The Missouri Commercial Receivership Act (MCRA), passed by the Missouri legislature and just signed into law by Governor Nixon, becomes effective Aug. 28, 2016. It expands, clarifies and fleshes out the existing minimal receivership statute. The MCRA (Sections 515.500 through 515.665 of MO Senate Bill No. 578) outlines a new standardized system for receivership administration under the auspices of the Missouri courts.
However, the statute goes far beyond establishing standards for how and when a receiver in Missouri can be appointed and the powers, duties and responsibilities of a receiver appointed by court order. For example, it is now clear that a receiver, if necessary to operate the business of the receivership estate in the ordinary course of business, can obtain secured financing for the continued operation of the business. The new statute also resolves the longstanding question of whether a receiver has the power and authority to sell receivership estate assets in the affirmative.
Summary of Other Changes
Grounds for Appointment
Some of the circumstances where an application and appointment of a receiver can be pursued are: (a) in actions brought to dissolve an entity in the event of management deadlock; (b) where the applicant has a lien or interest in estate property or its revenue-producing potential, such as under certain enforceable contractual provisions; (c) in order to effectuate and enforce an assignment of rents or other revenues from the estate property; (d) post judgment, in order to give effect to the judgment in conjunction with disposition of estate property according to a judgment or execution thereunder; (e) in conjunction with an attachment of real or personal property; (f) in conjunction with an action seeking to avoid or rescind the transfer of real or personal property on the basis of fraud; (g) in an action if the person or entity is insolvent or generally not paying debts as those debts become due; and (h) if a general assignment for the benefit of creditors has been made.
Different Type of Receivership Action
Significantly, the MCRA establishes a “mini-bankruptcy” type of proceeding in state court where a court-appointed receiver can function and operate the business or property like an operating bankruptcy trustee. The court appointing the receiver becomes the forum for not only the receivership action, but for all adjunct proceedings and claims. Upon appointment, the receiver must provide notice of the receivership to all parties in interest, including the Missouri Secretary of State and state and federal taxing authorities and to the public by publication in the newspaper. The appointing court has exclusive authority and right of control over the receiver and can appoint the receiver as a general or limited receiver.
MCRA Similar to Federal Bankruptcy Provisions
Many subjects covered by the MCRA are similar to federal bankruptcy provisions, such as the following.
Upon appointment of the receiver, an automatic stay applicable to all persons prohibits (a) commencement or continuation of litigation, enforcement of judgments against the debtor or estate property if obtained before the receivership action, (b) any act to obtain possession from the receiver or interfere with the receiver regarding estate property, and (c) any act to create, perfect a lien, or enforce a lien or claim against estate property to the extent the lien secures a claim against a debtor from the period before the receiver’s appointment. Procedures for motions for relief from stay upon good cause shown are possible.
Executory Contracts or Unexpired Leases
The receiver has powers to assume or reject any executory contract or unexpired lease of the debtor upon order of the court following notice and hearing.
Proofs of Claim and Distributions
A mandatory proof of claims process is established for all parties in interest, including all creditors of the debtor, and the claims administration process is administered by the receiver. If claims are not timely served on the receiver in the form and with the notice required by the MCRA, the claim may be barred from participation in any distribution from estate property. Objections to the proofs of claim can be filed and heard by the court. A claims priority scheme is established, with claims of secured creditors and administrative expense claims (including the expenses and fees of the receiver, its attorneys and accountants), having priority over various classes of unsecured claims, which are governed by pro-rata distributions established in the statute.
Abandonment of Estate Property
A receiver can abandon any estate property that is burdensome or of inconsequential value or benefit to the receiver.
Use, Sell or Lease of Estate Property
The receiver also has the power to use, sell or lease estate property, other than in the ordinary course of business, upon application and order of the court and can effect a sale free and clear of liens, claims and all rights of redemption with credit bidding by creditors holding liens against the property to be sold.
Implications of MCRA
Although the MCRA is not a substitute for a federal bankruptcy case, its passage likely will lead to more judicial applications for receiverships within Missouri, because of the certainty now apparent in a receivership action. With that increase and the more robust remedy will come many new legal questions presented by the new statutory scheme, not just for the applicant, the debtor and the receiver, but also for all creditors and other parties in interest that have a connection to the business and property of the receivership estate. It will take time for the judges to fully understand it and for helpful case law to develop.