A Receiver is a
court-appointed officer charged with certain duties, including, but not
limited to, operating businesses, pursuing causes of action, dissolving
entities, complying with health, safety and welfare statutes and/or
winding up companies and selling assets. This article focuses on the
collection and sale of certain types of receivership assets (“Assets”) in
state court receivership cases1.
Each state has a
receivership statute, but the statutes are not uniform and some states
give Receivers more rights than others. To the extent the state statute is
silent on a receivership issue, then the appointment Order (“Appointment
Order”) issued at the beginning of the case dictates the rights and
remedies of the Receiver. Generally, the Appointment Order is drafted by
the interested parties and approved by the Court. The extent of the
receivership estate property is also determined by the appointing court.
Typically, receivership property will include:
earned future income and unearned future income;
causes of action;
claims and rights to
copyrights, business names;
certificates of deposit; and
equipment, vehicles, furniture/fixtures, and equipment
The lack of
consistency with receivership statutes throughout the states is a problem,
particularly when it comes to real estate. In July 2015, the National
Conference of Commissioners on Uniform State Laws (“NCCUSL”) approved the
Uniform Commercial Real Estate Receivership Act (“UCRERA”) and recommended
it for enactment in all states.
As of September, 2018,
the following states have enacted a form of the UCRERA statute: Michigan,
Nevada, Oregon, Tennessee, and Utah, and the following states have
introduced the statute to legislation: Kentucky, Oklahoma, West
Virginia2. The UCRERA addresses the receivership issues of, inter alia,
the Appointment Standards, Stay of actions, and Power of the Receiver
including the sale of real property. As a result of the UCRERA, the
Receivers in states that have passed the UCRERA have a much easier time
with selling real property and personal property related to the real
The state statute or
Appointment Order will determine the assets that comprise the Receivership
Estate. The attorneys drafting the Appointment Order must be careful in
providing a detailed list of assets that the Receiver will control and
preserve. Generally, the Appointment Order is broadly drafted and usually
includes ALL the company’s assets or assets that are subject to the
secured lender that appointed the Receiver or owned by the entity under
the Receiver’s control.
The Receiver has a
fiduciary duty with regards to locating the assets, selling the assets and
maximizing the value of the Receivership estate. The Receiver can, among
other things, review company records, public records (County Recorder, UCC,
USPTO, water craft, MVD, and aircraft public records) and may order a
private investigator to locate assets. Notwithstanding the Receiver’s due
diligence, there may be assets that cannot be located.
In most states, a
Receiver may sell assets by statutory authority or pursuant to a Court
Appointment Order (See, e.g., Cal Code Civ Proc § 568 ); see also
Resolution Trust Corp. v. Bayside Developers, 43 F.3d 1230, 1242-3
(9th Cir. 1995); People v. Stark, 131 Cal. App. 4th 184, 202-3 (Ct. App.
2005). Receivers are appointed to preserve and monetize any type of
collateral held by a secured lender.
Section 16 of the
UCRERA addresses sales of receivership real property. A summary of Section
16 is as follows:
Lease, License, or Other Transfer of Receivership Property Other than in
Ordinary Course. With court approval, the Act permits the receiver
to use, sell, lease, license, exchange or otherwise transfer receivership
property other than in the ordinary course of business. § 16(b), (c).
Unless the agreement of transfer provides otherwise, the transfer is free
and clear of rights of redemption and liens other than liens that are
senior to the lien of the person who obtained the receiver’s appointment.
§ 16(c). Liens extinguished by the receiver’s sale attach to proceeds with
the same validity, perfection, and priority as they had with respect to
the property sold. § 16(d). The sale may be conducted as a private sale,
and creditors with valid secured claims may credit bid. § 16(e). The Act
also provides a safe harbor for purchasers, in case a party objects to the
sale but fails to get a stay of the order approving the sale. § 16(f).
Secured creditors are entitled to the proceeds of their collateral
according to the priority rules established by law other than this Act, §
20(g), although the court may award the receiver the reasonable and
necessary fees and expenses for carrying out the receiver’s duties. §
UCRERA at p. 7.
A problematic issue in
most cases is whether the Receiver may sell the asset free and clear of
liens. Some courts will allow for the sale of assets free and clear of
junior liens under certain circumstances. Park National Bank v Cattani,
Inc, 187 Ohio App. 3d 186, 189 (2010). In the alternative, the Court
may allow for a sale free and clear of liens although the case law and
statutes are not clear on the issue. In such circumstances, the parties
will draft an order at the beginning of the case which provides for the
parameters of such sale, subject to the court’s views. The starting point
for orders with free and clear language may be using Bankruptcy Court
orders and using the Bankruptcy Code § 363 language (11 U.S.C § 363(f)).
Again, these types of sales depend on the facts and circumstance, the
state, and most importantly, knowing your judge. Notwithstanding the Order
provides for a sale free and clear of liens, the title company that
insures title may not agree to insure when the sale is free and clear of
liens and the lien is not paid in full. Therefore, before getting too far
in the sales process where liens are involved, care should be taken to
establish whether a sale free and clear of liens is feasible or
Sale of Remnant
When a Receivership
case is wrapping up, there may be a few remaining known assets that the
Receiver deems unworthy to pursue because the costs outweigh the benefits.
Typical assets that
fall into this category are as follows:
that are otherwise not cost-effective to pursue
The Receiver will weigh the risk and time of any
potential recovery with the costs of keeping the estate open for only
those assets. There are companies that can assist the Receiver in the
exercise of his or her fiduciary duty by purchasing these known remaining
assets. By doing so, a Receiver is eliminating risk and bringing cash into
the estate while stopping the hemorrhaging caused by the costs from the
ongoing administration of the estate.
Even if all known
operating assets of value having been monetized and any viable claims and
causes of action having been prosecuted, there may be an opportunity to
sell unknown residual assets that may arise after the Receivership is
closed. These unknown Remnant Assets may include, among other things, the
claims or other payment rights that would accrue sometime in the future.
Typically, these are
small checks that can show up many years after a Receivership case closes
and are too small to warrant re-opening a case to make a distribution. As
such, they create an administrative hassle for the Receiver who has to
return the checks. The cost of postage is not as much an issue as is loss
of a professional’s time. As we all know, time is money. A Receiver can
alleviate this hassle while bringing money into the estate for these
unknown Remnant Assets.
Earlier in this
article, we discussed the importance of ensuring that the Appointment
Order contains broad sale language. To ensure that a Receiver has an
option to do a Remnant Asset deal at the end of the case, the Receiver
should ensure that the Appointment Order contains broad language
authorizing the sale of all assets of the Receivership estate, whether
known or unknown, that may arise at any time. This will prevent the
Receiver from taking extra steps at the end of the case to adjust the
Appointment Order if the Receiver chooses to do one of these deals.
The process for
selling these known and unknown Remnant Assets is the same as any other
sale in a Receivership case and as mentioned above, if permissible under
applicable laws, should include a provision selling the assets free and
clear of liens, claims and encumbrances.
These Remnant Asset
deals are a win-win for the Receivership estate. They help the Receiver to
(i) generate more funds for the estate; (ii) expeditiously administer the
assets; and (iii) eliminate the administrative hassle associated with
handling small straggling assets that may appear post-closing.
This article should
not be considered or construed as legal advice on any fact or
circumstance. You should consult your own attorney regarding your own
personal situation or any legal question you may have.
1 Sales of assets in
Receivership cases brought in Federal court are governed by 28 U.S.C.
sections 2001 and 2004 and the Federal Court order.
Commercial % 20 Real%20Estate%20Receivership%20Act.
example is a small insurance refund that is not expected to be paid out
until 6 months to a year after a case is ready to close.
*Adam B. Nach is an attorney with over 25 years experience. He
represents Receivers, Trustees, Lenders and Landlords and is admitted to
the Arizona State Bar, 9th Circuit Court of Appeals and U.S. Supreme
*Sharon M. Kopman has been a restructuring attorney for over 25
years. She works for the private investment firm, Oak Point Partners,
which pioneered the "Remnant Asset" concept over 10 years ago. Oak Point
Partners has completed over 600 Remnant Asset deals across the U.S. in
commercial bankruptcy cases, receiverships, ABCs, and out-of-court