With little fanfare, the Michigan Supreme Court recently issued an order that significantly changes the rules related to the appointment of receivers. The Order (ADM File No. 2012-30) amends Michigan Court Rules 2.621 and 2.622 as follows:
- Establishes rules for the appointment of receivers and the orders appointing them
- Sets forth criteria that prospective receivers must meet
- Clarifies the duties of receivers
- Sets forth procedures for the payment of the fees of receivers and their professionals
The new Court Rules, effective May 1, 2014, were adopted after the portions of the originally proposed revisions regarding the selection of receivers were poorly received by judges and judicial groups around the state. While the new provisions raise questions that will generate new case law and cannot be fully addressed here, certain key points are summarized below.
Changes to scope
The initial change is to the scope of the rule. The old 2.622 technically applied only to post judgment proceedings, but the deletion of “in Supplementary Proceedings” in the new title of 2.622 makes it clear that the new Court Rule applies to all receivers. The new Court Rules also clarify to whom the receiver owes fiduciary duties limiting these obligations to “all persons appearing in the action or proceeding” as opposed to all creditors as has been held to be the rule in some cases where the receiver order was broad, vague or did not limit the receiver’s duties.
The procedure for the selection of a receiver is also significantly altered. The new section states that once the court determines that a receiver is appropriate, “the court shall select the receiver in accordance with this subrule” and mandates that the receiver “have sufficient competence, qualifications, and experience to administer the receivership estate”. If the moving party proposes a receiver and the nonmoving party does not object within 14 days, or the parties stipulate to the receiver, and the moving party describes how the proposed receiver is qualified based upon specified factors, then the “the court shall appoint the receiver nominated by the party or parties…” However, this does not give the parties the ultimate ability to select the receiver as it goes on to state “…unless the court finds that a different receiver should be appointed” while providing no guidance as to when it is appropriate for the court to overturn the parties’ selection of a qualified receiver. If the court makes an “initial determination” that a different receiver should be appointed, then it must “state its rationale” after considering the same factors required to be used by the parties in their proposal for a receiver. It is interesting to note that, despite establishing a qualification procedure, setting forth six specific qualification requirements, and 10 disqualification rules, there is no rule regarding how the parties with “skin in the game” object to a situation where the court overrules their unopposed suggestion or explicit agreement on who will be the receiver. Apart from requiring courts to articulate specifics on how receivers meet the standards regarding competence, qualifications and expertise, courts will still have the ability to appoint different receivers than the qualified receiver selected by the parties.
Requirements for orders appointing receivers and other duties
The new Court Rules require that the order appointing the receiver contain provisions:
- Bonding amounts, which are addressed elsewhere in the new provisions, must be specified,
- The receivership’s real and personal property must be specified,
- Procedures regarding compensation of the receiver,
- Reporting requirements,
- A description of the receiver’s duties, and
- Other items as the court deems appropriate.
Certain duties are also required to be fulfilled by receivers, including providing notice to parties with interests in receivership property, filing an initial inventory in 35 days, and establishing a claims procedure. The new Court Rules also permit receivers to sell personal property without court orders, but require separate court orders for sale of real property, which apparently could be done by stipulation as this sub-section does not require notice or a hearing.
The new Court Rules standardize the procedures for receivers to be compensated. The appointment order must specify the source of compensation, shall specify that "interim compensation may be paid to the receiver," and that all compensation is subject to a final review and approval by the court. While the provision does not state how often receivers can seek compensation, it does provide that they must file applications with the court with a notice stating that if no written objection is filed and served within seven days, it shall be deemed approved. Applications for interim or final fees must include detailed time descriptions of services, amounts requested, the amounts previously paid, amounts paid by sources other than the receivership, and a description of any fee sharing arrangements. If a party objects or if the court determines that a hearing should be held, then the court shall schedule a hearing and notify all parties of the hearing.
Although the original revisions were proposed to address a need to expand and update the receivership rules in Michigan, it is unclear whether these new Court Rules achieve this goal, except in the area of broadly articulating qualification standards for receivers, establishing streamlined standard procedures for the compensation of receivers, eliminating issues caused by vague receiver orders, and standardizing reporting requirements. It is also unclear as to how or if certain of the new provisions governing the administration of receiverships, such as compensation procedures, will apply in currently pending receiverships.
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