On April 30, 2019, Governor Lawrence Hogan signed into law (Chapter 284) the Maryland Commercial Receivership Act (MCRA) (new Title 24 to the Commercial Law Article). MCRA will go into effect on October 1, 2019. It is the product of a special committee of Maryland bankruptcy and real estate attorneys as well as non-attorneys who have served as receivers. The statute was passed unanimously by both chambers of the Maryland General Assembly.
Receiverships today are used in various situations ranging from preserving commercial real estate from waste and capturing rents pending sale to a complete liquidation of a distressed operating business and a distribution of the liquidation proceeds to creditors. Closely related to a receivership is an assignment for the benefit of creditors (ABC), which is an insolvency proceeding initiated by a business that has appointed an assignee to take possession and control of its assets. MCRA will be applicable to receivership and ABC proceedings.
While Maryland case law on receiverships dates back to the early 1800s and is derived from English common law dating back earlier, there is little case law and there was little statutory guidance before MCRA regarding the appointment and powers of a receiver. Although court rules were adopted to fill in some of the gaps, the rules do not apply in all receivership proceedings and have not been updated in many years. The result of having little guidance has been uncertainty and lack of uniformity in court decisions regarding a receiver’s rights, duties and powers.
MCRA will apply to most commercial real estate receiverships, receiverships filed in connection with the dissolution of a corporation, and any other receivership in which a receiver is appointed to wind up the affairs of a business. Receiverships initiated by a Maryland governmental regulator are excluded from the scope of the statute unless the regulator or receiver appointed at the regulator’s request elects to have MCRA apply, or the court orders the application of the statute for cause shown. Insurance delinquency proceedings will not be subject to MCRA unless the Maryland Insurance Commissioner, or receiver appointed at the commissioner’s request, elects to have MCRA apply.
Under MCRA, the receiver is given the power to sell property free and clear of liens (provided certain conditions apply), assume or reject executory contracts, operate a business, avoid preferences and fraudulent transfers, and hire and compensate professionals. The statute requires court approval for some of the receiver’s actions, but not all. Unless the circumstances require otherwise, the court may issue orders only after notice and an opportunity for a hearing.
Except in the case of a real estate receivership, the appointment of a receiver will result in an automatic stay of all actions, with certain exceptions. A creditor may obtain relief from the stay for good cause. The court is granted the power to separately stay actions although it may not stay the action of a governmental regulator exercising its police or regulatory power.
If you would like to discuss MCRA, please contact Lawrence D. Coppel or Edward J. Levin. Mr. Coppel chaired the committee that initially drafted MCRA and testified in support of its enactment before the House and Senate committees. Mr. Levin was a committee member.