Note: This post is part of a four-part series on the Credit Report Blog. Click here to view all related posts.
Receiverships are increasingly popular as an alternative to corporate bankruptcies. In the past few years, more and more financially distressed businesses have been liquidated or sold by a state court appointed receiver instead of a federal bankruptcy trustee. Missouri receivership law, however, is largely unchanged from the 19th Century and is simply inadequate in several respects to address all the issues raised by the liquidation of a modern business. A few states around the country have recently updated their own receivership laws, and Missouri should follow suit. The Missouri Bar Commercial Law Committee recently formed a Task Force to look into Missouri’s receivership laws.
Missouri, like almost every other state, has detailed statutes governing receiverships in a number of highly regulated industries, like nursing homes, financial institutions, municipal utilities, or insurance companies. This post does not recommend that any changes be made to the receivership laws in any of these regulated industries.
Outside of specific regulated industries, however, Missouri receivership law is bare-boned at best. In fact, the entire Missouri statute on general receiverships consists of 155 words (RSMo § 515.240-260). The Rule of Civil Procedure governing receiverships essentially repeats the statute. The standard for the appointment of a receiver in the statute and the rules offers no real guidance: a court “shall have power to appoint a receiver, whenever such appointment shall be deemed necessary” (emphasis added). The statutory duties of the receiver are also vague: to “keep and preserve any money or other thing deposited in court” and “to keep and preserve all property and protect any business or business interests entrusted to him.”
Missouri case law on receiverships is similarly sparse and sometimes confusing. Some cases seem to adopt a higher standard for appointment than the statute, such as dictating that receivers should be appointed only if such appointment will prevent “manifest wrong, imminently impending.” This illustrates the need for a comprehensive reform of Missouri general receivership law that will give it the flexibility to respond to the many challenges of selling or liquidating a distressed business.
In Part 2 and Part 3 of this series on receiverships, we’ll explore the central elements of receiverships and how Missouri law could be amended to more closely track modern commercial practices. In Part 4, we’ll compare the receivership process to the U.S. bankruptcy code and also detail other states’ efforts to update their receivership laws.
David Warfield is the co-chair of Thompson Coburn’s Financial Restructuring Group. You can reach David at (314) 552-6079 or dwarfield@thompsoncoburn.com.