Bill Summaries: H919 NC RECEIVERSHIP ACT REVISIONS.

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  • Summary date: Apr 17 2019 - View Summary

    Identical to S 364, filed 3/26/19.  

    Repeals GS Chapter 23, Articles 1 (Assignments for Benefit of Creditors) and 2 (Petition of Insolvent for Assignment for Creditors). Repeals GS Chapter 1, Article 38 (Receivers).

    Enacts new Article 38A, North Carolina Receivership Act, in GS Chapter 1. Defines terms as they are used in the Article. The Article applies to receiverships pursuant to any provisions of the General Statutes as well as any receiverships instituted under common law and the equitable power of the law.

    Excludes from the scope of the Article any receivership in which the receiver is a state agency or in which the receiver is appointed, controlled, or regulated by a state agency. Prohibits a trust other than a business trust and an estate of a deceased natural person, missing person, or absentee in military service from being a debtor in a receivership under the Article.

    Gives the court appointing a receiver the exclusive authority to direct the receiver and determine all controversies relating to the receivership or receivership property, wherever it is located.

    Allows a receivership to be either a limited receivership or a general receivership. Provides that if the order appointing the receiver does not specify the type, then the receivership is a limited receivership unless and until the court by later order designates otherwise. Allows the type of receivership to be converted by court order at any time.

    Allows a receiver to be appointed by filing a civil action by a creditor or other party in interest in which the sole relief requested is the appointment of a receiver or is combined with, or is ancillary to, a civil action seeking a money judgment or other relief, or in the case of a limited receivership, is part of a power of sale or judicial foreclosure proceeding. Provides that the court may appoint a receiver in such an action with notice to the debtor, all other parties to the action, any judgment creditor who is seeking the appointment of a receiver in any other action, and other parties in interest and other persons as the court may require.

    Allows a Superior Court or District Court judge to appoint a receiver for a debtor that is an individual; limits who may appoint one for all other debtors to a Superior Court judge. Allows a limited receiver to be appointed before judgment to protect a party that demonstrates an apparent right, title, or interest in property that is the subject of the action, if the property or its revenue-producing potential is being subjected to or is in danger of waste, loss, dissipation, or impairment, or has been or is about to be the subject of a voidable transaction. Allows a limited or general receiver to be appointed in a judgment or after judgment to carry the judgment into effect, to preserve nonexempt property pending an appeal, when an execution has been returned unsatisfied and the debtor refuses to apply the property in satisfaction of the judgment, or in an action for which a receiver may be appointed on equitable grounds. Also allows a receiver to be appointed when a person that is not a natural person meets any of the eight specified criteria, including that the person is insolvent, the person is in imminent danger of insolvency, or the person suspends its business for want of funds. Allows a limited receiver to be appointed, in like cases, of the property located within this state of foreign persons. Person is defined in the Article to include both natural persons and entities such as corporations, limited liability corporations, partnerships, and other entities recognized under state law.

    Specifies that an order appointing a receiver does not create a trust.

    Allows any person, regardless of residency, to service as a receiver as long as the court makes written conclusions based on the record that the person is qualified to serve as receiver and officer of the court and is independent as to any party in interest and the underlying dispute. Sets out information that the court must consider when determining a receiver’s qualifications and in determining whether a receiver is independent.

    Requires a receiver to give bond, in the sum, nature, and with conditions determined by the court.

    Provides that a receiver is entitled to all defenses and immunities provided by the state laws for an act or omission within the scope of the appointment. Prohibits suing a receiver personally for an act or omission in administering receivership property without the approval of the court that made the appointment. Allows a party or party in interest to conduct discovery of the receiver concerning any matter relating to the receiver's administration of the receivership property after obtaining an order authorizing the discovery.

    Gives the receiver the power to: (1) take possession of, collect, control, manage, conserve, and protect receivership property with or without the assistance of the sheriff of the county in which the receivership property is located as reasonably necessary; (2) incur and pay expenses incidental to the receiver's exercise of the powers or otherwise in the performance of the receiver's duties; (3) assert rights, claims, causes of action, or defenses that relate to receivership property; and (4) seek and obtain instruction from the court with respect to any matter relating to the receivership property, the exercise of the receiver's powers, or the performance of the receiver's duties. Sets out nine additional powers that are given to a general receiver. Imposes upon a receiver the duties to: (1) act in conformity with the laws of this state and the rules and orders of the court; (2) avoid conflicts of interest; (3) not directly or indirectly pay or accept anything of value from receivership property that has not been disclosed and approved by the court; (4) not directly or indirectly purchase, acquire, or accept any interest in receivership property without full disclosure and approval by the court; (5) to otherwise act in the best interests of the receivership and the receivership property.

    Give the receiver the powers and priority as if it were a creditor that obtained a judicial lien at the time of appointment on all of the receivership property, subject to satisfying the recording requirements as to real property that are described in the statute.

    Assigns the debtor with the duties to (1) assist and cooperate fully with the receiver in the administration of the receivership and the receivership property and the discharge of the receiver's duties, and comply with all rules and orders of the court; (2) immediately upon the receiver's appointment, deliver to the receiver all of the receivership property in the debtor's possession, custody, or control; (3) supply to the receiver information as requested relating to the administration of the receivership and the receivership property; and (4) remain responsible for the filing of all tax returns. Sets out actions the court may take if a person knowingly fails to perform these duties.

    Allows the receiver to employ professionals to assist in carrying out the receiver’s duties; sets out provisions governing such employment. Provides for compensation of the receiver and any professional retained from the receiver from the receivership property. Sets out facts and circumstances that the court is to consider when determining reasonable compensation.

    Allows the court to order the debtor or general receiver to file within 60 days of appointment, or earlier, a schedule of (1) all receivership property and exempt property of the debtor, describing specified information about the property and (2) a schedule of all creditors and taxing authorities and regulatory authorities along with specified information about these entities and their claims.

    Sets out notice requirements for general receiverships.

    Sets out the process under which a party in interest may make an appearance in a receivership. Requires the receiver to periodically file an updated list containing contact information for the debtor, receiver, person joined as parties to the receivership, person known to have asserted a claim or an interest in any part of the receivership property, and all persons who have filed a notice of appearance.

    Sets out requirements for service. Provides that where a provision in this Article, an order issued in the receivership, or a court rule requires an objection or other response to a motion or application within a specific time, and no objection or other response is interposed, the court may grant the relief requested without a hearing. Also provides that where a provision of this Article allows, as to administrative matters, or where it otherwise appears that no party in interest would be materially prejudiced, the court may issue an order ex parte or based on an application without a motion, notice, or hearing.

    Sets out requirements the receiver must meet concerning the preparation and retention of records as well as interim reporting requirements that the court may order.

    Provides conditions under which the court may remove a receiver, and provides for appointment of a successor.

    Allows the court to discharge a receiver and terminate the receivership if the court finds that the appointment was improvident or that the circumstances no longer warrant continuation of the receivership. Allows assessing specified fees and damages against a person who sought a receiver’s appointment if the court finds that the appointment of the receiver was sought wrongfully or in bad faith. Requires the receiver to file a final report upon distribution or disposition of all receivership property or upon completion of the receiver’s duties and requires requesting that the court approve the final report and discharge the receiver. Sets out requirements for the final report.

    Allows the receiver to sue in the receiver's capacity and allows the receiver to be sued in that capacity; sets out provisions governing venue, joinder, and the effect of judgments in such suits.

    Sets out conditions under which a receiver can demand a person or debtor turn over property or owed debt to the receiver. Sets out the process for compelling the turnover of receivership property.

    Allows a receiver to apply in a foreign jurisdiction for appointment as a receiver with respect to any receivership property located in a foreign jurisdiction. Sets out provisions governing foreign receivers seeing to obtain appointment by a court in this state with respect to property located in this state.

    Gives the court appointing the receiver control and supervision over all receivership property and allows the court to order stays to protect the property and facilitate administration of the receivership. Provides that the entry of an order appointing a receiver operate as a stay, applicable to all persons, of an act, action, or proceeding: (1) to obtain possession of receivership property, or to interfere with or exercise control over receivership property, or enforce a judgment against receivership property, other than the commencement or continuation of a judicial, administrative, or other action or proceeding to enforce any lien having priority over the rights of the receiver in receivership property and (2) any act to create or perfect any lien against receivership property, except by exercise of a right of setoff, to the extent that the lien secures a claim that arose before the time of appointment. Sets out additional acts that are stayed by the entry of an order appointing a general receiver and sets out the duration of such stays. Sets out nine actions that are not stayed by the entry of an order appointing a receiver.

    Sets out provisions governing the provision of utility services to receivership property.

    Allows a receiver, without court order, to obtain unsecured credit and incur unsecured debt on behalf of the receivership. Sets out the process under which the receiver may be authorized by the court to obtain secured credit or incur secure indebtedness.

    Allows a receiver, with court approval, to adopt or reject an executory contract of the debtor that is part of the receivership property. Sets out further provisions governing such contracts, including termination of executory contracts, assignments of executory contracts, actions that may be taken upon rejection of an executory contract for the sale of real property, and circumstances under which a receiver may not reject an unexpired lease of real property under which the debtor is the landlord.

    Allows a receiver, with court approval, to use receivership property other than in the ordinary course of business. Allows the court to authorize the transfer of receivership property other than in the ordinary course of business by sale, lease, license, exchange, or other disposition. Allows the court to order that the receiver's sale of receivership property is free and clear of all liens and all rights of redemption and claims of exemption of the debtor, regardless of whether the sale will generate proceeds sufficient to satisfy fully all liens and claims of exemption on the receivership property, except when specified criteria are met. Sets out the timing for a secured party holding a lien and a debtor claiming an exemption in the receivership property to be sold that will not be paid in full from the proceeds of the proposed sale to file an objection to the receiver's motion. Sets out additional provisions governing the transfer of property.

    Allows a receiver, with court approval, to abandon receivership property that is burdensome or not of material value to the receivership.

    Sets out provisions governing a claims process. Allows a receiver of party in interest to file an objection to a claim. Provides the order of priority to be given claims.

    Provides that the holder of each allowed unsecured claim is also entitled to interest to the extent that funds are available to pay in full the allowed unsecured claims.

    Includes requirements for a distribution schedule and providing notice of the schedule.

    Sets out limitations on the effect of a request by a secured party for the appointment of a receiver, the appointment of a receiver, or the application by a secured party of a receivership property to the secured obligation.  

    Amends GS 7A-45.4 by allowing an action in which a general receiver is sought to be appointed for a debtor that is not an individual and has assets with a fair market value of no less than $1 million to be designated as a mandatory complex business case. Require the notice of designation to be filed in such an instance by the debtor, any person with a lien on receivership property, or any creditor of the debtor.

    Amends GS 57D-3-02 to provide that a person ceases to be a member of a limited liability company upon the execution of an assignment for the benefit of creditors under any applicable law or upon the appointment of a general receiver for the person.

    Amends GS 23-38 to provide that an order of discharge under any Article of GS Chapter 23 (Debtor and Creditor) must declare that the debtor must be exempted from arrest or imprisonment on account of any judgment, or by reason of any debt due at the time of such order, or contracted for before that time though payable afterwards, except that (1) no debt, demand, judgment or decree against a debtor who is discharged will be affected or impaired by the discharge, but the same must remain valid and effective against all of the debtor’s property acquired after discharge and the appointment of a trustee, and the lien or any judgment or decree upon the debtor’s property must not in any manner be affected by the discharge and (2) the body of the debtor is free from arrest or imprisonment at the suit of every creditor, as to him only, to whom the notice required may have been given.

    Amends GS 7A-249 by making conforming changes.

    Applies to receiverships commenced on or after January 1, 2020.