The Ohio General Assembly is considering significant changes to Ohio's receivership laws, that would, among other things, authorize a receiver's sale of real estate free and clear of liens without a foreclosure proceeding. The proposed changes, introduced in the now-expired term of the 129th General Assembly and reintroduced in the 130th General Assembly, represent the most significant changes in decades.
Ohio Senate Bill 388, introduced to the 129th General Assembly on November 13, 2012, proposed amendments to Sections 2333.22, 2715.21, 2735.02, and 2735.04 of the Ohio Revised Code to add to and clarify the powers of a court-appointed receiver and provide new procedures for the sale of real property by a receiver free and clear of existing liens, claims and interests. Senate Bill 388 did not make it out of the judiciary committee prior to the expiration of the 129th General Assembly’s term.
On January 30, 2013, H.B. No.9 was introduced to the 130th General Assembly. H.B. No.9 contains a number of modifications and clarifications to Ohio’s receivership laws to provide more authority to receivers to act within the guidance of the court to protect, preserve and dispose of real and personal property of a debtor free and clear of existing liens, claims and interests. H.B. No. 9 contains most, but not all, of the proposed amendments set forth in Senate Bill 388.1 If enacted, H.B. No. 9 will resolve the uncertainty of whether or not a receiver has the statutory authority to sell real property outside of a foreclosure process free and clear of liens, encumbrances and interests. In addition, the proposed amendments will eliminate uncertainty regarding the validity of the title to real property sold by a receiver.
If enacted, H.B. No. 9 will:
- Amend Section 2333.22 of the Ohio Revised Code to clarify that the judge who appoints the receiver may forbid a transfer, or other disposition or interference with, property of the judgment debtor not exempt by law. In addition, new subsection (C) of Section 2333.22 will clarify that under the control of the judge who appoints the receiver, the receiver may do any of the acts authorized under Section 2735.04.
- Modify existing laws pertaining to attachment proceedings and the examination of a judgment debtor in proceedings in aid of execution to provide that a receiver appointed in such proceedings, under the control of the appointing judge, may do any of the acts authorized under Section 2735.04.
- Amend Section 2735.01 of the Ohio Revised Code to:
- Provide that a mortgagee may seek the appointment of a receiver to sell the mortgaged property when it appears that the mortgaged property is in danger of being lost, removed, materially injured, diminished in value, or squandered, or that the condition of the mortgage has not been performed, and the property is probably insufficient to discharge the mortgage debt or the mortgagor has consented in writing to the appointment of a receiver.
- Clarify that a receiver may be appointed when not only a corporation, but also a limited liability company, partnership, limited partnership, or other entity has been dissolved, is insolvent, is in imminent danger of insolvency, or has forfeited its entity rights.
- Clarify that a receiver may be appointed to manage the affairs of a corporation, limited liability company, partnership, limited partnership, or other entity that has been dissolved, is insolvent, is in imminent danger of insolvency, or has forfeited its entity rights.
- Provide for the appointment of a receiver to enforce a contractual assignment of rents and leases.
- Amend Section 2735.02 of the Ohio Revised Code to prohibit any party, attorney for a party or person interested in the receivership action from being appointed receiver in the action except by consent of all parties to the case and all other persons holding a recorded ownership interest in or financial lien on the property that is subject to the proceeding. In addition the proposed amendments would clarify that no person except a resident of Ohio can be appointed or act as receiver of a corporation, partnership, limited liability company, or other entity created under the laws of Ohio. In selecting a receiver, priority consideration must be afforded to any of the qualified persons nominated by the party seeking the receivership, provided, however, that no nomination of qualified persons for the receivership is binding upon the court.
- Create new Section 2735.04(B) of the Ohio Revised Code to clarify the powers of a receiver by providing that, under the control of the judge and court that appointed the receiver, the receiver may:
- Bring and defend actions in the receiver’s own name as receiver
- Take and keep possession of real or personal property
- Receive rents, collect other obligations and compromise demands
- Generally enter into contracts, including, but not limited to, contracts of sale, lease or construction and contracts for the completion of construction work
- Make transfers of real and personal property
- Execute deeds, leases or other documents of conveyance of real and personal property
- Open and maintain deposit accounts in the receiver’s name
- Generally do any other acts that the court authorizes
- Create new Section 2735.04(C) of the Ohio Revised Code to provide that any funds expended by or on behalf of the receiver, including receivership fees, fees for professionals assisting the receivership and those expended in entering into or performing contracts shall be taxed a courts costs or otherwise treated as a priority administrative expense of the proceeding. The court may from time to time require an additional deposit to cover such administrative expenses by the party that sought the receivership or by all parties likely to be directly benefitted by the construction work.
- Create new Section 2735.04(D), subsections (1) through (10), to provide that a receiver, subject to court approval and the lengthy requirements set out in this section, may sell property free and clear of liens by private sale pursuant to a written contract between the receiver and the prospective purchaser, by private auction, by public auction, or by any other method that the court determines is fair to the owner of the property and all other parties with an interest in the property, is reasonable under the circumstances and will maximize the return from the property to the receivership estate, taking into account the potential cost of holding and operating the property. The proposed amendments contain a series of procedural and notice requirements that a receiver will need to comply with in order to sell the property free and clear of liens. Upon the recording of a deed by the receiver to the purchaser, the liens of secured creditors will be transferred to the proceeds of the sale with the same priority as such liens had prior to the sale.
- Create a requirement that the court must establish a reasonable time, but not less than three days, after the date of the order approving the sale or the sale process for the owner and all other parties possessing an equity of redemption in the property to exercise their redemption in the property or to have that equity of redemption forever barred.
H.B. No. 9 is supported by the Ohio Judicial Conference and the Ohio State Bar Association. A full version of H.B. No. 9 can be found here.
McDonald Hopkins' team of business restructuring, commercial litigation and real estate attorneys have significant receivership experience and are prepared to provide counsel to receivers, lenders and other parties in receivership proceedings.
1H.B. No. 9 does not contain the controversial sale confirmation process and potential thirty day stay of confirmation proposed in Senate Bill 388.
For more information, please contact:
Scott N. Opincar 216.348.5753
The twists and turns of business restructuring are complex and demanding. Our attorneys approach every case with creativity and insight to ensure the solutions are cost-effective and practical. At every turn, you can be confident that our attorneys will guide you through the process, always providing practical and informed advice. We are positioned to respond to the special demands of a variety of matters in a wide range of industries, including health care, automotive, retail/distribution, real estate/construction, telecommunications, and mining/exploration.