State Court Receivership 101: Representing the Defendant

When looking at a receivership from the perspective of Representing the Defendant there are several factors to take into account. Here we take a look at some of those factors that come in to play.

Essentially, there are two types of borrowers/defendants in a receivership case, those that have defenses and those that do not. Those that have defenses can be a long topic to cover as these arise in partnership disputes or other cases where perspective comes into play. For this session we’re focusing on those that do not have a defense. Typically, this means bank or lender originated receiverships. These have loan documents in place and the loans are in default, they’ve probably gone through one or more forbearance agreements. In most cases, these forbearance agreements have essentially accepted the appointment of a receivership as an action.

So what is the role of counsel when there is little leverage? There are a couple key pieces to look at here:

• Focus on getting the borrower something they would not get without your efforts.
• Make sure the lender and their counsel will put together a fair receivership order. Specifically:
  • Look at items that take too much corporate authority away from the borrower, items like the right to file bankruptcy;
  • Focus on the receiver’s duties in their relation to the borrower/defendant, items like tax returns and who will file, how they’ll be funded, etc;
  • For all of the order, clarity becomes key. Make sure it’s fair and reasonable.

Finally, make sure you’ve covered yourself, meaning it’s clear how you will be paid. Remember, once you’re in you may be required to file schedules, appear in court, attend depositions, these all require effort and time. You should not be figuring out after the fact how you’ll be compensated.

This article and it’s accompanying video are part of the Receivership 101 series, created in partnership with the Commercial Receivership Association.