Ohio’s Newly Enacted Receivership Statute

Ohio’s receivership statute has officially been overhauled after Governor John Kasich signed House Bill 9 into law. The new law, which passed through the Ohio House in April 2013, modifies and clarifies the way receivers are appointed and defines and expands the powers of receivers in Ohio. Below is a synopsis of the major revisions.

To start, the new law revises Ohio Revised Code Section 2735.01 by expanding the number of factual circumstances in which receivers may be appointed. For example, the revised statute now provides for the appointment of a receiver to enforce a contractual assignment of rents and leases as well as when a mortgagor consents to a receivership in foreclosure proceedings. Further, while the original statute explicitly stated that receivers could be appointed in cases where corporations have been dissolved, saying nothing about other types of entities, the revised statute specifically adds LLCs, general partnerships, limited partnerships, and other entities to that list and allows receivers to be appointed to manage the affairs of any such entity. While this change merely codifies situations where Ohio courts have consistently appointed a receiver in the past, these revisions to R.C. 2735.01 will allow for more consistent application by courts across the state.

Another important change, which appears in R.C. 2735.02, is that receivers with an interest in a lawsuit’s subject can only be appointed following approval of parties holding an interest in property subject to the receivership. The statute also now provides that courts may give priority to the receiver candidate suggested by the party seeking a receivership. (The statute confirms the obvious by stating, however, that courts are not bound by any receiver nomination.)

The powers of receivers are outlined in revised R.C. 2735.04. As a preliminary matter, R.C. 2735.04 states that a receiver’s powers must be outlined by a judicial order entered in the case in which the receiver is appointed. Then, in revised subsection (B), the statute specifically states that a receiver’s powers include the ability to take possession of real property, enter into contracts, execute deeds or leases, and open deposit accounts in the receiver’s name. The statute continues to permit receivers to bring actions in their own name, collect rents, and sell or transfer property.

As for the sale and transfer of property, the statute now provides that receivers can sell property free and clear of liens by any method a court determines is fair. Naturally, this power is subject to the court’s “approval and supervision,” and courts are authorized under the statute to require receivers to provide evidence of the property’s value.  At the sale stage, courts can require that receivers actively solicit more offers for purchase to assure a fair price.

Furthermore, real property sales will subject receivers to certain procedural duties, some of which were already part of the case law emerging from receivership cases. The receiver must provide an application proposing sale terms, ten days’ written notice to parties interested in the action or real property, and opportunity for a hearing. In the end, for a sale to be finalized, the court must still issue an order for the real property’s disposition. After the sale is approved, however, no further confirmation will be needed from the court to finalize the sale.

As a property owner’s right of redemption remains critical, the law still recognizes that owners have the right to redeem the property for a brief period after sale (3 days or less). Properties can be redeemed and the receiver’s sale can be avoided by paying off the sale price and the value of all liens cancelled to make the sale free and clear of all liens. If, however, the property is not redeemed, the receiver must follow certain guidelines in transferring it to the new purchaser. The receiver will need to file with the court a certificate and report of sale, which must be served upon all parties. The report includes information such as a certificate of compliance with the order allowing the sale, the purchase price, the purchaser’s name, and the net proceeds after sale.

Finally, under the new law, money spent by receivers is treated as administrative court costs, including money spent exercising the right to “enter into contracts.” Expenses incurred in connection with entering into contracts may lead to court orders requiring deposits to cover these expenses, to be funded solely by parties consenting to the contracts entered into by the receiver.

While the new law does not herald groundbreaking changes to the state of receivership law, it adds structure and certainty to Ohio receivership law and codifies guidelines Ohio courts have developed over the years. The attorneys at Meyers, Roman, Friedberg, & Lewis are nuanced in receivership law and understand its implications and practical application for our clients. If you would like to discuss how these changes could affect your business, please contact Peter D. Brosse, Chair of our Creditors’ Rights & Bankruptcy Law Group, at pbrosse@meyersroman.com (216-831-0042, ext. 144), Ronald P. Friedberg at rfriedberg@meyersroman.com (216-831-0042, ext. 136) or Alan Dailide at adailide@meyersroman.com (216-831-0042, ext. 187).