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Business Restructuring and Bankruptcy Alert: Proposed legislation to amend and clarify the powers of a receiver and procedures for the sale…

Ohio common law decisions regarding a receiver’s ability to sell property “free and clear” of liens and interests appear to have more often than not supported the proposition that a receiver can sell property free and clear of liens as long as the receiver complies with procedural notice and due process requirements. Ohio Senate Bill 388, introduced to the 129th General Assembly on November 13, 2012, would amend Sections 2333.22, 2715.21, 2735.02, and 2735.04 of the Ohio Revised Code to add to and clarify the powers of a court-appointed receiver and provide new procedures for the sale of real property by a receiver free and clear of existing liens, claims and interests.

If enacted, Senate Bill 388 will resolve the uncertainty of whether or not a receiver has the statutory authority to sell real property outside of a foreclosure process free and clear of liens, encumbrances and interests. In addition, Senate Bill 388 will eliminate uncertainty regarding the validity of the title to real property that is sold by a receiver. It will also create new uncertainties under Section 2735.04(D). Will lenders be willing to fund an operating receivership under the new sale confirmation process? If the court stays the sale confirmation process, how long will the stay last? Who funds the operations and expenses during the stay? These questions will need to be addressed if Senate Bill 388 is enacted.

Senate Bill 388 includes the following:

  • Amend Section 2333.22 of the Ohio Revised Code to clarify that the judge who appoints the receiver may forbid a transfer, or other disposition or interference with, property of the judgment debtor not exempt by law. In addition, new subsection (C) of Section 2333.22 will clarify that under the control of the judge who appoints the receiver, the receiver may do any of the acts authorized under Section 2735.04.
  • Modify existing laws pertaining to attachment proceedings and the examination of a judgment debtor in proceedings in aid of execution, to provide that a receiver appointed in such proceedings, under the control of the appointing judge, may do any of the acts authorized under Section 2735.04.
  • Amend Section 2735.02 of the Ohio Revised Code to prohibit any party, attorney or person interested in the receivership action from being appointed receiver in the action, except by consent of all parties to the case and all other persons holding a recorded ownership interest in or financial lien on the property. In addition, Senate Bill 388 would clarify that no person except a resident of Ohio can be appointed or act as receiver of a corporation, partnership, limited liability company, or other entity created under the laws of Ohio. In selecting a receiver, priority consideration must be afforded to any of the qualified persons nominated by the party seeking the receivership, provided that no nomination of qualified persons for the receivership is binding upon the court.
  • Create new Section 2735.04(A) of the Ohio Revised Code to clarify the powers of a receiver by providing that, under the control of the judge and court that appointed the receiver, the receiver may:
    • Bring and defend actions in the receiver’s own name as receiver
    • Take and keep possession of real or personal property
    • Receive rents and collect, compound for, and compromise demands
    • Establish or maintain accounts with any “public utility” (as defined in the definitions section of new subsection (E)) in the receiver’s name under rules that may be adopted by the Public Utilities Commission
    • Generally enter into contracts, including, but not limited to, contracts of sale, lease, or construction and contracts for the completion of construction work
    • Make transfers of real or personal property free and clear of liens or encumbrances after appropriate notice to persons who have a recorded ownership or financial interest in the property to be transferred, including, but not limited to lienholders
    • Generally do any acts respecting the real or personal property that the court authorizes
  • Create new Section 2735.04(B) of the Ohio Revised Code to clarify that funds expended in entering or performing contracts under subsection 2735.04(A)(5) shall be taxed as court costs or otherwise treated as an administrative expense of the proceeding. The court may from time to time require an additional deposit to cover such administrative expenses by the party that sought the receivership or by all parties likely to be directly benefitted by the construction work.
  • Create new Section 2735.04(C) of the Ohio Revised Code to provide that if a receiver transfers real or personal property, the liens or other interests of persons in the property must be transferred in the same order of priority to the proceeds received from the transfer.
  • Create new Section 2735.04(D) of the Ohio Revised Code to provide that:
    • In accordance with a court order, a receiver may sell real property at a public or private sale, enter into a long-term or short-term lease or make other reasonable arrangements as approved by the court
    • At the conclusion of the sale of real property by the receiver and on careful examination of the proceedings of the sale, if the court finds the sale was made in conformity with its order to sell, it shall, within 30 days of the date of the sale, confirm the sale and direct the clerk of the court to make an entry on the journal that the court is satisfied of the legality of the sale and that the receiver make to the purchaser a deed for the real property sold
    • The court may, in its discretion, stay confirmation of the sale to permit the property owner time to redeem the property or for any other reason that the court determines is reasonable, in which case, the sale shall be confirmed within 30 days after termination of the stay of confirmation
    • The receiver shall require the purchaser of the real property to pay within 30 days of the confirmation of the sale the balance, if any, due on the purchase price of the real property sold
    • At any time before confirmation of the sale of the real property, the property owner may redeem the property from sale by depositing with the clerk of court the amount for which the property was sold, with all costs, including poundage, and interest at a reasonable rate per annum set by the court on the purchase money from the date of sale to the time of the deposit, except that if a judgment creditor is the purchaser, the interest is at that rate on the excess above the judgment creditor’s claim

The 129th Ohio General Assembly is the legislative body of the state of Ohio for 2011 and 2012. Senate Bill 388 will need to be reintroduced to the 130th Ohio General Assembly. Click here for a full version of Senate Bill 388.

These are just some of the issues that should be addressed when considering receivership proceedings. McDonald Hopkins’ team of commercial litigation, business restructuring and real estate attorneys have significant receivership experience and are prepared to provide counsel to receivers, lenders and other parties in receivership proceedings.

For more information, please contact:

Scott N. Opincar

Business Restrucuring and Bankruptcy 

The twists and turns of business restructuring are complex and demanding. Our attorneys approach every case with creativity and insight to ensure the solutions are cost-effective and practical. At every turn, you can be confident that our attorneys will guide you through the process, always providing practical and informed advice. We are positioned to respond to the special demands of a variety of matters in a wide range of industries, including health care, automotive, retail/distribution, real estate/construction, telecommunications, and mining/exploration.

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© 2013 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.