Two proposed bills are working their way through the Michigan Legislature that would significantly impact state law pertaining to commercial real estate receiverships.
Specifically, House Bills 4470 and 4471 were approved by the Michigan House of Representatives in early November 2017 and have been sent to the State Senate for consideration.
Receivership is an equitable remedy that allows a court to oversee the orderly management and disposition of property subject to a lawsuit. In Michigan and in many other states, there is no standard set of receivership rules, and the courts of different states have applied widely varying standards.
In an effort to bring greater clarity and standardization to the process, several years ago the Uniform Law Commission (the “ULC”), which is the organization that drafted, for example, the Uniform Commercial Code, determined that it was advisable to have a model act that would govern the power, rights and duties of receivers appointed over commercial real property. The result of this effort is the Uniform Commercial Real Estate Receivership Act (the “Act”), which will be adopted in Michigan if House Bills 4470 and 4471 are passed into law.
The ULC suggests that the Act will provide for greater predictability for litigants, lenders and other parties doing business with a company that is subject to receivership. It’s meant to strike a balance between the need to create structure for this traditionally unstructured legal remedy, while not usurping the court’s role to exercise its equitable powers based on the circumstances of a particular case.
The Act would apply to a receivership for an interest in real property and personal property related to or used in operating the real property. Some of the more significant provisions in the Act, which are outlined in House Bill 4471, include that it would:
- Provide for the appointment, removal, and discharge of a receiver, who would obtain the status of a lien creditor;
- Provide that a secured creditor may obtain the appointment of a receiver over its real property collateral based solely on an agreement in the lien instrument regarding the appointment of a receiver upon default;
- Provide for the various duties and powers of a receiver pertaining to the receivership property;
- Require notice and provide for distribution of receivership property to creditors;
- Set forth the duties of an owner of receivership property;
- Provide that a receivership order would operate as a stay against an act, action, or proceeding to obtain possession of, exercise control over, or enforce a judgment against receivership property, or to enforce a lien against receivership property in certain circumstances.
In addition, House Bill 4470 provides that the Revised Judicature Act would be amended to make clear that an action for the appointment of a receiver would not be the same as an action or proceeding to recover the a debt.