A well-received change: Revisions to receivership statute in Ohio brings clarity to the process

Smart Business

Changes to Ohio’s receivership statute will expand the circumstances under which a receiver may be appointed, as well as authorize “free and clear” sales, which is perhaps the most anticipated aspect of the revision, says Matthew A. Salerno, a director at Kegler, Brown, Hill + Ritter.

“Seeking approval of ‘free and clear’ sales is not new, but the explicit authority to do so was not found in the current version of the receivership statute,” Salerno says. “The revised statute expressly provides a receiver with the ability to sell property free and clear of liens through a private sale, a public or private auction, or by any other means that the court determines to be fair.”

These changes are scheduled to take effect March 23.

“The revisions create certainty with respect to what a receiver can do, they create clarity of process and in theory, you’re creating some guidelines and procedures that should make the process more efficient for the parties involved,” Salerno says.

Smart Business spoke with Salerno about the revisions to the statute and the role receivership plays in the business sector.

What factors drove the new revisions to Ohio’s receivership statute?

As the number of receivership cases grew, so did concerns about clarity of process. Differing interpretations of a receiver’s ability to sell property developed. All of this contributed in some way to the changes.

For a lot of years, people have said receivership is sort of like bankruptcy outside of bankruptcy. The bankruptcy code and the case law that has come out of it is very well developed. Questions about what you can and cannot do have already been litigated, thought through and dealt with. More specifically, the ‘free and clear’ sale process in bankruptcy is well developed. This is very useful because the more certainty you can offer, the better for all involved.

Buyers want to know that they are getting what they are getting free of claims against the asset that might have been held against the prior owner or the seller. Sellers want to know that the process used to sell the property was valid and authorized. Title companies want to be able to insure title without concerns about process or the authority underlying the sale. Lenders and creditors want an efficient and effective process. Bankruptcy gives you that, but it can be expensive.

There are quarterly fees for a company operating while in bankruptcy. There can be legal fees for parties that don’t exist in receivership proceedings. It follows logically, then, that receiverships have grown in popularity as a restructuring alternative to be considered.

But unlike the bankruptcy code, the Ohio receivership statute was relatively short. The translation most people took from it was you can do pretty much whatever the court says you’re allowed to do. The changes to the statute provide more clarity and guidance.

How have the circumstances under which a receiver may be appointed been expanded?

Under the revised statute, a court can appoint a receiver if the mortgagor has consented or there has been an assignment of rents and leases. Furthermore, a receiver can be appointed to manage the affairs of a corporation, a partnership, a limited partnership or a limited liability corporation.

In addition, ‘priority consideration’ is to be given to the proposed receiver that is suggested by the party seeking the receivership.

How does the revised receivership statute help the business sector?

Ohio’s revised receivership statute can help the business sector because it provides a process that can be used to stabilize or revive a business. It can be used to preserve or protect asset value, or to continue business operations in order to find a way to create value on a go-forward basis. It can be used to buy and sell property, and to protect collateral and creditors.

If you need to make use of a judicial proceeding for any of these purposes, then you should be happy with the changes to Ohio’s receivership statute.