Foster Swift Finance, Real Estate & Bankruptcy News
August 26, 2014
Effective May 1, 2014, the Michigan Supreme Court adopted new rules which significantly change how receiverships are administered. The changes to Michigan Court Rules 2.621 and 2.622 were made at the recommendation of the Receivership Committee of the Business Law Section of the State Bar of Michigan. The order adopting the changes can be viewed here (We have identified that the following link is no longer active, and it has been removed.).
A receiver is an officer of the court who takes possession, custody and control of specified real or personal property and then disposes of that property for the benefit of creditors. Previously, receivers in Michigan (mainly) operated according to common law rules. The new rules are intended to expand and update the receivership process while clarifying the rules and requirements for receivers. The amendments to MCR 2.621 and 2.622 deal with the following issues (among others):
Receiver Appointments. The new rules impact the receiver appointment process. In considering a proposed receiver, the court may, but need not, defer to the petitioning party’s selection. Even in a case where the appointment is stipulated to or uncontested, the court has the final say. The amendment to MCR 2.622 states that “the court shall appoint the receiver nominated by the party . . . unless the court finds that a different receiver should be appointed.” After the court makes an “initial determination” that a different receiver should be appointed, it must “state its rationale” for the appointment, taking into account the same criteria that the parties were required to use in their receiver proposal.
Qualifications, Competence and Experience. Amended MCR 2.622 requires a receiver to have “sufficient competence, qualifications, and experience to administer the receivership estate.” The party seeking appointment of a receiver must describe how the proposed receiver is qualified according to specified factors, including experience in the operation or liquidation of the type of assets to be administered, relevant business, legal and receivership knowledge, and the ability to obtain a bond. The amended rule also lists 10 provisions addressing when a proposed receiver is disqualified from serving.
The Order of Appointment. The amended rule contains six provisions that must be included in the receiver order of appointment, plus a catch-all for any other provision “the court deems appropriate.” The mandatory provisions include: (1) bonding amounts and requirements; (2) identification of receivership property; (3) procedures related to the receiver’s compensation; (4) reports to be produced and filed by the receiver; (5) a description of receiver’s duties, authority and powers; and (6) a listing of property to be surrendered to the receiver.
Receiver Duties. Amended MCR 2.622 delineates seven receiver duties. The duties include: (1) filing an acceptance of the receivership within seven days of the order of appointment; (2) serving a notice of acceptance of appointment within 28 days after filing the acceptance to all persons having a recorded interest in the receivership estate; (3) filing an inventory of property of the receivership estate within 35 days after entry of the order of appointment; (4) accounting for all receipts, disbursements and distributions of property of the estate; (5) if there are sufficient funds, requesting creditors file proofs of claim; (6) furnishing information concerning the estate to any party after a reasonable request; and (7) filing with court a final written report and a final accounting of the administration of the estate.
Receiver Powers. In a section that was previously entitled “Powers and Duties,” but now is simply entitled “Powers,” the actions that a receiver may take are identified. These include authorization to bring suit, liquidate personal property of the receivership into money, and to pay the ordinary expenses of the receivership, among others. The receiver may not sell real property without a separate order of the court. Additionally, while the receiver may pay expenses of the estate, it may not distribute funds of the estate to a party without an order of the court.
Compensation Procedures. Amended MCR 2.622 contains a provision dealing with the now standardized manner in which receivers are to be compensated. The order of appointment must identify “the source and method of compensation of the receiver,” and the order must provide that interim compensation may be paid to the receiver, but that all compensation is “subject to final review and approval of the court.” A receiver must file an application for fees with the court, and if no objection is filed, the application may provide for the fees to be deemed approved after the seven day objection period passes.
The changes to the receivership rules are very expansive. The majority of the amendments have been highlighted here. While it is too early to tell what effect the new rules will have in practice, the amendments and clarifications should assist receivers and creditors in the administration of the receivership estate. If you have any questions about the rule changes, or receiverships in general, please contact a Foster Swift attorney.