Bill Summary for S 364 (2019-2020)

Summary date: 

Jun 25 2020

Bill Information:

View NCGA Bill Details2019-2020 Session
Senate Bill 364 (Public) Filed Tuesday, March 26, 2019
AN ACT TO ENACT THE NORTH CAROLINA COMMERCIAL RECEIVERSHIP ACT; REPEAL CORRESPONDING ASSIGNMENTS FOR THE BENEFIT OF CREDITOR STATUTES; AND MAKE AN ACTION FOR THE APPOINTMENT OF A GENERAL RECEIVER FOR CERTAIN BUSINESS ENTITY DEBTORS A MANDATORY COMPLEX BUSINESS CASE, AS RECOMMENDED BY THE NORTH CAROLINA BAR ASSOCIATION.
Intro. by Bishop.

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Bill summary

House committee substitute to the 3rd edition makes the following changes.

Amends long and short titles to limit the scope of the bill to commercial receivership (was, receivership).

Section 1

Amends the title of new GS Chapter 1, Article 38A to clarify that the article applies to commercial receivership.  Makes conforming changes throughout.

Amends new GS 1-507.20(b) to add definitions of consumer debt and individual business debtor. Revises definition of court to provide that when a receiver is appointed to partition real property, the term refers to the clerk of superior court that has jurisdiction over the receiver and the receivership rather than the superior or district court in which the receivership is pending. Revises the definition of entity to mean a person other than an individual (was, a natural person) and makes conforming changes throughout. Revises the definition of property to include real property owned jointly by the debtor and the debtor’s spouse that is held by them as a tenancy by the entireties, unless the spouse is also a debtor in the receivership and there is joint debt owed to one or more creditors.

Further amends GS 1-507.20(b) to revise the definition of receivership property to exempt property of the debtor that is subject to an order issued pursuant to GS 1-362 (debtor’s property ordered sold), GS 1C-1601(a) (certain real and personal property of the debtor that the debtor or the debtor’s dependent uses as a residence or certain interests in a burial plot), GS 1C-1602 (personal property and homestead exemptions in Article X of the North Carolina Constitution), GS 25C-4 (for a debtor who is an art dealer, fine art on consignment with the debtor), GS 30-15 (allowance for a surviving spouse of a decedent/debtor), GS 30-17 (allowance for minor children of a decedent/debtor), and GS 135-9 (certain state retirement funds). These exemptions were previously included in GS 1-507.21. Exempts from receivership property in a general receivership of an individual business debtor, the principal residence of the business debtor or any consumer good if their value is less than the combined amount of all liens and rights of redemption and allowed claims of exemption in the residence or consumer good.

Revises GS 1-507.21, which addresses applicability of the new Article and of common law. Amends subsection (a) to clarify that the Article applies only to cases in which the debtor is an entity or an individual business debtor. Amends subsection (b), which identifies the exclusions from the Article, to include receiverships in which the receiver is appointed for a ward or a ward’s estate pursuant to GS 35A-1294, individuals other than individual business debtors and receiverships of those individuals.  Adds new subsection (d) to provide that the Article does not interfere with the right to file a bankruptcy case pursuant to Title 11 of the US Code.

Revises GS 1-507.24(a) to provide that for an individual business debtor, a creditor to whom only consumer debt is owing may not file a civil action or motion for receivership.

Amends and expands subsection (b) to clarify authority related to debtors that are individual business debtors and entities. Also provides that a senior resident superior or district court judge may transfer jurisdiction and supervision of a receivership from one judge to another. Adds new subdivision (b)(2) to provide that when a receiver is appointed for an entity, the senior resident superior court judge must notify the Chief Justice, who then assigns the case to a judge. Until assigned, the judge who appointed the receiver retains jurisdiction. This subsection does not apply to an appointment of a receiver in a pending action to partition real property pursuant to GS 46A-28.

Revises subsection (c) to change the term “revenue producing potential” to “rents and profits”. Revises subsection (d) to clarify that it applies only when a receiver is appointed after a judgment (was, in a judgement, after a judgment, and when appointed on equitable grounds). Specifies that the receiver has the authority to dispose of property according to the judgment. Revises subsection (e) to provide that it applies to both entities and individual business debtors (was, entities). Revises subsection (h) to require 10 days’ notice prior to appointing a receiver.

Adds new subsection (k) to authorize the court to grant judgment against a party who files a motion to appoint a receiver in certain cases if the court denies the motion and determines, after notice and hearing, that the motion was filed in bad faith.

Revises GS 1-507.25 (c)(5) to clarify that, when a court is considering whether proposed receiver is independent, it can consider whether the proposed receiver has participated in any action that constitutes a violation of GS 23-46, which prohibits solicitation claims of creditors in proceedings.

Revises GS 1-507.28, which governs powers and duties of receivers, to add new subdivision (a)(5) to provide that GS 1-507.45 applies to a receiver’s authority to take possession of, use, control, manage, or transfer property that is subject to an exemption and therefore not totally receivership property. Revises subdivision (b)(6) to provide that the receiver has the authority to both manage and operate any business constituting receivership property (was, operate). Adds new subdivision (b)(9) to authorize a general receiver for an entity to file a bankruptcy case pursuant to Title 11 of the US Code.  Revises subsection (d) to authorize the court to not only modify the receiver’s powers and duties but also limit them to such part of the property it determines will result in sufficient proceeds to pay allowed claims in full.

Revises GS 1-507.32(a) to provide that the court shall order (was, may order) the debtor or a general receiver to file schedules of property and claims within 60 days from the time of appointment.

Revises GS 1-507.34(b), which authorizes the court to require a receiver, including limited receivers, to file and update a master service list. Revises subsection (d) to clarify that service must comply with Rule 5 of the NC Rules of Civil Procedure.

Revises GS 1-507.35 to add new subsection (d), which requires the court to schedule status hearings on the receivership upon motion of the receiver, any party in interest, or when the court deems it appropriate. Notice must be provided to all persons on the master service list.

Revises GS 1-507.37(a), related to termination of a receivership. Adds provision governing termination of receivership of an individual business debtor if the court finds that the individual did not qualify to be a debtor.

Adds new GS 1-507.38A to establish a procedure for determining individual business debtor’s exempt property. Specifies that the provisions of GS 1C-1603 apply, except as provided in the Article and in the statute, including detailed requirements in subsections (1)-(3) related to service of notice on the individual business debtor of the debtor’s rights, the debtor’s right to request a hearing and file a statement, the right of the receiver or any party in interest to file an objection to the statement. Subsection (4) governs the forms and terminology that must be used for designating exempt property pursuant to this section, conduct of hearings, and valuations of property. Subsections (5)-(8) govern appeals of such orders, continuing enforceability of designations of exempt property made before a receiver is appointed, the process for amending the exemption designation for property acquired after the designation, and the application of the statute to a case of limited receivership. 

Revises GS 1-507.39(b) to clarify that a creditor who has a lien or an interest in a debtor’s property (was, lien) may retain possession, custody, or control of the property in certain circumstances.

Revises GS 1-507.50(a)(2), regarding priority of claims, to clarify that the allowed fees and expenses incurred by the receiver includes any compensation advanced for the valuation of the debtor’s property. Adds new GS 1-507.50(d) to provide that proceeds of property owned by the debtor and the debtor’s spouse as tenants by the entirety may only be distributed to holders of unsecured claims owed jointly by both.

Makes technical and clarifying changes to GS 1-507.27(b), GS 1-507.29(b), GS 1-507.30(a)(2), GS 1-507.33, GS 1-507.34(f), GS 1-507.37(e), GS 1-507.42(f)(9), GS 1-507.44(a), GS 1-507.45(c), and GS 1-507.52(b).

Section 2

Repeals GS Chapter 1, Article 38, Part 2 (was, all of Article 38), which governs receivers of corporations.

Section 3

Revises changes to GS 7A-45.4, which governs designation of complex business cases, to clarify and conform the language to the revisions made to Article 38A and to increase the threshold for the debtor’s assets from two million to five million dollars to warrant designation as a complex business case if the debtor is not an individual business debtor. 

Makes technical changes to Section 3(b).

Adds new provision amending GS 46A-28, which governs the court’s authority to make orders before final determination of a proceeding, to revise the language regarding appointment of receivers to specify the appointment of a limited receiver for the real property pursuant to GS Chapter 1, Article 38A (was, receivers). 

Section 4

Revises the effective date to January 1, 2021 (was, January 1, 2020).

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