Sometimes, creditors want relief from a
stay to pursue the debtor’s insurance coverage. Courts generally grant such relief, if
the creditor agrees to limit the collection
of its judgment to the insurance.
When a court grants a relief from a stay,
it does not remove the property from the
estate or grant the creditor ownership. The
court simply removes the stay, restores the
parties’ rights in accordance with state law
and permits the creditor to enforce those
rights under the relief from the stay. Thus,
if a mortgage holder gets relief from a stay,
the creditor doesn’t own the collateral.
The relief just frees the creditor to exercise
whatever remedies the creditor had outside of bankruptcy.
A voluntary receivership often offers the
best option compared to bankruptcy. The
receiver holds the assets, operates the
business and/or liquidates the assets and
then pays claims. Consider the following:
◗ The company selects the receiver and
conducts the interviews.
◗ Flexibility under state laws exists —
different states have laws that affect
receivership designation, which
would affect a multistate provider.
◗ The receiver holds title to assets.
◗ Receiverships are generally more
cost-efficient than bankruptcy.
Again, the only con is that there is no
In a voluntary receivership, the receiver
continues its efforts to liquidate assets and
pay claims. The court appoints the receiver
to take charge of the estate within the
scope of the rules in this title. The receiver
normally is the only authority. In this case:
◗ No court supervision exists — the
receiver has full authority to wind down
the business entities and liquidate assets for distribution to creditors.
◗ Generally, this is the most cost-efficient option.
◗ The receiver files weekly reports to
the court listing receipts and disbursements.
◗ No automatic stay exists.
◗ The lender does not manage the facility.
Receiverships are fast becoming the
vehicle of choice for healthcare organizations because they allow the debtor’s managers to continue running the facilities and
provide continued services to patients.
A successful receiver needs healthcare
operating experience in order to monitor
patient care issues effectively, as well as
manage the wind-down process, department of health and survey issues, staffing,
management companies, closures, etc.
Receivers often hire management companies — hopefully, potential buyers — to
manage their facilities. An important issue
is that creditors cannot attach the title to
assets vested in the receiver.
Once the company has selected the
restructuring option and decides receivership is the best option, the next step is the
court’s appointment of a receiver. Some
important highlights include:
◗ Receiver gets title to assets vested in
◗ Receiver has power and authority
to take any action that officers and directors would otherwise take without
further court order.
◗ Receiver has power and authority to
take actions necessary to preserve,
protect, and liquidate assets without
further court order. This includes:
Assuming control over assets; operating
the business and maintaining the quality
of patient care in order to liquidate the as-
sets to preserve value for sale; discontinu-
ing operations, if necessary, closing losing
operations that lower the value of the
estate; enforcing or terminating contracts
necessary to operate the business; selling
or closing any or all facilities and business
entities to generate distributions to credi-
tors; and staying certain actions:
i. Continuation of litigation that was
or could have commenced prior to
ii. Enforcement of assets obtained
iii. Acting to obtain possession of prop-
erty of the estate;
iv. Collection of claims that arose before
Receivers and hired professionals are
not liable for:
i. Acts made in good faith;
ii. Citations or penalties imposed by
state departments of health and
mental hygiene, state departments of
aging or their local affiliates;
iii. Liabilities/obligations of the estate,
including wages, environmental viola-
tions and regulatory violations.
A case in point: value-added solutions
A leading unsecured creditor and lender
to a multistate healthcare entity recently
experienced a positive outcome that
exemplifies the benefits of receivership. All
47 of the borrower’s facilities went through
the wind-down process and sold to several companies looking to increase their
competitive edge and size. The receiver
dissolved the business, filed all tax and
legal documents, settled the cost reports
for past years, and completed the negotiations with employees and unions.
Companies in receivership require radical restructuring, asset sales, and employee
layoffs. These are tough and often painful
decisions for experienced receivers, which
is why a strong turnaround and restructuring background makes the process faster
and cost-effective while maintaining the
continuum of operations and patient care.
The present reform environment is
certainly not for the meek and has many
challenges. Yet, all is not lost. Acknowledging the adverse conditions and identifying
opportunities to turn around the situation
offers hope. Despite the turmoil, savvy and
experienced healthcare leaders will not
only survive, but thrive, in 2011, often with
management-consultant firms assuming
vital receivership roles. TSL
Michael Sandnes is director of the healthcare
practice at Executive Sounding Board
Associates Inc. He is vice president of
programs in the Chesapeake chapter of
the Turnaround Management Association.
Sandnes can be reached at msandnes@
esba.com or 443-722-5637.