CORPORATIONS-RIGHT OF GENERAL CREDITORS, AFTER APPOINTMENT OF RECEIVER IN SUIT BROUGHT FOR FORECLSOURE OF MORTGAGE COVERING MAJOR PORTION OF ASSETS, TO HAVE RECEIVERSHIP EXTENDED FOR PROTECTION AND EVENTUAL LIQUIDATION OF UNMORTGAGED ASSETS

Authors

Abstract

When the affairs of a corporation become so involved that it is not able to meet its maturing obligations as they become due and it is necessary either that the corporation be reorganized on a more sound financial basis or that its assets be liquidated in an orderly manner, to the best advantage of its creditors and stockholders, it is customary, as a basis for such reorganization or liquidation, to have a receiver appointed of all the property and assets of the corporation. Such receivership is usually precipitated by the filing in the federal court of a bill of complaint by a non-resident creditor (sometimes by a non-resident stockholder), setting forth the condition of the company's affairs; that, although solvent, it is unable to meet its maturing obligations as they become due; that its property is likely to be wasted by attachments and executions levied in actions brought by individual creditors in their own behalf; and that it is essential for the protection of the interests of all concerned that the property be taken under the protection of a court of equity through the appointment of a receiver. If the bill is filed by a judgment creditor with execution returned nulla bona a receiver will be appointed under such a bill even against the objection of" the defendant, if the court shall consider the showing made to be sufficient, for that is a well established jurisdiction under a judgment creditor's bill, but the court will also appoint a receiver in a suit filed by a creditor whose claim has not been reduced to judgment, if the defendant waives such irregularity by appearing in the cause and consenting to the relief asked. The receivership suit is usually brought in a federal court for the reason that a long line of decisions in such courts upholds the disregarding of the irregularity of a creditor suing without first reducing his claim to judgment, while the state courts ordinarily decline to accept jurisdiction in a suit brought by such a plaintiff. After a receiver has been appointed in such a cause creditors holding liens may intervene in the suit and become parties thereto for the purpose of foreclosing such liens, all of such foreclosure suits being considered ancillary to the main receivership proceeding, so that diversity of citizenship is not essential to jurisdiction thereof.

Recommended Citation

CORPORATIONS-RIGHT OF GENERAL CREDITORS, AFTER APPOINTMENT OF RECEIVER IN SUIT BROUGHT FOR FORECLSOURE OF MORTGAGE COVERING MAJOR PORTION OF ASSETS, TO HAVE RECEIVERSHIP EXTENDED FOR PROTECTION AND EVENTUAL LIQUIDATION OF UNMORTGAGED ASSETS, 29 Mich. L. Rev. 347 (1931).
Available at: https://repository.law.umich.edu/mlr/vol29/iss3/7