This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
The purpose for which a receiver in equity is appointed, is usually quite different from the purpose of a receiver or trustee in bankruptcy. The latter aims first to take possession of all the property of the insolvent individual or concern; next to dispose of the property as quickly as is practicable; and third, to distribute the cash that has been realized. A receiver in equity, on the other hand, has for his function to keep the business running as smoothly and with as little loss as possible. He may make some changes in methods of administration and may properly retrench whenever he can do so without impairing the efficiency of the property, but in general he carries on the business in about the same manner in which any business is carried on. He aims not to turn the assets into cash, but to keep working as profitably as possible. Not infrequently the property of a corporation could not be sold for an amount sufficient even to reimburse the secured creditors; yet as a going concern it may be able to earn normal profits. This is the case, in fact, with almost all companies that have become technically insolvent. They are not, in the first place, properly subject to the Bankruptcy Act since their assets certainly exceed their liabilities, and to attempt to wind them up would be poor policy for every one concerned. The best and most common procedure with all such insolvent corporations, as well as with banks, insurance companies, and railroads, is to arrange - usually through friendly proceedings - for the appointment of a receiver to conduct the business while negotiations for its reorganization are in process.
The receiver carries on his work under the direct authority and supervision of the judge who has appointed him. The closeness of this supervision depends to a large extent on the personalities of the judge and of the receiver, the general practice of the court, and numerous other factors. In general, the receiver makes it a point to secure special authority for acts that cannot be regarded as a part of the routine of conducting the business.
Under authority of the court, a receiver may issue obligations known as "Receiver's Certificates" which constitute a claim on the company's income and assets ranking ahead of all other claims. He may secure new equipment, bring new blood into the management, find new methods of marketing the company's products, and inaugurate new systems of operation. He is, in fact, the general manager of the company for the time being, with very little restriction upon his actions. Sometimes a receiver will remain in control for two or three years or more before a satisfactory plan of reorganization is worked out. It has been remarked above that the receiver is frequently one of the previous operating officials; on the other hand, it sometimes happens that the receiver makes so satisfactory a record that he is requested, after the reorganization has been completed, to become an operating official and continue to work out the policies which, as receiver, he has inaugurated. F. W. Whitridge, for example, after successfully operating the Third Avenue Railroad Company in New York City as receiver, became and until his death continued to be president of the reorganized company.