VC & PE Glossary
What Is Receivership?
Updated
Definition
Receivership is a court-appointed or contractually triggered process where a receiver takes control of a company's assets and operations to preserve value, pay creditors, or wind down the business — often a late-stage distress outcome for startups that exhaust financing options.
Useful for: Founders, Investors
Receivership places a company or its assets under an independent receiver’s control to manage, sell, or liquidate property for the benefit of creditors and other claimants.
How it works
Triggers include loan /glossary/event-of-default, covenant breaches, fraud, or insolvency filings. The receiver collects receivables, honors critical contracts, and may sell the business as a going concern or piecemeal. Venture equity sits low in priority unless secured; /glossary/liquidation-preference only matters if proceeds exceed senior debt.
Some states allow receivership short of full bankruptcy; timelines and employee treatment vary. IP and customer contracts may transfer in asset sales — often the salvage path acquirers prefer.
Why it matters
- Founders: Receivership usually ends founder control; personal guarantees on debt increase exposure.
- Investors: Distressed portfolios get marked to zero; recovery fights are legal, not operational.
- Employees: WARN obligations, final pay, and option value depend on sale outcomes and jurisdiction.
Common mistake
Assuming preferred stock protects against secured lenders. A bank with a blanket lien can pull assets into receivership while equity watches from the sidelines.
Related ideas
/glossary/event-of-default, bankruptcy, assignment for benefit of creditors, and wind-down.
Related terms
- Event of Default — An event of default is a contract breach—missed payment, covenant violation, or other trigger—that gives lenders rights to accelerate debt, seize collateral, or force remedies.
- Liquidation Preference — Liquidation preference is the right of preferred shareholders to receive a specified amount — often 1x their investment — before common shareholders receive proceeds in a sale, merger, or winding-up.
Common questions
Short answers for founders, LPs, and operators