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a dismissal of a case other than under section 742 of this title- (1) reinstates – (A) any proceeding or custodianship superseded under section 543 of this title”.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.