Receiver’s Duty to Invest Funds

The primary objective of the receivership is to preserve the funds of the estate. Clark on Receivers § 381(b), Vol. 2, pg. 639. In cases where funds remain in the hands of the receiver for an extended period of time, investment of the funds may be necessary to preserve the estate. Id. Since the primary objective of the receivership is the preservation of the estate, “the law must guard those funds with great jealousy.” Id. The court controls the funds and manages the funds through the appointment of a receiver. As such, the receiver must manage the funds in accordance with the directions of the court. Id. Clark, at 640. Any action beyond those expressly or impliedly provided by the court subjects the receiver to personal liability. Id.

Therefore, in light of the fact that a receiver has no power or discretion absent an express or implied order of the court, the receivers’ only duty to invest lies in the receivers duty to petition the court for permission to invest.

If pursuant to a petition to the court to invest or otherwise the court authorizes the receiver to invest the funds, than the common law duty to invest idle funds prudently is the standard. For example, “Illinois courts have long held that a trustee must act with the same degree of skill and diligence that an ordinarily prudent man would exercise in his own similar private affairs.” In re Consupak, Inc., 87 B.R. 529, 539 (Bankr. N.D. Ill. 1988). This duty of care has been incorporated into the Illinois Trust & Trustees Act. 37

In summary, the receiver must look to the orders of the court for guidance on the administration of the estate, to include investment of funds. Absent specific guidance with respect to investment of funds, the receiver should petition the court for permission to invest. Once the receiver is clear to invest estate funds, the receiver is bound by the prudent investor standard, keeping in mind that disposition of the fund is the goal not speculation or profit.


 

37 Section 5 of the Trusts and Trustees Act sets forth the following standard.
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