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Receivership Bond

What is a Receivership Bond?

A Receivership Bond is a type of judicial fiduciary surety bond. This surety bond may be required of a court-appointed receiver charged with managing or liquidating a business in financial distress. The appointed receiver is put in charge of the disposal or management of the businesses assets within the authority and direction given by the court. In the case of bankruptcy, the bankruptcy receiver is put in charge of holding the business assets until a Trustee is put in place. Typically, the bond must be in place before the receiver can proceed with the fiduciary duties.

How Does a Receivership Bond Work?

Receivership surety bonds provide a form of guarantee that the appointed receiver will perform the assigned fiduciary duties in accordance with the courts direction and applicable state and federal laws. The court bond provides protection for parties with an interest in the financially distressed business. If the receiver acts outside of the court-appointed authority and direction, the potential for a claim on the bond arises. The bond provides a path for recourse for interested parties who think the receiver is acting in a manner not acceptable to the court.

Who Needs a Receivership Bond?

Anyone ordered to do so by the courts, which is usually anyone planning to act as a receiver. The process cannot move forward until you have the required bond, so there's no reason to delay getting one. Work with a surety brokerage like Viking Bond Service who can get you a quote quickly and get your court bond activated immediately.

Who Are the Parties Involved in a Receivership Bond?

There are three parties:

  • Principal - As the person required to obtain the bond and pay claims filed against it, the receiver is known as the principal in the bond agreement.
  • Obligee - As the party allowed to file claims against the bond seeking financial compensation, those with a financial interest in the distressed business are known as the obligee(s).
  • Surety - The company that issues the bond is known as the surety. It agrees to pay for any claims the principal fails to pay, but the principal must pay that amount back afterward, typically with interest and fees added.

Example of a Receivership Bond in Action

Imagine a restaurant that falls on hard times ends up declaring bankruptcy before serving its last meal and closing for good. As part of the bankruptcy proceedings, the court appoints a receiver to help the business liquidate its assets – things like refrigerators, pots and pans, glassware, etc. During the liquidation process, the receiver sells some expensive equipment but fails to turn the proceeds over to the restaurant owner as required under their fiduciary responsibility. They keep the money instead. This is where the receivership bond becomes important.

In this example, the restaurant owner may file a claim against the receivership bond for the amount of money the receiver failed to turn over, plus any additional damages that may have occurred. The surety will then launch an investigation to determine if the receiver did what he has been accused of. Accountants and investigators may need to get involved – proving complicated financial misconduct can be a difficult undertaking. Nonetheless, it's important to investigate thoroughly, because if a claim isn't valid and the receiver has done nothing wrong, the claim will be rejected.

In this circumstance, the claim proves to be valid. Under the receivership bond agreement, the surety guarantees payment for all valid claims up to the amount of the bond. The restaurant owner who filed the claim will receive immediate compensation in full. It will likely be up to the judge to decide how the bankruptcy process will proceed following the receiver's misconduct.

There's still one final part of the bond process to complete, and it's arguably the most important. The receiver (the principal) has financial liability for all claims. He must repay the surety the same amount as the claim. That debt will also include fees for the cost of investigating and administering the claim, along with added interest that grows the longer the debt remains unpaid. A receiver may be sent to collections if the debt is never repaid.

Receivership Surety Bond vs Bankruptcy Trustee Bond

Both receivership surety bonds and bankruptcy trustee bonds basically work the same way and exist for the same reason. The only meaningful difference is that receivers and trustees serve different roles within the bankruptcy process. As long as you obtain whatever type of bond the court requires, you should be fine.

How Much Does a Receivership Bond Cost?

Receivership bond rates vary greatly depending on the qualification of the bond applicant/s. The rates are determined based on various factors which include credit standing and may include financial standing as well.

Can You Get a Receivership Bond With Bad Credit?

The best way to get a truly accurate quote for a Receivership Bond is to apply for the bond and let the underwriter review the request and put a quote together. will always attempt to get the best rate for any surety bond request. In instances where the rate is high to start due to challenged credit, our renewal department can remarket the bond for a lower rate if there has been an improvement in credit and/or financial standing.

How Long Does a Receivership Bond Remain Valid?

Receivership bonds are usually annually renewable. The bond is typically required by the court until the receiver's duties are completed. This time frame varies with each bond. At time of renewal, if the bond is still required, the bond can typically renew for a new annual term.

The bond amounts vary case by case. The bond amount is designated by the court. The amount chosen is usually based somewhat on the amount or value of the assets being handled.

How are Claims Handled for Receivership Bonds?

The surety thoroughly investigates all claims to determine if the receiver was in fact derelict in their duty, and to what extent that had financial consequences. A claimant making a valid claim can receive compensation, up to the value of the bond, backed by the surety who guarantees payment if the principal claims to be unable or unwilling to pay. Despite stepping in to pay, however, the surety does not absolve the debt because the principal must always pay the surety back and usually has to pay for the cost of the investigation as well - creating an extra incentive to follow the rules.

How to Apply for a Receivership Bond?

  1. Contact us to go over your bond request. Our agents will be able to tell you exactly what may be required to get a good quote for your specific bond request.
  2. Complete an online application and send any required documentation.
  3. Once the application is received, an agent will work to get the best quote for the request. Typically the quote will be obtained the same day to 24 hours.
  4. Once the quotes are received, the most favorable quote will be relayed. All quotes are FREE with No Obligation.
  5. The last step is to simply pay the premium and receive your Bond.

Viking Bond Service for a Receivership Surety Bond

Looking for a professional and trustworthy surety provider, contact Viking Bond Service. We operate in all 50 states and write most types of surety bonds. You have the option to complete our online application at any time. Or you can contact us first, at 1-888-2-SURETY (1-888-278-7389) or by completing the form on this page.

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