By Scott H. Hogan
and Patricia J. Scott
A new amendment was recently enacted in Michigan which expands the scope of receivership proceedings, which are a liquidation alternative to bankruptcy. Previously, the receivership statute in Michigan applied only to receiverships over commercial real estate. Now it is applicable to all operating businesses in Michigan, and commercial and industrial loans irrespective of whether real estate collateral is involved.
In 2018, Public Act 16 of 2018 was signed into law, which created a Uniform Commercial Real Estate Receivership Act ("UCRERA") in Michigan. Effective October 15, 2020, an amendment became effective that renames the UCRERA to "Receivership Act", which better reflects the statute's now broader applicability.
Under the Receivership Act, more creditors will have the opportunity to seek the appointment of a receiver. Prior to passage of the amendment, the UCRERA was generally limited to foreclosure or enforcement of a mortgage on commercial real estate. The revised statute replaces "mortgage" with "security agreement or lien," which significantly expands the scope of a creditor's ability to seek, and a court's authority to appoint, a receiver.
The amendment streamlines the process for appointment of a receiver and makes the process consistent with Michigan Court Rule 2.622. It sets forth a specific process (i) for selecting a receiver, and (ii) for objecting to the appointment of a receiver. It lists factors that must be considered by a court when appointing a receiver. It also provides a means for a party to object to a receiver that was appointed by the court but not nominated by one of the parties.
The amendment also provides that the owner of the receivership property must, "within 7 days after the entry of the order appointing the receiver, deliver to the receiver a list containing the name and address of all creditors and other known interested parties of the receivership estate." The receiver must provide notice to creditors and interested parties within 7 days of receipt, although the court has discretion to waive this requirement.
The amendment also requires notice and an opportunity for a hearing before the receiver can transfer receivership property outside the ordinary course of business, and clarifies that receivers must file interim reports on a quarterly basis.
In sum, the amendment expands the application of the Receivership Act in Michigan to situations beyond commercial real estate and provides for a more structured process for the appointment of receivers.
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Scott H. Hogan and Patricia J. Scott are shareholders at Foster, Swift, Collins, & Smith PC. Hogan practices in the areas of real estate, municipal and library law, business law, receiverships, and bankruptcy. As leader of the firm's Finance, Real Estate and Bankruptcy law practice group, Scott concentrates her practice in the areas of bankruptcy, finance, collections, real estate, and commercial litigation.
