Summer 2008 • Issue 29, page 13
After being appointed receiver the owners put the business into bankruptcy. The Receiver was never discharged. The Bankruptcy was later dismissed. Can the receiver retake possession of the property?
By Davidson, Peter*
Q: I was appointed receiver for a business. Shortly after my
appointment the owners put the business into bankruptcy and I turned over
possession to the debtor. I was not discharged as receiver. I just learned
that the bankruptcy was dismissed. Can I retake possession of the business
as receiver and once again operate it?
A: Probably. It depends on what the order dismissing the bankruptcy
says and what happened during the bankruptcy proceeding. Section
349(b)(1)(A) of the Bankruptcy Code provides: “Unless the court, for
cause, orders otherwise, a dismissal of a case other than under section
742 of this title- (1) reinstates – (A) any proceeding or custodianship
superseded under section 543 of this title”. A custodianship includes a
receivership or an assignee under a general assignment for the benefit of
creditors. 11 U.S.C. §101 (11). Therefore, dismissal of the bankruptcy
would reinstate the receivership. See, In re Parrish, 275 B.R. 424, 433
fn. 10 (Bankr. D. Dist. Co. 2002) [“Dismissal additionally reinstates any
state receivership or assignment for the benefit of creditors
proceeding.”]. However, you need to review the dismissal order to make
sure that in dismissing the bankruptcy the court did not, for some reason,
order that the receivership would not be reinstated because the statute
states: “unless the court, for cause, orders otherwise”. Additionally, you
need to determine what happened during the bankruptcy proceeding. To the
extent the business or its assets were sold, transferred, liened and or
foreclosed on during the bankruptcy, that activity would remain valid and
would affect the reinstated receivership. For example, if a secured
creditor got relief from the automatic stay and foreclosed on business
assets or assets were sold during the bankruptcy, that would affect what
reverts into the receivership, if anything, upon dismissal of the
bankruptcy. See, In re Sports & Science, Ind., Inc., 95 B.R. 745, 747 (Bankr.
C.D. Cal. 1989) where the court states that the purpose of §349 is to
“undo the bankruptcy case, as far as practicable, and to restore all
property rights to the position in which they were found at the
commencement of the case”. The court notes, however, that “transfers made
in accordance with the Bankruptcy Code or orders of the court” would not
be unwound. See also, In re Searles, 70 B.R. 266, 270 (D.R.I. 1987) [“the
‘property of the estate’ that reverts in its prior owners after dismissal
includes only the property left in the estate at the time of dismissal”.].
*Peter A. Davidson is the RN’s contributing “Ask the Receiver” columnist
and is managing partner of Moldo Davidson Fraioli Seror & Sestanovich LLP,
a Century City law firm. His practice includes both representing receivers
and acting as a receiver. Peter is the immediate past chair of the Los
Angeles County Bar Association’s Remedies Section.
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