How to Select a Court-Appointed Receiver

There are many factors to consider when seeking to nominate a court appointed receiver. These include, but are not limited to, the following:

1. Reputation
2. Knowledge and Experience
3. Geography
4. Asset-Type
5. Professional Licenses and Designations
6. Ancillary company affiliations
7. Use of 3^rd party professionals
8. Cost
9. Efficiency
10. Industry Leadership

Reputation:

A court appointed receiver or partition referee should have a good reputation in the industry. Factors to consider include success with prior cases, and his/her reputation with judges and lawyers.  Does the receiver act in a neutral fashion? Is the receiver complying with the applicable standard of care, including fiduciary duty, duty of care, duty of investigation, duty of loyalty equally to all interested parties? In many instances, one party or creditor may be financially harmed by the acts of a receiver and that is fine as long as the receiver acts within the scope of the order appointing receiver (or any subsequent orders), and his/her acts are consistent with applicable law and the use of reasonable business judgment is utilized. A perfect example of this may involve a receiver determining that a senior creditor should be paid before a subordinate creditor is paid. Here, the subordinate creditor may not be paid at all which damages that subordinate creditor.  However, this is consistent with the duties of a receiver as the receiver must address creditor claims in order of priority, security, and other relevant factors.

Other considerations include professionalism, ethics, decorum and overall conduct. Does the receiver treat creditors, vendors, litigants, lawyers etc. with respect?  Does the receiver appear in court and does the receiver have the respect and confidence of the judge? Is the receiver known for honesty and integrity?  These are all essential elements of the reputation of a receiver.

Knowledge & Experience:

Managing an asset requires skill and training. Does the receiver have the requisite skill and training necessary to manage the particular asset?  Does the receiver have prior experience in a particular industry or asset type? Does the receiver have prior experience appearing in front of judges, being deposed, analyzing financial statements, and is the receiver familiar with local court rules? These are all relevant questions to ask a proposed receiver.

With respect to real estate, does the receiver have firsthand knowledge and experience regarding a particular asset type including commercial, retail, industrial, self-storage, assisted living, single-family residential and/or real estate development? As it relates to a business, does the receiver have personal firsthand knowledge, for example, in operating a restaurant, a medical facility, a distribution facility or manufacturing company? A receiver should not be learning on the job as a relates to the basics of the administration of a receivership estate.  A receiver should understand the standard of care for a particular industry and customs and practices, applicable law and the methodology utilized to achieve success. As it relates to real estate, the receiver should understand the difference between various types of leases, including a full-service gross lease as opposed to a triple-net lease. In addition, understanding how to calculate pass-through expenses, common area expenses, tenant landlord law, remedies available in connection with evictions, state and federal laws governing discrimination, and wage-hour and employment practices are vital.  In summary, ensure that the receiver has the requisite knowledge and experience in the particular industry or asset class for which the receiver will be appointed, and that the receiver also has the skills necessary to achieve success in operating the business or asset in order to reasonably maximize the value of the receivership estate asset.

Geography:

Assets or businesses may have multiple locations. Does the receiver have the ability to cover different locations using the receiver’s own staff or through the use of third-party professionals?  Does the receiver have contacts in the industry that will allow an immediate takeover as well as service of court orders on financial institutions located in different jurisdictions, including foreign jurisdictions. Is the receiver able to properly record court order(s) appointing receiver to effectuate jurisdiction in an efficient manner and does the receiver have the ability to travel and regularly visit the receivership assets wherever they may be located? These are all important issues to consider in connection with the nomination process of a court appointed receiver.

Asset-Type:

When considering the nomination, does the receiver have prior experience with similar asset types? For example, if the asset is an office building, does the receiver have prior experience in managing office buildings? Does the receiver understand the relationship between tenants and landlords, the eviction process, the nuances of lease administration, rent increases, market surveys, macro and microeconomic trends impacting the value of the building. Does the receiver have contacts in the office brokerage community allowing retention of qualified brokers to lease or sell the office building? Similarly, if the asset is an assisted living facility, does the receiver have prior experience with that particular asset type? Does the receiver have any professional designations or licenses in that particular field?  It is also beneficial if a receiver has ancillary companies such as a property management company that the receiver can utilize to manage a particular asset. It would not be prudent to nominate a receiver that has no experience in managing a retail shopping center if the asset is, in fact, a retail shopping center. It is important to investigate the background and experience of the receiver as well as to carefully review the CV of the receiver prior to nominating him/her to reasonably ensure that the receiver has the requisite experience necessary for the particular type of asset that will be a part of the receivership estate.

Professional Licenses and Designations:

In the administration of the assets of the receivership estate, the existence of professional licenses and designations held by the receiver and/or the receiver’s staff may be very important. This may include a real estate broker license, trade association professional designations, as well as state or city licenses directly related to the specific asset. For example, Stephen Donell, Receiver, is a California licensed real estate broker and also holds an administrator certification through the California Department of Social Services, which allows him to be the administrator for residential care facilities for the elderly (RCFE). He also holds a CCIM professional designation through the CCIM Institute, which identifies him as a broker with substantial knowledge in the field of commercial real estate.  In addition, he has two additional CCIMs and real estate brokers on his staff, and his affiliated company, Jalmar Properties, Inc., is a licensed real estate broker in California, Nevada and Arizona. In addition, he holds a Certified Property Manager Designation (CPM) and Accredited Residential Manager Designation (ARM) through the Institute of Real Estate Management (IREM). Jalmar Properties, Inc. is an Accredited Management Organization through IREM. Mr. Donell is also an EPA certified lead-based paint renovator and holds a number of certifications in mold remediation. All of the foregoing makes him an excellent candidate for receivership cases involving assisted living and real estate assets.

Ancillary Company Affiliations:

Does the receiver have experience with any companies that can provide expertise regarding the receivership estate assets? This may include accounting, property management, expert witness etc. Stephen Donell is the President of Jalmar Properties, Inc. and Donell Expert Services, Inc., both of which specialize in residential, retail, industrial and commercial real estate management and/or expert witness activities.  If the receiver has direct personal experience in operating a business or assets through one of the receiver’s ancillary companies, this creates a great deal of credibility, experience and enhances the qualifications of the proposed receiver.

Use of 3^rd Party Professionals:

An experienced receiver should have a network of third-party professionals, including accounting, legal, real estate management, asset management, private investigators, title insurance, real estate brokerage, valuation, escrow, auction, contractors, and trade vendors. In addition, often the receiver can obtain pricing discounts because of prior experience with these vendors.

Cost:

If a receiver has substantial experience, the learning curve will be very short or nonexistent. In addition, if the receiver understands the particular type of asset the receiver can act in an extremely efficient manner thereby reducing costs. You may also inquire if the receiver’s fee structure is consistent with industry standards. Does the receiver utilize staff for those tasks that can be performed by staff members that bill at lower rates?  These are all important considerations, and the greater the level of experience, use of efficiency through employment of third-party professionals, as well as industry-specific experience, the greater the efficient administration of the receivership estate, which will generally tend to decrease the overall costs of the receivership estate.

Industry Leader:

A receiver should be a leader in the industry. Is the receiver a speaker and board member of professional trade organizations for the asset or business type? Is the receiver a known leader in the actual receivership industry? All of these promote efficiency, reputation and the success of the administration of the receivership estate. Stephen Donell is past president of the National Association of Federal Equity Receivers (NAFER), and past president of the Los Angeles/Orange County Chapter of the California Receivers Forum (CRF). He is a frequent speaker and lecturer at conferences and has also been the approved Receiver faculty member for the Ward Center through CCIM related to real estate receiverships. He is a frequent panel member at various events hosted by trade industry organizations

Efficiency:

As discussed, if a receiver has the requisite knowledge, skills and training regarding the particular asset type or business, and has prior knowledge and experience 1) appearing in court; 2) dealing with litigation; 3) understanding the nuances of legal filings in pleadings; 4) experience being deposed; and 5) attending mediations or arbitrations, the receiver will generally be able to work in an efficient manner which will result in a reduction of costs. In addition, as speed is often directly related to the ultimate sales price of a particular asset, especially when unpaid mortgages are accruing, the more efficient the receiver is, the more quickly he or she can react, which will directly impact the recovery of funds or promote the highest and best value in connection with the sale of an asset.