By: Anissa Hudy, Esq. and Sara MacWilliams, Esq.
Our last article gave you an overview of basics on receiverships and alerted you to Michigan adopting the Uniform Commercial Real Estate Receivership Act (UCRERA).
Now, let’s discuss THE MOST important decision faced when implementing a “receivership” –
WHO Is the Right Receiver?
This decision is heavily influenced by the type of property, business or asset involved and making up the receivership estate.
Two major factors come into play when deciding Who is the Right Receiver -- both focus on qualifications.
QUALIFIED means the obvious things: expertise in handling/management of the type of property, business or asset involved and ability to adequately and competently staff the receivership for proper administration.
On this factor, the best receivers are those that have:
Hands-on experience operating, managing and/or liquidating the type of property, business or asset involved.
Business knowledge of the type of property, business or asset at issue. For example:
If commercial real estate is involved, the receiver should have a strong understanding of the local real estate market and industry.
In business disputes, the right receiver will have a working understanding of basic business issues like budgets, credit and debt issues, and business valuations.
A receiver should either have an understanding of the particular industry that a business in receivership functions in (healthcare, automotive, etc) or the ability to work with experts who can advise the receiver on industry-specific issues.
Start-ups may need a receiver who understands the peculiar financing world within which start-ups function.
Experience with receiverships –in particular, an understanding that a receiver is an arm of the court and not an employee or agent for hire of any party (regardless of who requested a receiver and who proposed the particular receiver)
The willingness and ability to manage competing interests by providing regular reports and serving at all times as a neutral manager
Capability of obtaining the requisite bond and satisfying any insurance requirements.
QUALIFIED also means the NOT SO OBVIOUS – a receiver must be able to attest that he/she is not otherwise DISqualified.
The UCRERA provides guidance here and prohibits courts from appointing a receiver UNLESS he/she attests under penalty of perjury that he/she is not otherwise disqualified. For example, he/she must not:
Be an “affiliate” of a party, as defined by the act.
Have an interest materially adverse to an interested party.
Have a financial interest in the outcome of the action (although excluding compensation the court may allow the receiver).
Have a debtor-creditor relationship with a party.
Hold an equity interest in a party (excluding a noncontrolling interest in a publicly traded company).
In sum, deciding WHO is the right receiver is not easy and requires depth in understanding the property, business or asset involved.
More times than not, though, the best receiver is the one who knows how to cost-effectively manage, operate and, if necessary, liquidate the type of property, business or asset involved because he/she has years of direct experience doing so and not because he/she can retain others to do that “overseeing” their work at substantial additional costs to the receivership.
The discussion of receiverships will continue next time with a focus on the costs of a receivership.