§66.8 Strategic and Practical Considerations

• Jurisdiction: Washington

§66.8STRATEGIC AND PRACTICAL CONSIDERATIONS

Strategic and practical consideration regarding receivership proceedings are discussed below.

(1)General considerations

Appointment of a receiver can be a valuable tool for protection of a party's interest in an asset. From a practical perspective, courts are generally not inclined to appoint a general receiver, but are more likely to appoint a custodial receiver, when the interest at issue is a lender's security interest in leases and rents, and the lender is in the process of foreclosing under Chapter 61.24 RCW. It is possible to "overreach," and a practitioner must weigh the likelihood of success in seeking a general receiver. Appointment of a general receiver requires the movant to meet a higher evidentiary burden, including convincing the court that it has no other adequate remedy at law, as opposed to the standard for appointment of a custodial receiver to collect rents during the pendency of a foreclosure, in which case the Receivership Act merely requires that the movant establish a contractual right to appointment of a receiver under its loan documents, and that the foreclosure process has been commenced by the service or posting of the statutory notice of default.

A practitioner should consult the local rules of the jurisdiction in which the appointment of a receiver is sought to determine the procedural requirements. The Local Rules for the King County Superior Court, for example, mandate that the initial receivership hearing be heard by a commissioner, and that the movant must obtain an order to show cause. King County LCR 66(a)(1). In other jurisdictions, a receivership action is assigned to a case judge, and the initial hearing is in front of the assigned judge, on a motion for appointment of receiver.

(2)Application of §543 of the United States Bankruptcy Code

There are instances in which an entity over which a receiver has been appointed will file for relief under the United States Bankruptcy Code. The filing of a bankruptcy petition stays the pending state-court receivership action pursuant to 11 U.S.C. §362. The receiver is usually required to cease all administration of the receivership estate and turn over any property in its custody to the bankruptcy trustee or debtor in possession. The applicable provision of the Bankruptcy Code is §543, which states, in relevant part:

(a)A custodian with knowledge of the commencement of a case under this title concerning the debtor may not make any disbursement from, or take any action in the administration of, property of the debtor, proceeds, product, offspring, rents, or profits of such property, or property of the estate, in the possession, custody, or control of such custodian, except such action as is necessary to preserve such property.

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