In previous blog entries, I focused on the causes and final remedies available in minority oppression cases. This posting focuses on what happens during the pendency of the litigation if the parties cannot run the subject company. Depending on the circumstances, the Court possesses the inherit power to appoint a custodial receiver to manage the subject corporation’s affairs during the pendency of the minority oppression claim. See, N.J.S.A. 14A:12-7(4). A custodial receiver is generally charged with protecting and preserving the corporation itself while the case is pending.
Just because the Court may appoint a custodial receiver does not mean it will or should exercise that equitable power. Generally, a Court will appoint a custodial receiver when it views their appointment as necessary to maintain the “status quo” during the pendency of the litigation. Kassover v. Kassover, 312 N.J. Super. 96, 100 (App. Div. 1998). Typically, a receiver may be appointed if the corporation is insolvent; there is deadlock amongst the shareholders; or the Court believes that a party running the day to day affairs of the company engaged in gross or fraudulent mismanagement of its corporate affairs. Ravin, Sarasohn, Cook, Baumgarten, Fish and Rosen, P.C., 365 N.J. Super. 241, 249 (App. Div. 2003).
When considering whether or not to appoint a custodial receiver, the Court will determine: (1) whether or not the corporation itself or any owner would suffer irreparable harm if the Court does not make the appointment; (2) the likelihood that the party seeking the appointment will ultimately be successful at the conclusion of the case based upon the disputed facts known at the time; (3) whether or not the possible good associated with the appointment is outweighed by the problems to the corporation itself or the non-moving party in making the appointment; and (4) the effects on third-parties (i.e. the public, customers, vendors, employees, etc.) in appointing or not appointing a custodial receiver.