Missouri has joined the ranks of those states that have modernized their receivership statutes. The Missouri Commercial Receivership Act (“MCRA”) becomes effective on August 29, 2016. Codified in Chapter 515 of the Missouri Revised Statutes, the MCRA recognizes the increasing importance of non-bankruptcy solutions to the problems caused by distressed businesses. The new statute will promote more robust asset sales from Missouri receiverships, with corresponding benefits to creditors and other stakeholders in the troubled company.
The MCRA recognizes two types of receivers: (a) general receivers, who are appointed to take possession and control of all or substantially all of a debtor’s property, and (b) limited receivers, who are appointed to take possession and control of only limited or specific property of the debtor. A lienholder that seeks appointment of a receiver for its collateral may request either a general receiver or a limited receiver. The order of appointment must designate the receiver as either a “general” or “limited” receiver.
The MCRA imports many basic bankruptcy concepts into Missouri state law, albeit with a twist. For instance, an automatic stay of most actions to collect from the debtor goes into effect immediately upon the appointment of a receiver, but the stay will dissolve after sixty days unless the court extends it. The receiver can also assume or reject an executory contract or unexpired lease, but the receiver may not assign the executory contract or lease without the consent of the non-debtor party.
The receiver has broad litigation rights. The receiver can assert any rights or claims that the troubled company could. In addition, the receiver can assert claims arising under the Missouri Uniform Fraudulent Transfer Act.
The receiver can incur both secured and unsecured debt. It can also abandon property. And the receiver can employ professionals to assist in the performance of the receiver’s duties. The MCRA contains detailed rules about providing notice of the proceeding and creates a process to adjudicate the claims of both secured and unsecured creditors.
The new receivership statute also clearly permits the receiver to sell property of the receivership estate outside the ordinary course of business, and the purchase can, in many cases, be made free and clear of many kinds of liens, with the liens to attach to the sale proceeds. A secured creditor with a lien on the property to be sold may credit bid some or all of its claim.
The MCRA will change significantly the receivership practice in Missouri. Pre-MCRA, the Missouri statute governing the appointment of receivers contained fewer than 200 words, and nearly all of the case law interpreting the statute was decades old. This created an environment where the parties could attempt to adapt a receivership to fit the particular facts of the case, but there was always an undercurrent of uncertainty.
One of the most nettlesome problems under the pre-MCRA law involved title insurance on sales by a receiver. Some title companies refused to issue title policies on real estate sold through receiverships because the old law did not explicitly authorize a receiver to sell property, but other title companies routinely issued title policies in similar circumstances.
The new receivership statute should clear up any lingering confusion on this point: receivers are given explicit authority to sell assets, including real estate. This change alone should promote more certainty in receivership asset sales.
The MCRA should be a welcome addition to all market participants. While some of the flexibility of the old receivership practice will be constrained, the MCRA should on balance result in more stable and predictable outcomes for all stakeholders.
Editor’s note: For more on Missouri receivership law, see chapter 59 of Strategic Alternatives For and Against Distressed Businesses, an annually updated treatise containing state-by-state descriptions of receivership laws and procedures. California receiverships and federal equity receiverships are discussed elsewhere on Commercial Bankruptcy Alternatives, which also provides an introduction to receiverships.
 Mo. Rev. Stat. § 515.575.
 Mo. Rev. Stat. § 515.545.
 Mo. Rev. Stat. § 515.545.
 Mo. Rev. Stat. § 515.590.
 Mo. Rev. Stat. § 515.640.
 Mo. Rev. Stat. § 515.605.
 Mo. Rev. Stat. §§ 515.520 and 515.615.
 Mo. Rev. Stat. § 515.645.
David Warfield is a Partner in the St. Louis office of Thompson Coburn, LLP and the Co-Chair of its Financial Restructuring Practice Group. He has represented all types of stakeholders in distressed businesses, including debtors, secured creditors, creditor committees, liquidating trustees, receivers and asset purchasers. He is a Fellow in the American College of Bankruptcy…
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