Ohio Adopts New Receivership Statute

Business Restructuring, Creditors’ Rights & Bankruptcy Update

Date: January 22, 2015

Effective March 23, 2015, the Ohio Revised Code will contain robust provisions for the court appointment of a receiver, which will expand the statutory grounds for such appointments and expressly authorize enumerated powers for receivers designed to facilitate the receiver’s ability to liquidate assets. In many respects the revised statute codifies a number of existing practices. However, with the new language adopted by the legislature, the ability to exploit ambiguities and discrepancies in judicial interpretations of the powers of a receiver will be diminished, particularly in the debtor-creditor context. In addition, the revised statute requires that “priority consideration” be given to the lender’s choice of a receiver, which should put an end to the practice of some courts to select the judge’s preferred receiver that may have no relationship to the lender.

With respect to the grounds for appointment, the current statute is silent on whether a mortgagor’s consent to the appointment of a receiver is sufficient, and courts have traditionally relied upon the catch-all “usages of equity” basis for such appointments, leading in some instances to wasteful litigation tactics by borrowers. The revised statute now explicitly allows a court to appoint a receiver if the mortgagor has consented or has assigned rents and leases to a lender.

Perhaps most importantly, under the revised statute, the powers of a receiver now expressly include the ability to sell property free and clear of liens by private sale, private auction, public auction or any other method the court determines is fair to the parties. The inclusion of this sale power in the statute resolves disparities in judicial interpretation of the current statute, where some, but not all, courts allowed sales of real property over junior lienholder objection. In addition, the revised statute allows the appointing court to empower receivers to enter into contracts to complete construction

In addition, the statute provides specific considerations the appointing court may take into account in determining an application to sell property free and clear, procedural requirements for free and clear sales as it relates to real property, clarification of a fee owner’s right of redemption, and clear authority for the payment and taxing of receivership costs (including professional fees), among other things.

Finally, the legislation creates a legislative Study Committee to address confusion related to the jurisdiction of the Public Utilities Commission of Ohio (PUCO) to allow public utilities to, under certain circumstances, discontinue services to, or demand additional deposits from, receivership estates. The legislature ultimately did not adopt language suggested by the Ohio Senate modeled after Section 366 of the Bankruptcy Code that would have restricted the effect of PUCO’s current jurisdiction.

FOR MORE INFORMATION

For more information, please contact:

Alan R. Lepene
216.566.5520
Alan.Lepene@ThompsonHine.com

Linda A. Striefsky
216.566.5733
Linda.Striefsky@ThompsonHine.com

Jon S. Hawkins
937.443.6860
Jonathan.Hawkins@ThompsonHine.com

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