Colorado § 7-114-303 - Receivership or custodianship.

§ 7-114-303. Receivership or custodianship.

(1) Unless an election to purchase has been filed under section 7-114-305, a court in a judicial proceeding to dissolve a corporation may appoint one or more receivers to wind up and liquidate, or one or more custodians to manage, the business and affairs of the corporation. The court shall hold a hearing, after giving notice to all parties to the proceeding and any interested persons designated by the court, before appointing a receiver or custodian. The court appointing a receiver or custodian has jurisdiction over the corporation and all of its property, wherever located.

(2) The court may appoint an individual, a domestic entity, or a foreign entity authorized to transact business or conduct activities in this state as a receiver or custodian. The court may require the receiver or custodian to post bond, with or without sureties, in an amount the court directs.

(3) The court shall describe the powers and duties of the receiver or custodian in its appointing order, which may be amended from time to time. Among other powers:

(a) The receiver:

(I) May dispose of all or any part of the property of the corporation wherever located, at a public or private sale, if authorized by the court; and

(II) May sue and defend in the receiver's own name as receiver of the corporation in all courts; or

(b) The custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its shareholders and creditors.

(4) The court during a receivership may redesignate the receiver a custodian, and during a custodianship may redesignate the custodian a receiver, if doing so is in the best interests of the corporation and its shareholders and creditors.

(5) The court from time to time during the receivership or custodianship may order compensation paid and expense disbursements or reimbursements made to the receiver or custodian and such person's counsel from the assets of the corporation or proceeds from the sale of the assets.

Source: L. 93: Entire article added, p. 832, § 1, effective July 1, 1994. L. 2003: (2) amended, p. 2330, § 270, effective July 1, 2004. L. 2004: (1) amended, p. 1508, § 285, effective July 1. L. 2019: (1) amended, (SB 19-086), ch. 166, p. 1962, § 59, effective July 1, 2020.

ANNOTATION

Law reviews. For article, "The 1985 Proposed Revisions to the Colorado Corporation Code", see 14 Colo. Law. 34 (1985).

Annotator's note. Since § 7-114-303 is similar to § 7-8-116 as it existed prior to the 1993 recodification of the "Colorado Business Corporation Act", articles 101 to 117 of title 7, cases construing that provision and its predecessors have been included in the annotations to this section.

Once a receiver is appointed, the right to appeal a district court's final order of dissolution is vested in the receiver; therefore, the corporation's shareholders cannot appeal the dissolution order without the receiver's involvement. The shareholders must demand that the receiver appeal either the dissolution order or the receiver's appointment and, if refused, seek relief from the trial court. Francis v. Camel Point Ranch, Inc., 2019 COA 108M, 487 P.3d 1089.

The office of receiver is in the nature of a trustee, and those who have lawful claims against the receivership estate are cestuis que trustent. Rossi v. Colo. Pulp & Paper Co., 88 Colo. 461, 299 P. 19 (1931).

And where creditors have repeatedly dealt with a receiver in his official capacity and asked or obtained court orders that involved recognition of his appointment by the district court, they thereby acquiesced in such appointment and cannot later complain of it on the ground of mere irregularities. Rossi v. Colo. Pulp & Paper Co., 88 Colo. 461, 299 P. 19 (1931).

But a receiver has no power to carry on a corporation's business. This section contemplates only the doing of those things which are necessary to the closing up of the affairs of an insolvent corporation; and consequently, that while by his appointment a receiver, becomes eo instanti vested with the legal title and right of possession of all the property of the corporation, both real and personal, for the purpose of subjecting it to the claims of creditors, he has no power, nor can the court clothe him with the power, to continue or carry on the business of the corporation. Standley v. Hendrie & Boltoff Mfg. Co., 27 Colo. 331, 61 P. 600 (1900).

Rather the court appointing a receiver assumes the administration of the affairs of the corporation for which the receiver was appointed, and it is for that court in its discretion to decide whether it will determine for itself all claims for or against the receiver or will allow them to be litigated elsewhere. However, the receiver is not entitled to the application of this rule where he becomes a party by leave of court. Venner v. Denver Union Water Co., 40 Colo. 212, 90 P. 623 (1907).

And the court itself has no greater authority than is conferred in other receivership cases. While this section confers upon courts power and authority they would not otherwise possess to decree the dissolution of a corporation at the suit of an individual and to that end authorizes the taking charge of its property through a receiver for the purpose of closing up its affairs, it does not confer upon the court any other or greater powers in the administration of such trust than it can exercise in other cases where, in the exercise of its jurisdiction, it may appoint a receiver to administer the affairs of an insolvent private business corporation during pending litigation. Standley v. Hendrie & Boltoff Mfg. Co., 27 Colo. 331, 61 P. 600 (1900).

Consequently the appointment of a receiver for the property of a corporation only deprives a corporation of the exercise of its powers to the extent that the statute under which such appointment is made or the order of the court making the appointment recites; the corporation is not thereby dissolved but continues as a legal entity and neither are its officers ousted by such action. Hence it follows, that except so far as the control of its affairs is vested in the receiver, it continues to exist for all other purposes, and its officials, except as enjoined by the court appointing the receiver, continue to exercise their functions the same as though no such appointment had been made. Jones v. Bank of Leadville, 10 Colo. 464, 17 P. 272 (1887); Paddack v. Staley, 13 Colo. App. 363, 58 P. 363 (1899); Venner v. Denver Union Water Co., 40 Colo. 212, 90 P. 623 (1907).

Such prohibiting suits by corporate officers. Where a corporation has been adjudged insolvent and placed in the hands of a receiver with full powers to control and manage its affairs, an officer of the corporation cannot use its name to prosecute a writ of appeal against the objection of the receiver. Am. Water Works Co. v. Farmers' Loan & Trust Co., 20 Colo. 203, 37 P. 269 (1894).

Receiver may be discharged. By the payment of its debts, by an arrangement with its creditors, or in some other way, the receiver may be discharged, and the corporation may resume business. Steinhauer v. Colmar, 11 Colo. App. 494, 55 P. 291 (1898).

This section contains no regulations as to how a receiver's sale shall be conducted, but such is a judicial sale, and must be fairly and impartially conducted by the officer who makes it as a representative of the court, and since there are no statutory restrictions as to time, manner, terms, and notice of sale, such matters are to be determined by the court. Rossi v. Colo. Pulp & Paper Co., 88 Colo. 461, 299 P. 19 (1931).

But the rights of claimants are to be determined in accordance with their relative priorities after a receivership has commenced. Rossi v. Colo. Pulp & Paper Co., 88 Colo. 461, 299 P. 19 (1931).

And there is no right of redemption from sales made under this "winding-up" statute. Rossi v. Colo. Pulp & Paper Co., 88 Colo. 461, 299 P. 19 (1931).

Payment of costs and fees incidental to a receivership ordered upon the involuntary dissolution of a corporation lies within the sound discretion of the trial court. Van Schaack Holdings, Ltd. v. Fulenwider, 768 P.2d 740 (Colo. App. 1988).

Applied in Hendrie Mfg. Co. v. Parry, 37 Colo. 359, 86 P. 113 (1906).