KMK Law Complex Litigation Blog

On March 23, 2015, Ohio’s recently enacted amendments to the receivership statute will go into effect, creating certainty and consistency for various existing receivership practices previously developed and used by Ohio courts.  The revised receivership law amends, among other things, certain sections of Ohio Revised Code Chapter 2735 – Receiverships, including sections 2735.01 (Appointment of Receiver), 2735.02 (Qualifications of Receiver) and 2735.04 (Powers of Receiver).

Section 2735.01 now clarifies and expands the circumstances upon which a receiver may be appointed by the court.  Consistent with existing Ohio cases, the revised law provides for the first time that a receiver may be appointed where a mortgagor has consented in writing to the appointment of a receiver, or to enforce a contractual assignment of rents and leases.  Additionally, the new law also confirms that a receiver may be appointed in cases involving any dissolved or insolvent entity – not just corporations – including limited liability companies, partnerships and limited partnerships.

Section 2735.02 provides guidance and expanded criteria for the selection of a receiver that was not previously included in the receiver statutes.  In selecting a receiver, while not binding upon the court, a court must give priority consideration to the nomination of a receiver made by the party seeking the receivership.  Moreover, if the nominated receiver is interested in the action, the new law requires the consent of all parties to the action and of all other persons holding a recorded ownership interest in or a recorded or filed lien on the property that is subject to the action.

In a change from the limited statute authority previously included in the law, revised section 2735.04 outlines a more detailed list of powers of a receiver, including the powers to (i) bring and defend actions in the receiver’s name; (ii) take and keep possession of real or personal property; (iii) collect rents and other obligations, and compromise demands; (iv) enter into contracts, including, but not limited to the contracts of sale, lease, or, so long as existing lien rights will not be impacted, contracts for construction and for the new completion of construction work; (v) sell and make transfers of real or personal property; (vi) execute deeds, leases, or other documents of conveyance of real or personal property; and (vii) open and maintain deposit accounts in the receiver’s name.  Receivers also have the power to generally do any other acts that the court authorizes.  Therefore, the party seeking the appointment of receiver should consider which specific acts the receiver may, should or should not be authorized to carry out, and provide therefore in the receivership order.  Any funds expended by or on the behalf of the receiver are taxed as court costs or otherwise treated as administrative expenses of the action.

Of the list of enumerated powers given to receivers, the new law brings the most clarity to a receiver’s power to sell property.  The new receivership statute explicitly provides that a receiver may sell property free and clear of liens by private sale pursuant to a written contract between the receiver and the prospective purchaser, by private auction, or by any other method that the court determines is fair, reasonable, and will maximize the return from the property to the receivership estate.  Such power is subject to the approval and supervision of the court, and the court may require the receiver to provide evidence of the value of the property in any manner deemed appropriate by the court.  If the proposed sale is pursuant to a purchase contract, the court may also require the receiver to solicit and consider additional offers.

As in the sheriff sale context, a right of redemption exists for the owner and all parties possessing an equity of redemption in the real property.  However, rather than being based upon the amount of the judgment or decree, the statutory redemption amount for any fee owner under the new receivership statute is the greater of the sale price at which the real property was sold, or the amount equal to the total of all liens upon the real property that were to be canceled as liens upon the real property by virtue of the sale, including all principal, interest, costs, and other amounts secured by those liens through the date of the payment of the full amount to the receiver.  Therefore, the new law may make it more difficult for fee owners to redeem real property sold by a receiver.

Finally, the law creates a Study Committee on Receivership Laws to study matters related to receiverships and payments of public utility services.  Such matters explicitly include (i) the jurisdiction of the Public Utilities Commission and the courts with respect to receiverships; and (ii) the definitions and provisions of the federal Bankruptcy Code that may be used in the Ohio Revised Code.

The revisions to the receiver statute bring structure and clarity to Ohio receivership law, by codifying guidelines that have developed over the years by Ohio courts.  Although these changes do not represent a large departure from the current state of receiverships in Ohio, it is important to understand how to best utilize the receivership statutes in your creditor rights and restructuring matters.  If you would like to discuss the practical application of these revisions to your business, please contact Bob Sanker at rsanker@kmlaw.com, Jason Stitt at jstitt@kmklaw.com, or Joe Lehnert at jlehnert@kmklaw.com.