Mark Manski is founder and
principal of Mark Manski LLC.
He provides a range of financial
restructuring advisory services to
the financial services industry and
to companies in distress, capital
growth, or entrepreneurial situations.
Manski has led workout units for
several financial institutions, has
led or been a member of senior
executive management teams
of companies in distress, has sat
on several boards of directors/
LLC advisory committees, and has
been a member of a number of
unsecured creditors’ committees.
Allen G. Kadish is a partner with
DiConza Traurig Kadish LLP in New
York. His practice includes business
law, corporate crisis management,
complex transactions, Chapter 11
restructurings, workouts, creditors'
rights, and business litigation, and
covers a wide range of industries.
Kadish currently serves as chairman
and is past president of the TMA
New York Chapter. He holds a
bachelor’s degree from Rutgers
College and a law degree from
the Benjamin N. Cardozo School
of Law at Yeshiva University.
Rachel Ehrlich Albanese is
senior counsel in the Financial
Restructuring group of Akin Gump
Strauss Hauer & Feld LLP. She is
experienced in representing debtors,
secured and unsecured creditors,
equity holders, and purchasers, and
handles a wide range of restructuring
matters, including Chapter 11 cases,
out-of-court workouts, and cross-border insolvency proceedings.
Albanese holds bachelor’s and law
degrees from the University of
Pennsylvania, where she was editor-in-chief of Penn Law’s Journal of
International Economic Law.
due, perform other legal obligations,
or control a fraud-riddled enterprise.
Cooperation between creditor and
borrower, while beneficial, is not crucial
to the success of this proceeding.
A receiver will generally be considered
only after a related judicial action
has already commenced. In general,
the appointment of a receiver is seen
as a drastic remedy justified only
in extraordinary circumstances.
A more generalized use of this
proceeding occurs through the
judicial enforcement of sophisticated
real estate mortgage documents that
permit the appointment of a receiver
upon application of a mortgagee at
or about the time of commencement
of a foreclosure action.
A receiver is appointed by, and acts
under the supervision of, the court
and is generally empowered to take
control over specified assets and act in
accordance with applicable law and the
instructions set forth in the relevant
court order. A receiver’s direction may
be extremely broad and analogous
to a liquidating trustee, or it can be
rather narrow and limited to specified
assets. The responsibilities of a receiver
are not unlike those of a bankruptcy
trustee or an assignee in an ABC.
Appointment of a receiver does not,
by itself, invalidate all responsibilities
of the borrower, however, and the
appointment order should be clear
and detailed with respect to the scope
of authority of the receiver and the
continuing roles of the various parties.
Moreover, appointment of a receiver
does not automatically stay litigation
against the borrower, and, unless
directorship and management have
been totally displaced by the receiver
by order of the court, appointment of a
receiver does not displace the subject’s
corporate authority, nor preclude the
subject from filing a bankruptcy case.
A bankruptcy usually displaces the
receiver and places the subject back
in possession as a matter of law. Also,
it may become time-consuming and
expensive if conflicting actions are
being pursued by different parties in
different jurisdictions at the same time.
Appointment of a receiver provides
a judicial mechanism for the prompt
transfer of property away from a debtor
in instances when the court has been
persuaded that the debtor’s continued
management over specified assets
may result in waste, deterioration,
or diminution of value. From the
perspective of a secured lender or
dissatisfied shareholder, therefore,
an application for the appointment
of a receiver may make sense. And,
if provided with sole directorship
and management over the troubled
business to the exclusion of the prior
board and officers, the receiver could
file and maintain control of the debtor
through a Chapter 11 bankruptcy case.
In less drastic situations, a debtor may
be receptive to receivership as part of
a broader agreement for the resolution
of its obligations to creditors and
shareholders. However, receivership
is an extraordinary remedy that is
appropriate only in limited situations.
Considering the Options
Once a debtor has concluded that it is
not a candidate for a successful out-of-court restructuring, the generally
preferred restructuring mechanism is
a federal bankruptcy case. While the
Bankruptcy Code provides a ready
framework for reorganization or
liquidation, it would behoove a debtor,
its advisors, and key creditors to
consider alternatives to bankruptcy,
such as foreclosure under Article 9,
liquidation in an ABC, or the
appointment of a receiver. In certain
circumstances, particularly when the
parties are working cooperatively,
these alternative proceedings may
be more suitable, efficient, cost-effective, or result-oriented than a
traditional bankruptcy case. J