Chicago Business Litigation Lawyer Blog
You check the company’s bank account from your phone and the balance is a fraction of last month’s. Your co-owner has changed the passwords, is paying himself in ways no one approved, and has stopped answering. You want someone in charge who is not him, today.
Illinois courts can step in on an emergency basis, but the word most owners reach for, receiver, describes one of the hardest orders to obtain. A court asked to appoint a receiver will apply a stringent test. An owner who has real evidence of imminent loss has a chance, and often a better chance if the request is narrower. The most useful relief may be a restraining order, an accounting, or a custodian appointed under the statute that governs closely held companies.
How hard is it to get a receiver appointed?
Hard, and the courts say so. “The appointment of a receiver is an extraordinary and drastic remedy to be exercised with utmost care and caution, and only where the court is satisfied there is imminent danger of loss if it is not exercised.” Steinwart v. Susman, 94 Ill. App. 2d 471, 476 (2d Dist. 1968). The applicant generally must show a clear right to the property or a special fund it may resort to, along with possession obtained by fraud or property in imminent danger of dissipation. Id.
Prassas v. Nicholas W. Prassas & Co., 102 Ill. App. 3d 319 (1st Dist. 1981), shows how seriously the appellate court takes the rule. The trial court appointed a receiver to manage a shopping center in a dispute among parties with interests in it, and the appellate court reversed. It explained that the strict standard comes from the recognition that the power to appoint a receiver is in derogation of the legal owner’s fundamental right to possess the property. Id. at 322. A receiver is warranted only where there is no other adequate means to secure the desired result, and the rigid standards apply even where the appointment is temporary and limited to preserving the status quo. Id.
That means a poor relationship, withheld information, or a suspicious distribution will rarely be enough alone. An owner needs specific proof of what is being lost, how fast, and why nothing short of a receiver will stop it.
What other remedies does the Illinois corporate statute provide?
Section 12.56 of the Business Corporation Act gives a court a broader menu in a non-public corporation. The court may act where those in control “have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent” toward the petitioning shareholder, or where “[t]he corporation assets are being misapplied or wasted,” among other grounds. 805 ILCS 5/12.56(a)(3), (a)(4). The relief includes setting aside or prohibiting corporate action, removing a director or officer, ordering an accounting, appointing a provisional director, and “[t]he appointment of a custodian to manage the business and affairs of the corporation to serve for the term and under the conditions prescribed by the court.” 805 ILCS 5/12.56(b)(1), (b)(3), (b)(5), (b)(6), (b)(7). Those remedies are not exclusive of other legal and equitable remedies. 805 ILCS 5/12.56(c).
A custodian is not a sure thing. The court still has to be convinced that this level of intervention is warranted, and a company’s ability to keep operating will weigh heavily. But the statute gives the owner something to ask for other than a receiver, tied to the misconduct that the statute itself describes.
What if the company is an LLC?
The Limited Liability Company Act speaks differently. A member may seek a judicial decree where those in control have acted in a manner that is illegal or fraudulent, or in an oppressive manner directly harmful to the applicant. 805 ILCS 180/35-1(a)(5). In such a proceeding the court “may order a remedy other than dissolution including, but not limited to, a buyout of the applicant’s distributional interest.” 805 ILCS 180/35-1(b). The Act does not list a custodian by name, so the request has to be built on the “not limited to” language, the operating agreement, and the court’s equitable powers. Read the operating agreement first, because it may control management rights, access, and dispute resolution.
Is a restraining order the better first move?
Often. A temporary restraining order can prohibit specific acts, such as further transfers out of a company account or changes to signing authority, without displacing management. Without notice, it requires specific facts by affidavit or verified complaint showing “immediate and irreparable injury, loss, or damage” before notice can be served and a hearing had; it must define the injury and state why it is irreparable; and it expires within no more than 10 days unless extended or the restrained party consents. 735 ILCS 5/11-101. Giving notice whenever possible usually helps credibility. A focused order to stop the bleeding, followed by an accounting, may do what the owner actually needs, and it can be easier for a judge to sign.
Keep in mind that the other owner will have his own story. Compensation disputes, loans to the company, and business judgment calls can look like looting from one side and management from the other. A petition that overstates what the records show can cost the petitioner credibility at the only hearing that counts.
Three steps matter before anyone walks into court. First, secure the evidence you lawfully can, including bank statements, general ledger access, and copies of governing documents, without doing anything that gets ahead of your authority or takes the company’s money yourself. Second, write the chronology: each transfer, its date, its amount, where it went, and why it was not authorized. Third, decide what specific order would actually solve the problem, because a judge is far more likely to sign a narrow order tied to a proven risk than a broad one tied to anger.
A receiver is the remedy everyone asks about and few obtain. Owners who win emergency relief usually come in with records and a request that fits them.
If a co-owner is moving money or has locked you out of your own company, the first few days can shape everything that follows. Call DiTommaso Lubin, P.C. at 630-333-0333 for a free consultation, or contact us online.
Big-firm firepower, with the partners on your case
Peter S. Lubin and James V. DiTommaso are Chicago business litigation lawyers who try cases throughout Illinois. Peter is a graduate of the University of Chicago Law School, where he has taught trial practice for decades, and he has been recognized as an Illinois Super Lawyer. He has served as lead counsel in more than one hundred class actions and has handled more than one hundred shareholder, LLC, derivative, breach of fiduciary duty, and fraud matters, on both the plaintiff and the defense side. Crain’s Chicago Business credited him with the largest class action settlement of the year for a $40 million recovery in Erikson v. Ameritech, and the firm has been named DuPage County Law Firm of the Year. The firm and its lawyers have represented clients such as McDonald’s, Motorola, and Experian, and have litigated against companies including AT&T and General Motors. James DiTommaso, a graduate of Chicago-Kent College of Law with a certificate in business law, has served with the Illinois Appellate Court and has argued a case before the Illinois Supreme Court. He litigates these disputes in the Illinois trial and appellate courts and in the federal courts. When you hire this firm, the lawyers whose names are on the door are the ones who handle your case.
This post is for general information and is not legal advice.