Temporary Receiver for a New York LLC: How to Freeze a Rogue Managing Member Under CPLR 6401
Updated: Aug 29
You own 40% of a Bronx logistics LLC. Your managing member controls the checkbook, the QuickBooks login, and every vendor relationship. Last month you learned he wired $340,000 to a shell company owned by his brother-in-law and stopped answering your emails. Every day the money moves further from your reach. You don't have eighteen months to litigate — you need someone else running the company right now. That's when getting a temporary receiver for a New York LLC becomes the most powerful weapon in a business divorce.
A temporary receiver is a court-appointed neutral who takes control of company assets while the underlying case plays out. Judges don't hand them out casually. But when a managing member is looting the business or destroying its value, a receivership can stop the bleeding faster than anything else in the CPLR toolkit. Below is how New York courts actually decide these motions, what a receiver does once appointed, and how the remedy fits with dissolution, derivative claims, and buyout demands.
What is a temporary receiver, and when can you get one for a New York LLC?
A temporary receiver is a neutral third party — usually an attorney or forensic accountant — appointed by a Supreme Court judge to take custody of specific property or a business during pending litigation. The authority comes from CPLR § 6401, which lets a court appoint a receiver of "property which is the subject of an action" when there is "danger that the property will be removed from the state, or lost, materially injured or destroyed."
In the LLC context, the "property" is usually the company itself — its bank accounts, receivables, inventory, or lease. If your managing member is diverting revenue, self-dealing with affiliates, refusing to pay taxes, or letting the business collapse out of spite, a receiver can step in and either run the operation or wind it down under court supervision. The receiver reports to the judge, not to the members.
Receivership sits on the extreme end of provisional remedies. It is more intrusive than a preliminary injunction, which just orders someone to stop doing something. A receiver actually replaces the person in control. New York courts describe it as a drastic remedy of last resort, and appellate panels regularly reverse trial judges who appoint receivers on thin records. You need to bring hard evidence — bank statements, unauthorized transfers, sworn affidavits — not just accusations.
When we file for a receiver at Yassi Law PC, it's almost always paired with a dissolution petition under LLCL § 702 or a derivative claim on behalf of the company. The receiver preserves the going concern while the court decides the merits. If you'd like a broader map of how those remedies interact, see our overview of business divorce options in New York.
What legal standard must you meet under CPLR § 6401?
You must show a clear evidentiary danger to identifiable company property, not just partner conflict or hurt feelings. Trial courts in the Commercial Division and the general IAS parts across the five boroughs read CPLR § 6401 narrowly, and the Appellate Divisions reverse when the movant relies on conclusory affidavits.
Practically speaking, judges look for three things. First, you must have a viable underlying cause of action — dissolution, breach of fiduciary duty, an accounting, or a derivative claim. A receivership isn't a standalone lawsuit; it rides on top of one. Second, you must show the property is genuinely at risk. That means documented diversions, missed tax filings, unpaid vendors, a dissipating bank balance, or a pattern of self-dealing. Third, you must show that less intrusive remedies — a preliminary injunction, an order to produce records, a lis pendens — won't adequately protect the asset.
The New York Court of Appeals has long emphasized that receivership is a "harsh" remedy. In the LLC dissolution framework laid out in Matter of 1545 Ocean Ave., LLC, 72 A.D.3d 121 (2d Dep't 2010), the Second Department made clear that judicial intervention in an LLC's internal affairs requires a real showing that the entity cannot function or is being harmed. That same skepticism carries over when you ask a judge to install a receiver.
Most litigants miss that under CPLR § 6403, the movant must file an undertaking (a bond) before the receiver takes office, in an amount fixed by the court to cover damages if the appointment turns out to have been improper. That undertaking is a hidden cost that catches minority members off guard, and experienced commercial litigators watch for it before filing.
You should also expect the opposing member to demand a hearing. Under CPLR § 6401 and standard motion practice, notice of the application must be given unless the moving party can show that notice would defeat the purpose of the receivership — for example, where advance warning would let the managing member drain the account before the judge signs the order. Ex parte receivership orders exist, but courts approach them with real caution and expect a concrete showing of imminent, irreversible loss.
What does a temporary receiver actually do once appointed?
The receiver steps into the shoes of the managing member for the specific powers the judge grants. The order of appointment — drafted by the moving party and refined by the court — spells out exactly what the receiver can and cannot do. In a typical New York LLC receivership, the order authorizes the receiver to take custody of bank accounts, review books and records, pay ordinary operating expenses, collect receivables, and freeze any distribution or unusual transfer without court approval.
Beyond that baseline, the powers can be tailored to the fight. If your managing member has been running unauthorized side deals, the order might authorize the receiver to void or investigate those contracts. If the company is bleeding cash, the receiver might be empowered to hire a forensic accountant, terminate a lease, or negotiate with creditors. In cases where dissolution is essentially inevitable, the court sometimes gives the receiver authority to sell the business as a going concern and hold the proceeds pending final judgment.
Receivers cost money, and the company pays. Compensation is governed by CPLR § 8004, which caps commissions at 5% of sums received and disbursed and requires court approval of every fee. On a company with $2 million in annual receipts, receivership fees plus counsel for the receiver can easily run into six figures over the life of a case. That expense comes off the top before any distribution to members. If you are a minority member weighing a receivership fight, you are effectively spending your own equity on the remedy — a tradeoff worth thinking about before you file.
The receiver also files periodic reports with the court. Those reports often become the factual backbone of the underlying dissolution or fiduciary duty case. When the receiver reports that the managing member cannot document $500,000 in claimed expenses, that finding is far more powerful in front of the judge than the same allegation coming from your side of the caption. For a deeper look at how fiduciary breaches get proved in these cases, see our post on bad-faith LLC managers and fiduciary duty claims.
What are the strategic risks and costs of pursuing a receivership?
The biggest risk is losing the motion and paying for the fight. If the court denies your application, your managing member now knows exactly what you've seen in the books, what your theory is, and where your evidence is thin. They'll paper the file with corrective disclosures, hire forensic accountants of their own, and use the denial as leverage in any settlement talks.
The second risk is the undertaking. If the receiver is later removed because the appointment shouldn't have happened, the bond you posted answers for the damages your opponent suffered — attorneys' fees, lost business opportunities, disruption. Courts have discretion under CPLR § 6403 to set the undertaking at whatever amount they think fair, and in a mid-market Manhattan or Long Island commercial case, that can run from $25,000 to well into six figures.
The third risk is operational. A receiver who doesn't understand your industry can make bad calls. Restaurant receivers who've never scheduled kitchen staff, construction receivers who don't understand progress billing, real estate receivers who don't know how to fight a Yellowstone posture — these are all real problems. The remedy is to propose specific, qualified candidates in your papers rather than leaving the choice entirely to the judge. Most judges welcome a shortlist of vetted receivers with LLC-specific experience.
You also have to think about what happens on the other side of the case. If the court eventually orders a buyout under the equitable framework New York courts apply in LLC disputes, the receiver's stewardship becomes part of the valuation record. The company's revenue during receivership, expenses incurred, and any sales made all feed the appraisal. For more on how that appraisal plays out, our detailed piece on LLC buyout valuation in New York walks through the mechanics.
How does receivership fit with dissolution, derivative suits, and buyouts?
Receivership is a support beam, not the roof. It preserves the company while your primary claim — dissolution, derivative action, or buyout — moves forward. Judges will not appoint a receiver if there's no underlying case to protect, so the strategic question is what claim you're anchoring the receivership to.
When paired with a derivative action, the receiver becomes the neutral party who can pursue claims that belong to the company against the managing member — an especially useful posture where the alleged wrongdoer would otherwise be the person deciding whether the company sues itself. New York recognized that derivative right for LLC members in Tzolis v. Wolff, 10 N.Y.3d 100 (2008), and the interplay between derivative claims and receivership is well developed. If you're weighing a derivative posture, our guide to direct vs. derivative claims unpacks the choice.
When paired with a books-and-records petition, the receiver can enforce production faster than a contempt motion. If your managing member has been slow-walking disclosure under LLCL § 1102, a receiver with independent access to the bookkeeper and the bank can produce the records for you. Our detailed walk-through on forcing disclosure under LLCL § 1102 covers the standard books-and-records fight.
Finally, receivership can accelerate settlement. A managing member who has been living off unaccountable cash draws faces a very different reality once a court-appointed neutral controls the checkbook. Cases that seemed intractable often resolve within months of appointment, either through a negotiated buyout or a court-ordered sale. In the New York Commercial Division, complex business disputes routinely take many months to disposition — receivership is often the leverage that collapses that timeline. For a broader treatment of freeze-out remedies, our piece on minority LLC freeze-outs explains how these remedies stack.
Frequently Asked Questions
Can I get a temporary receiver appointed on an ex parte basis?
Rarely, but yes. CPLR § 6401 normally requires notice to the opposing party, but if you can show a concrete, imminent risk that assets will disappear the moment your managing member learns of the motion — for example, evidence of prior offshore transfers or a wire scheduled for a shell account — a judge can appoint a receiver on the same day. Expect the judge to require exceptionally strong sworn evidence.
Who pays the temporary receiver's fees?
The LLC itself pays, with fees capped at 5% of sums received and disbursed under CPLR § 8004 and every payment subject to court approval. In practice this means the receiver's fees come out of company revenue before any distribution to members, so both the wrongdoer and the moving member effectively bear the cost proportionally to their equity.
Can the receiver sell the LLC's business?
Only if the court's appointment order authorizes it. A basic receivership order just gives the receiver custody and operating authority. If you want a sale, you have to ask for that power specifically, and courts usually reserve sale authority for later in the case — often after a dissolution finding — so that the sale operates as the wind-up rather than a preliminary step.
How long does a temporary receivership last?
Until the court dissolves the appointment. Most receiverships in LLC cases run six to eighteen months, ending either when the underlying case settles, when the company is sold or wound up, or when the court decides the receiver is no longer necessary. Either side can move to terminate the receivership if circumstances change.
The Bottom Line
Getting a temporary receiver for a New York LLC is the most aggressive provisional remedy available in a business divorce, and it works — but only if you meet the CPLR § 6401 standard with real evidence and a viable underlying claim. When a managing member is actively draining or destroying the company, receivership stops the bleeding in a way that no other order can. When the underlying dispute is really just partner conflict, the same motion can backfire badly.
Written by Reza Yassi | LinkedIn
If you or your business is dealing with a managing member who is looting, mismanaging, or freezing you out of a New York LLC, the team at Yassi Law P.C. is ready to help. Call us today at 646-992-2138 for a consultation.
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