The Difference Between Receivership and Bankruptcy


Recently, Revitalization Partners was approached by a potential client who wanted assistance in closing down their business.

They, being more of an artist than a businessperson, had turned over the management of the business to individuals recommended by “friends” who had made very questionable decisions and had the owner take out a myriad of credit cards and two loans, all personally guaranteed.

While the LLC was very limited in assets versus its liabilities, the owner had just sold his residence, receiving a substantial amount of cash, so he was eager to avoid personal Bankruptcy.

After spending time explaining the differences between receivership and bankruptcy and the corporate and personal issues, we decided that he needed an attorney to sort out the various issues before we could be of help.




In the intricate web of financial jargon and legal intricacies, corporate and personal bankruptcy and receivership stand as crucial mechanisms for businesses and often owners facing financial distress.

Both processes offer relief to distressed companies, but they function differently, especially in the context of Washington State.

This article dissects the disparities between corporate bankruptcy and receivership in Washington State, providing insight into the implications for businesses navigating the treacherous waters of financial turmoil.



Corporate bankruptcy is a legal process wherein a business entity seeks protection from its creditors to restructure its debts and assets.

In Washington State, federal bankruptcy proceedings generally fall under two main chapters: Chapter 7 and Chapter 11.

Chapter 7 Bankruptcy –  involves the liquidation of a company’s assets to pay off creditors. A federal court-appointed trustee oversees the process, ensuring equitable distribution among creditors. Once the assets are sold, the business ceases operations, and the remaining debts are discharged, providing a fresh start for the company’s stakeholders.

Chapter 11 Bankruptcy – allows a business to continue its operations while formulating a plan to restructure its debts. The company develops a reorganization plan, subject to court approval, which outlines how it will repay creditors over time. This chapter is particularly common among large corporations seeking to restructure and emerge stronger. It is important to note that fewer than 20% of mid-sized and smaller corporations that enter into Chapter 11, actually succeed in completing the process. Subchapter 5 of Chapter 11 is a newer process designed for smaller companies with streamlined procedures that offer a greater opportunity for success at lower costs.



Receivership, on the other hand, is a state-court-based legal remedy where a neutral third party, known as a receiver, is appointed by the court to manage a financially distressed company.

Unlike bankruptcy, which operates under federal law, receivership in Washington State is primarily governed by state statutes.

A receiver can be appointed either by a court order, often through an Assignment for the Benefit of Creditors, or a contractual agreement among the parties involved.

The receiver takes control of the company’s assets, operations, and finances, with the primary objective of preserving the company’s value and maximizing the recovery for creditors.



Receivership serves various purposes, including asset preservation, business operations optimization, and debt repayment.

Unlike bankruptcy, receivership allows for a more tailored approach, as the receiver can focus on specific aspects of the business that require immediate attention, such as inventory management, cost reduction, or customer retention strategies. While some receiverships end in a liquidation or sale of the basic assets, due to the condition of the company in receivership.

In bankruptcy, the debtor typically retains control over the business under Chapter 11, subject to court oversight. In receivership, the receiver assumes control, making crucial decisions related to the company’s operations and assets.

This key difference often influences the choice between the two options, depending on the level of control the stakeholders are willing to relinquish and the financial capability to fund the proposed plan.



Active Involvement: Chapter 11 Bankruptcy proceedings involve active participation by creditors in the formulation and approval of the reorganization plan.

Limited Involvement: In a Receivership, the receiver acts as a neutral party, making decisions in the best interest of all parties involved. Creditors may have limited involvement in receivership, allowing for a more streamlined decision-making process.

Bankruptcy proceedings, especially Chapter 11, can be time-consuming and costly due to the extensive legal processes and requirements.

Receivership, being a state-court-driven process, can often be implemented more swiftly and at a lower cost, making it an attractive option for companies seeking a quicker resolution to their financial challenges.




In summary, while both corporate bankruptcy and receivership offer avenues for financially distressed businesses to navigate their crises, the choice between the two depends on various factors, including the level of control desired, creditor involvement, and the urgency of the situation.

Understanding the nuances of corporate bankruptcy and receivership in Washington State empowers businesses and stakeholders to make informed decisions, ultimately paving the way for a smoother transition towards financial stability and future success.

Given the economic climate today; where banks are approving fewer loans and funds from the federal government are more difficult to obtain, if you begin to see the handwriting on the wall, don’t hesitate to ask for help.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership, or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Where Art Meets Science – Selling Assets in a Court-Appointed Receivership


Over the past 20 years, Revitalization Partners has served as court-appointed receivers for a number of companies in the Pacific Northwest.

In fact, our experience includes serving as receivers for thirty-four companies in a wide array of industries, ranging from manufacturing, importing, and technology, to cannabis.

While we have worked in many industries, we have had substantial success in selling the assets of a company as a going concern value. This result brings additional value to the receivership estate when compared to an outright liquidation of the assets in an auction.

The important issue that we address in every receivership is determining the fair market value of the company’s assets when selling them as a going concern.



Determining the fair market value of assets for a company that is operating as a going concern requires a substantial effort to ensure that we are maximizing the value of assets on behalf of the company’s creditors.

In fact, under the Washington State Receivership Act, the receiver is required to obtain approval from the court after sufficient notice to all interested parties to enable them to comment on the proposed sale of assets.

This process requires that we are able to justify the value of the proposed sale and present our case that it represents the best and highest value for the assets in an arm’s length process.



This effort begins with determining the liquidation value of the physical assets.

We typically bring in a firm that has experience in valuing physical assets, and which also has the capability to conduct an auction, should that be required.

This type of firm, in our experience, provides the most realistic valuation of the physical assets, to use as a baseline for establishing the minimum value for a going concern asset sale.

The going concern valuation, in addition to the value of the physical assets, also includes estimates for intangible assets, tradenames, customer lists, websites, and the value of the sustainable revenue in a going concern environment.



A significant element in establishing the best and highest price is to establish sales and bidding procedures that are to be used to attract possible bidders.

The bidding procedures could include minimum acceptable bid price, bidding increments, and overbid procedures, depending on the nature of the business and the number of bidders anticipated.

The bidding procedures also include qualifications for potential bidders and a bidding deadline for any bids to be submitted.

It’s important to communicate to potential bidders that the assets are sold free and clear of all liens, that there are no contingencies allowed, and that the winning bidder must make a cash downpayment and remit the balance in cash at closing.

Selling the assets free and clear of all liens is a substantial benefit to potential buyers, as they are not responsible for any liabilities previously incurred by the company and have unencumbered use of the assets after the sale is consummated.



Identifying individuals or companies that might be interested in bidding on the assets is also an important part of the process.

We have found that there are many different sources for potential bidders, including vendors, key members of the management team, competitors, or former or current owners of the business.

We also place ads in trade magazines, typically in the businesses for sale section, that usually generate significant interest as well.

Typically, we receive a number of offers for the assets being sold, and as part of the process, we vet potential buyers to ensure they have the ability to fund the purchase at closing.

They also conduct due diligence during this period as well, as one of the important elements of the sale is that they purchase the assets on a where is, as is condition.

In other words, there is no recourse to the receiver or the company after closing. We also use this process to negotiate an increase in the purchase price, if possible, when there are multiple buyers.



This process has typically resulted in a sales price that is substantially better than the liquidation value that was obtained early in the process.

A great example of this was when we recently sold the assets of a company where in court pleadings, we stated, “Given the facts and circumstances of this case, the purchase price is clearly more than 50% of the fair market value of the tangible and intangible assets being sold”.

The court subsequently approved the sale based on the facts that we submitted to the court.

As a result of this sale, RP was able to pay off 100% of the secured debt and in fact, will be able to return a portion of the proceeds to the members of the LLC.

While the process of maximizing the value of the assets is an art form and a science, it’s important for the receiver to have experience in operating companies to obtain the best value for the benefit of creditors.

That coupled with our experience in marketing and selling assets in an operating company, substantially improves the prospect of success.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

How to Get a Receiver Appointed


A recent article in the Daily DAC, a newsletter focused on corporate insolvency, discussed the above-referenced topic.

And while it made several interesting and educational points, the writer was based in Minnesota, and the article demonstrated the importance of understanding the issues and ways of getting a receiver appointed according to the rules of the state where the receivership is being requested.

Receivership laws are different in each state, and Minnesota law, while having some commonality with Washington law, is also very different in a number of respects.



For example, the article begins by stating Receiverships are most often commenced by creditors, but they can be commenced by an equity holder as well.

The first step towards a receivership is to initiate a lawsuit.

Most commonly, the lawsuit is filed for breach of contract and is seeking foreclosure or repayment of collateral. Appointment can also be sought as an independent action but is less common.

In Washington, this would not be the case. Many receiverships are initiated through the process of an Assignment for the Benefit of Creditors.



This process, while separate from a receivership, allows a company to initiate the insolvency process itself without either a lawsuit or court process. Once the assignee accepts the assignment, it is the assignee that initiates the receivership.

The article goes on to state that the next step is to bring a motion for the appointment of a receiver. It suggests that to maintain a good relationship with the lender, it’s a great idea to seek a mutual appointment.

It’s important to note that where an assignment for the benefit of creditors is used in Washington, the assignment is required to be on behalf of all the creditors.

Section 7.08.010 of the statute states: No general assignment of property by an insolvent, or in contemplation of insolvency, for the benefit of creditors, shall be valid unless it be made for the benefit of all of the assignor’s creditors in proportion to the amount of their respective claims.



Once converted to a receivership, the receivership statutes in Washington state the order and priority of the payments made by the insolvent estate.

Lenders with contractually secured UCC filings have the highest priorities, followed by other creditors with UCC filings. Where there are conflicts, the priority is established by the date of the UCC filing.  Following these priorities come unsecured debt (trade debt) and lastly equity.

This particular article stresses the way to get a receiver appointed in Minnesota and deals with the legal actions necessary in that state.

In Washington, some statutes are similar to other states, while there can be significant differences. When doing internet searches, especially related to insolvency and state laws, it is important to focus on a number of factors related to the decision.

The state of Washington has, what are considered to be, some of the strongest receivership laws in the country.



A major decision is if a federal bankruptcy or state receivership is the right decision for your organization.

To make that decision, be certain that the attorney you select has experience in both processes.

Make certain that your attorney can explain which process is best for the company and for you personally.

While moving from a receivership to bankruptcy is relatively straightforward, going in the other direction is highly problematic.



Another issue is affordability. The federal process is generally more expensive than a state receivership due to certain costs mandated in the bankruptcy code.

A qualified assignee/receiver will make certain that funds are available or will become available during the process.

If funding does not become available, it is a relatively easy process to terminate a receivership.

Federal bankruptcy statutes provide solutions for dealing with a lack of funding which are more complex.



Lastly, it is important to select an assignee/receiver that you can work with as the process moves forward.

The objective is to maximize the returns from the estate to the creditors.

The debtor is represented by counsel, the secured lender is most probably represented by counsel.

Some trade creditors and those owing the estate have counsel.

Each of these is seeking the best returns for their particular situation.

Knowing that your selected assignee/receiver has the experience to manage the various parties and can work with you to maximize the returns in accordance with the statutes, will provide the most piece of mind in what is always a stressful situation.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Tales from the Receivership Trail – Chapter 3


While Revitalization Partners (RP) continues to see an increase in the number of inquiries related to distressed companies and receiverships, we have also seen an increase in receiverships occurring as a result of partnership disputes.

The significant difference between receiverships relating to distressed companies and those that have partnership disputes is that partnership disputes are typically solvent companies, are profitable and are consistently generating cash flow.

The receivership is typically originated by a judge or a business partner that has expressed grievances against their partner for alleged mismanagement, fraud, or other misbehavior that they are unable to control.



In light of this, we thought we would share another story as part of our ongoing series “Tales from the Receivership Trail” reflecting our experience serving as court-appointed receivers for a company that had encountered disputes between operating partners.

RP was referred by a trusted resource to one of the partners of the company (LLC) that manufactured compost and sold the product to gardening stores and wholesale gardening companies.

The company was organized as a limited liability company and was owned 50% by one family (A) and 50% by another family (B). The LLC was a member-managed LLC and was managed by family B.



There were a number of complicating factors relating to the operations of the business as both families had outside business interests that were doing business with the LLC.

  • For example, family A sold raw materials to the LLC for the purpose of manufacturing compost.
  • Family A also owned two companies that purchased composite material from the LLC to sell independently to other companies.
  • Furthermore, family A leased heavy equipment to the LLC. Finally, family B owned the land that the LLC operated on and leased the property to the LLC.



Obviously, both families had conflicting interests as it related to the operations of the LLC, and that set up several critical areas where any conflict between the members could seriously jeopardize the operations of the LLC.

During the period preceding the receivership, the LLC was profitable, however, a series of actions were taken by both families that ultimately jeopardized the solvency of the LLC.

One example of this was the fact that accounts receivable from companies owned by family A were not paid on a timely basis, thereby causing a reduction in cash flow.

This resulted in the LLC delaying payments to a second company owned by family A as well as being late paying rent due to family B.

Given that one of the companies owned by family A provided the LLC with the raw materials for the compost material as well as being the purchaser of the finished compost material from the LLC, family B stopped accepting raw materials from the company managed by family A, which effectively shut down the operations of the LLC and jeopardized its ability to continue operations and pay its debts.

Finally, the LLC’s secured lender declared a default because of a cross-default provision in the loan agreement on any other loan held by the secured lender for either of the families.

Family A defaulted on one of the unaffiliated loans and the secured lender subsequently declared a default on the LLC.



As a result of these issues, family B asked the court to appoint a receiver to control the assets of the LLC and continue operations. After being appointed receiver of the LLC, RP immediately took control of the operations and the books and records of the company.

RP’s main objective was to continue operations of the LLC and to sort out the differences between the two families as well as to resolve those conflicts to the satisfaction of the court.

Given that RP acting as the receiver was an independent third party, we immediately took action to resume operations of the LLC, began accepting raw material from family A and worked with family B to continue to operate the business.

Another immediate priority was to meet with both families to understand the source of the various conflicts and to develop a plan that would be acceptable to the court and both families as well as the secured lender.



Once operations recommenced, the LLC was able to generate positive cash flow and to pay its expenses in a timely fashion.

Concurrently with stabilizing operations, RP met with the families and gained an understanding of the source of their grievances and developed a plan to deal with them.

Given that family B had attempted to purchase family A’s interest in the LLC prior to the receivership, we determined this was most likely the fastest path to resolving the dispute.

After several months of negotiations family A agreed to sell their LLC interest to family B. After the agreement was executed, the receivership was terminated by the court and family B took over operations of the LLC.

The secured lender’s default was also resolved because of the sale of family B’s purchase of family A’s interest in the LLC and as a result, the LLC was no longer in default.

RP was able to resolve the disputes and terminate the receivership within three months of being appointed.



If there are any lessons to be learned from this story, other than making sure you know who you are entering into a partnership with, it would be to avoid entering into a 50%/50% voting agreement with an LLC without some independent checks and balances being interjected into the process.

Also, avoid entering into an LLC agreement where there are any outside interests that have the potential to cause a major disruption to the business.


Also, if a major dispute does arise in a business, make sure that an independent advisor is brought in quickly to help sort out the issues, prior to reaching a level of insolvency and the ultimate demise of the business.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

The Risk of a Do-It-Yourself Wind Down


Recently, Revitalization Partners (RP) was contacted by a company that had the problem facing many small companies: It had run out of cash.

The company is in a business sector that was impacted by difficulties in that sector, problems caused by covid and an unwillingness of the owners to keep funding losses. They approached RP to discuss a wind down plan.



In discussing the situation, we learned that the company had a family-based board of directors and one member of the board served as the managing member of the company. The board and management disagreed on the proper direction to take for the company.

In listening to the board members that would talk with us, (the manager would not) we learned of a number of issues that made a simple wind-down problematic.

The first was that the board had not seen any financial statements for months. When asked why, the board members indicated that they had been asking for months, the manager refused to give them to the board.

When asked who prepared them (an outside bookkeeper) the board did not have the contact information for the individual.



In addition, the company was apparently paying a partial payroll every pay period.

When asked about the payment of payroll taxes, the board wasn’t certain.

It is important to note that the trust portion of payroll taxes, if not paid, becomes a personal liability of the officers and directors.

The company’s attorney had resigned, for reasons that were unclear, and there was no attorney advising the company at the time of our contact.




In looking at the company debt, there were liens on the equipment they proposed to sell, a UCC filing against all assets by a bank and an EIDL loan with personal guarantees.

The board members were not sure which other loans contained personal guarantees.

Given the above and the internal disagreements, we strongly recommended that any restructuring or wind down be done with the protection of a court.

This means a bankruptcy filing or, in the State of Washington, an Assignment for the Benefit of Creditors (ABC) followed by a receivership.

We proposed an ABC and Receivership, but the board members that we were talking with did not have enough information to complete the required information necessary to file an ABC. The board decided to hold off on any action and retain a new corporate attorney. This is currently in progress.



We are using this example as a refresher on the fiduciary duties of directors and officers of a Washington corporation in financial distress.

Please note that this overview is no substitute for sound legal and financial advice on a company’s specific situation.

• Duty of loyalty imposes on directors and officers the obligation not to engage in self-dealing and instead to put the interests of the company ahead of their own.

When a company is solvent, the directors and officers owe their fiduciary duties of due care and loyalty to the corporation and its stockholders. That remains true even if the company is in the so-called “zone of insolvency.”

• When a company is insolvent and will not be able to pay its creditors in full, the directors and officers still owe their fiduciary duties of due care and loyalty to the corporation. However, upon insolvency, the creditors have the right to bring derivative claims for breach of fiduciary duty against directors and officers.

• Remember, it can be challenging to determine whether a company is just in the zone of insolvency (meaning still solvent but approaching insolvency) or whether it has crossed the line into actual insolvency.

• Discharging fiduciary duties when a company is insolvent means a focus on maximizing enterprise value. This is a highly fact-dependent exercise with no one-size-fits-all approach. In some cases, maximizing value may mean continuing operations — even though that burns dwindling cash — to allow the company to complete a sale that the directors believe is likely to close and produce significant value for creditors. In other cases, it may mean winding down (or even shutting down) operations quickly to conserve cash, especially if any asset sale is not expected to generate more than the cash required to pursue it or pay any secured debt.

These complexities make it critical for directors and officers of a company in financial distress to get advice tailored to the specific facts and circumstances at hand.



If the board decides that the company needs to wind down, options range from an informal approach all the way to a public bankruptcy filing.

Note that if the company owes money to a bank or other secured creditor, the lender’s right to foreclose on the company’s assets could become a paramount consideration and affect how the wind-down is accomplished.

When a company’s cash is running out and there is no additional financing available, the board may conclude that a wind-down is required to fulfill fiduciary duties and maximize value.

The discussion above is a general description of certain wind-down options. Determining whether any of these paths is best for a particular company is fact-specific and dependent on many factors.

In all cases, be sure to get advice from experienced corporate and insolvency consultants and legal counsel when considering wind down or other restructuring options.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Tales From the Receivership Trail #2


Revitalization Partners (RP) continues to see an increase in the number of inquiries and activity related to receiverships. 

We thought we would share another story as part of our ongoing series “Tales from the Receivership Trail” reflecting our experience serving as court-appointed receivers.

RP was referred to a company that owned and operated over thirty radio stations in Washington, Oregon, Idaho and Alaska.

The company had taken on significant debt to finance multiple acquisitions related to building a regionally based radio station portfolio.



Subsequent to making these acquisitions, the economy experienced a downturn and the company’s revenue declined.

While the company was generating marginal cash flow, it was not nearly sufficient to make the scheduled debt payments when due.

Over the course of a number of months, the lenders became concerned about the delay in repayments and were attempting to force the company to sell off its assets and self-liquidate.



After meeting with the board of directors and discussing options to move forward, the board of directors decided to execute an Assignment for the Benefit of Creditors and asked RP to serve as the General Receiver subsequent to court approval.

RP immediately took charge of the company and determined that it was feasible for the company to go forward as an operating company and that operations could be improved to a level that would generate additional cash flow.

RP developed and implemented a plan to improve operations and also to reduce the cost of operating the business. Additionally, RP put in place an individual to serve as the general manager who would report to RP during the receivership process.



There were several unique aspects of operating radio stations, one of which related to managing the Federal Communications Commission (FCC) radio station licenses.

The FCC rules required that the licenses had to be placed in the name of RP, given that the assets, including the FCC licenses, had been assigned to the receiver.

As part of this process, the principals of RP involved in the receivership had to be subjected to FCC background checks prior to having the licenses transferred to them. RP took ownership of the FCC licenses as part of the process and held them pending a sale of the assets of the estate.



Once RP stabilized the operations of the company, RP began researching alternatives to sell the radio stations as a group or in segments.

After exploring options to market the radio stations, RP decided to group the radio stations into geographic markets, instead of selling them individually.

We were told that the radio industry typically hires a broker to market the radio stations and sells them individually to whomever is the highest bidder.

We evaluated this option, but ultimately elected to market the radio stations in a different way.



The issue was that on balance some radio stations are very profitable due to ability to sell advertising because of higher ratings, while a number are not as profitable or even losing money.

Using the standard marketing approach, the higher-rated and most profitable radio stations would be sold first, and the least desirable radio stations would be sold at a substantially lower value, if at all.

We decided it would be preferable to sell radio stations based on those included in a particular market. The radio station portfolio included six different markets containing a mix of types of format and levels of profitability.



Instead of hiring one broker to market a group of radio stations, we established bidding procedures that allowed for accepting bids for each market. All brokers were allowed to submit bids for a market, with the concept that the broker representing the winning bidder would receive an agreed-upon commission for the sale.

RP would then identify the best and highest bidder for each market, negotiate the final price and details of the sale, and subsequently submit it to the court for approval.

While this was not the accepted industry practice, we believed that this approach would provide a higher value for the creditors.

While a number of brokers initially expressed concern with this process, ultimately, they all agreed to participate.

Over a period of several months, RP received offers for all of the markets that had been identified and after a series of negotiations and court approval, they were sold to the best and highest bidder.



The ultimate outcome was that the secured lender was paid the majority of the funds loaned, while they elected to sell a portion of their loan to a station operator who was then able to credit bid for the stations in his area.

The main takeaway of this story is that operating a company as a going concern typically provides a higher return to the creditors and enhances the value of the assets in a subsequent sale. In addition, it’s vitally important to evaluate all available options to maximize the value of the assets for sale and not just accept a standard industry approach without challenging the logic behind it.

Revitalization Partners specializes in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering, a State Receivership or Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.