modify payment terms
• Address unsecured creditor claims
• Preserve enterprise value

 

For qualifying businesses, Subchapter V may offer a streamlined restructuring path with reduced cost and procedural complexity.

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Strategic Evaluation Before Control Shifts

Receivership is not inherently improper. It is a legal remedy available to secured creditors.

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But it represents a structural shift in authority.

 

Sophisticated companies facing lender enforcement evaluate all available restructuring tools—including out-of-court workouts and Chapter 11—before allowing control to transfer to a court-appointed fiduciary.

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Why Businesses Engage EmergeLaw

EmergeLaw focuses exclusively on business restructuring.

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We represent companies navigating:

 

• Commercial litigation
• Foreclosure threats
• Special Assets pressure
• Potential receivership actions

 

Our objective is to preserve operational control, stabilize enterprise value, and evaluate whether Chapter 11 or a negotiated restructuring offers the most strategic path forward.