Question: We are requesting that a receiver be appointed and our legal counsel will draw up the Receiver’s Order. What exactly should be included?
Answer: Careful drafting of the Order Appointing Receiver (and the related Temporary Restraining Order) will save considerable time and money. By addressing all of the anticipated hurdles in advance, the Receiver can avoid returning to court for additional orders, and can seize and protect assets more effectively.
Following are some items the Order should specifically provide for:
Bank Accounts. Seizing of funds in all bank accounts, including those held in the name of related entities. While this is a "given" in any receivership, it should be clearly stated, as some banks may be unfamiliar with receiverships.
Management Companies. Receivers should have authority to manage and operate the business, including permission to hire a management company. In some cases, this will be the Receiver’s own firm — this relationship should be disclosed and management fees should be competitive with standard industry rates.
Inventories. Depending on the asset, inventories can be simple or complex. For that reason, the court order should allow ample time for the filing of inventory — usually 30 days. Of course, the necessary time will depend on the nature of the business and/or assets.
Receiver’s Bond. The bond amount should be "reasonable." Judges often think in terms of income property and may order a bond equal to one or two months’ rent. In the case of a retail business — such as a hotel or restaurant — the Receiver will rarely hold that much money, so that bond amount would be nearly impossible to secure, so lender’s counsel should be prepared to suggest an appropriate amount.
Receiver’s Certificates. Not all courts will approve these in advance, and instead require the Receiver to provide specific requests. Pre-approval of the general concept, however, will make subsequent requests easier and more cost effective.
Environmental Audits. An assessment of environmental issues is frequently of utmost importance to both the lender/plaintiff and the receiver, along with health and safety issues. To that end, the order should specifically provide for lender access to conduct such inspections and audits.
Licensing. Ideally, licensing agencies and authorities should cooperate with the receiver in transferring or operating licenses. Since the court does not have jurisdiction over such agencies, including this in the receiver’s order is not necessarily enforceable – but it still viable in many situations. This is a classic example of why your proposed receiver and attorney should collaborate at the onset.
Utility Companies. It can be beneficial to order utility companies not to demand additional deposits or to discontinue service unless pre-receivership bills are not paid. Again, not necessarily legally enforceable, but often effective.
Receiver’s authority to sell. Depending on the circumstances, the lender may want to include this, since certain constraints – such as environmental issues — often make it risky for lender to ever hold title.
Temporary Restraining Order. This can be important, since generally a TRO serves to exclude defendants and others from the property, to cease collecting any rents and profits, and to turn over security deposits, books and records.
Retaining Legal Counsel. Aside from routine evictions or collection matters, most judges do not want receivers to automatically retain legal counsel. If the need for separate legal counsel for the receiver is expected, the purpose should be carefully detailed to facilitate court approval. An experienced receiver should not need to consult with legal counsel for most receivership issues.
Question: Are there special issues that relate to operating businesses, such as hotels, restaurants and bowling alleys?
Answer: Yes and we will be covering them in February’s eTips.
Bond: 1. An obligation; a promise. 2. A written promise to pay money or do some act if certain circumstances occur or a certain time elapses; a promise that is defeasible upon a condition subsequent; esp., an instrument under seal by which a public officer undertakes to pay a sum of money if he or she does not faithfully discharge the responsibilities of office, or a surety undertakes that if the public officer does not do so, the surety will be liable in a penal sum.
Temporary Restraining Order: A court order preserving the status quo until a litigant’s application for a preliminary or permanent injunction can be heard.
Order: 1. A command, direction, or instruction. 2. A written direction or command delivered by a court or judge.
Receiver: A disinterested person appointed by a court, or by a corporation or other person, for the protection or collection of property that is the subject of diverse claims
Receiver’s Certificate: An instrument issued by a receiver as evidence that the holder is entitled to receive payment from funds controlled by the bankruptcy court.
Inventory: A detailed list of assets; esp., an executor’s or administrator’s detailed list of the probate-estate assets.
Black’s Law Dictionary (8th ed. 2004)