Update to Michigan’s Receivership Act

18 December 2020 Coronavirus Resource Center:Back to Business Blog
Authors: Andrew T. McClain Tamar N. Dolcourt

In 2018, Michigan adopted the Uniform Commercial Real Estate Receivership Act (the “Act”), which only applied to receiverships over commercial real estate.  In October 2020, Michigan enacted an amendment to the Act.  The amendment changed the name of the Act to the “Receivership Act” and makes the Act applicable to all operating businesses in Michigan and to commercial and industrial loans with no real estate collateral. The amendment became effective October 15, 2020.  Below is a summary of the key changes to the Act.

  • The Act now applies to all operating businesses in Michigan, rather than only real estate receiverships.

     

  • A receiver can be appointed in connection with enforcement of any security agreement or lien. Originally, the Act was limited to foreclosure or enforcement of a mortgage. The amendment means a creditor can now use the Act when enforcing any other obligation secured by property or a security agreement.

     

  • The process for appointment of a receiver is more streamlined and consistent with Michigan Court Rules. A court may still overrule a party’s recommendation, but must provide an explanation, including information on that receiver and his or her qualifications.

     

  • A receiver can sell assets free and clear of liens, and liens attach to the sale proceeds. Notice to all creditors and other known interested parties and a hearing are required before any such sale.

     

  • Within seven days after the appointment of a receiver, the owner of the property or business must provide to the receiver the names/contact information for all creditors so that the receiver can then send a notice of the receivership and a copy of the receivership order to all of those parties.

     

  • There is a provision that allows the receiver to adopt or reject executory contracts, similar to the Bankruptcy Code.

     

  • There are expanded protections of the receiver from personal lawsuits. Leave of court must be obtained before instituting any action against the receiver or a professional engaged by the receiver.

     

  • If a distribution to creditors is likely, then the receiver must provide notice and a 90-day period to file claims (similar to a Chapter 7 bankruptcy).

     

  • The receiver shall file interim quarterly reports.

A copy of the amendment with track changes is available here. The amendment ultimately expands the application of the Act and provides for a more structured appointment process.  For more information, please contact your Foley relationship partner or the authors listed below. 

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