Receiverships and assignments for the benefit of creditors (ABCs) can be important tools for banks and other lenders when a borrower is suffering financial distress. Because they are often cost-effective and efficient, receiverships are being used increasingly throughout the country, and ABCs are commonly utilized in many states. In Minnesota, however, the statutes regarding receiverships and ABCs were outdated or largely ignored; as a result, receivership practices and procedures are not uniform, and ABCs are almost never used. This situation should soon change, as extensive revisions to the existing Minnesota statutes were passed by the Minnesota Legislature in March 2012, and take effect on August 1, 2012.

In a receivership, a court orders a receiver to take involuntary possession of property of another. Generally, the receiver’s job is to manage or liquidate the property in order to preserve or maximize its value for the owner’s creditors. The revised statute (Chapter 576) delineates two types of receiverships. A “limited receivership” has the purpose of holding property in safekeeping while some procedure, such as a foreclosure, is pending. The purpose of a “general receivership” is to liquidate all assets and distribute the proceeds to creditors. The revised statute also provides rules specific to receivers appointed in the mortgage foreclosure context. For example, it gives the receiver the discretion, after payment of expenses to preserve the property, to pay real estate taxes, insurance, and statutory obligations related to security deposits in any order, rather than specifying a strict priority of payment.

An ABC is a procedure by which a debtor voluntarily assigns its property to an assignee who is responsible for using the property to pay the debts of the debtor-assignor. The revised statute (Chapter 577) provides that ABCs generally be treated under the same framework as receiverships in Chapter 576, but includes some provisions specific to ABCs, including: (i) providing a form for assignors to use to initiate the ABC; (ii) requiring that an assignment be filed with the court and, if real property is involved, that it be filed in the real property records; and (iii) granting the assignee the authority to convey any real property described in the assignment.

Takeaway

The revisions contained in Chapters 576 and 577 clarify the rules for receiverships and ABCs in Minnesota. To fully understand and take advantage of the benefits provided by receiverships and ABCs, lenders should be aware of the significant procedural and substantive changes created by these statutory revisions.