Cannabis Receiverships Q&A

(00:01) [Music] Hey everybody Welcome to today’s webinar on cannabis receiverships my name is Vince Sliwoski I’m sitting here with these two very knowledgeable very stylish gentleman you’ll see Matt Goldberg he’s uh on my left the guy with the pink shirt Ethan Minkin the guy with the blue blazer um I’m sitting here in Portland Oregon Matt’s in Portland too but we’re not at our office because they’re doing Roofing and seismic work so you’re looking at my basement I don’t know what

(00:33) room in Matt’s house um and I’m going to let them self- introduce a little bit better in just a second I’ll introduce myself I am a business lawyer uh I’m not a receiver ship or in solvency or debt or creditor lawyer any of those things but I work with a lot of businesses that unfortunately have come up against this I’ve you know help people through restructures and when it gets bad enough sometimes I’ll turn them over to Matt or Ethan or somebody like that so uh without further Ado do you guys mind

(00:58) just giving a brief like blur bio on yourselves I’ll start with you Matt sure thanks Vince hi everybody thanks for coming I’m Matt Goldberg I started out life my lawyer life that is as an insolvency bankruptcy lawyer uh representing mostly chapter 7even trustees and creditors and through that I was introduced to commercial litigation and corporate law and real estate law um sort through the insolvency lens and then as some of you know about you know what 10 years ago got into the Civil cannabis sort of business

(01:43) law space and it’s taken a solid 10 years for the insolvency receivership world and the eagle cannabis world to finally start coming together in a way where there’s enough activity that he could even talk about um and so that’s sort of why Ethan to be sitting to Vince’s left wearing a pink shirt how about you Ean hi I’m Ethan M um I’m similar to mad and that I spent a significant portion of my career um doing uh corporate insolvency work I primarily represented senior secured lenders and various uh consultancy

(02:28) proceedings primarily bankruptcies and receiverships around the United States uh at least out in Arizona that practice area died around 2013 or 14 and really the most prevalent form of insolvency proceedings out there now or receiverships that we see more often in Arizona is a bit of the Wild West we don’t have a very uh comprehensive statutory scheme uh so things can get a little I guess more wild uh in Arizona great okay so before we kick it off I’m going to just say one or two things the first is that we have uh several of you

(03:08) who submitted questions in advance and I appreciate that and we’ll get to as many of them as we can but if something comes up or you’re just thinking of a question now feel free to type it in and we will see it in the comments we may or may not answer it we’ll try to get to everything we can the other thing I’m going to say is we’re not giving legal advice today for those of you whether you’re our client or not our client if you’re our client here we’re not giving you legal advice in this context that waves

(03:31) privilege so we’re just talking um and anything that we say today is just designed to be basically be educational and nature so I want to start with the basics um because half the time I mentioned receivership and people look at me like what you been talking about what is a receivership and how does it differ from bankruptcy Ethan I’m G to give that one to you yeah receivership I mean there’s both state and federal law receiverships I think state law receiverships are much more prevalent than Federal I think you

(04:01) would see a federal receivership if a borrower has Assets in multiple States right and you don’t have a state court that has jurisdiction over all those assets uh you know receiverships at least in my experience are much different than a bankruptcy a bankruptcy proceeding you know you have the bankruptcy code it’s a comprehensive code uh there’s a tremendous amount of case law around uh the bankruptcy code and interpreting various Provisions uh at least in receivership law you know it’s a carryover from Old English law

(04:34) and if you go back and look at various treatises as well as the case law oftentimes you can trace it back to you know Old English times uh H but there are some good treatises I think there’s one is called Clarks on receivers which is excellent um so you know but the amount of variability across the US is pretty you know staggering in terms of receiverships you have States with very comprehensive receivership statutes uh I don’t know if Oregon qualifies as such I know California has a pretty comprehensive set and then you

(05:10) have States like Arizona where you know there there’s not much and really the order of pointing the receiver is really what controls the entire case here uh so it’s at least in my experience while it’s a powerful remedy and a remedy that that often makes sense even the circumstances it’s just not as powerful as a bankruptcy sounds good thanks for that rundown I have a follow on question then maybe Matt could handle this what’s different or unique about a cannabis receivership as compared to any other

(05:45) commodity or type of business it’s a good question I mean there are a couple things I mean number one is the sort of obvious one which is that at least as of now we’re still dealing with a schedule one substance um that if we’re talking about a business that touches the plant in one way or another then you’re talking about case where either a receiver you know I was G say either a receiver or a trustee but that’s a good point for good place for me to say it’s not either a receiver or a bankruptcy

(06:22) trustee if you’re a plant touching company because that is precisely why the receivership option is the one that we’re exploring here and that people are using um you can’t really be in bankruptcy court with a business that makes money trafficking as that’s defined in a controlled substance and I I believe that’s going to be off limits um for as long as it’s schedule one certainly um so that’s one part of it the another part that goes with that is that it’s a heavily regulated and

(06:59) licensed and so in Oregon for example and I’m not aware of others you know I’ve done so many real estate receiverships for example over the years and this never is an issue there but um in Oregon there’s a provision in the statute and in the administrative rules that speaks specifically to how a receiver can work with the agency to obtain the ability to mat manage the licensed premises and business um and that’s that angle is not typically one that you have to worry about in a receivership so it’s not just you’re

(07:41) dealing with the license and getting permission to use it but you’re also still dealing with something that’s federally illegal and that’s a pretty unique combination I have a couple of follow-on questions that both came from the audience that are related to the second part of what you said so the first one is short and sweet does the receiver need to hold his cannabis license and then the second one somebody from the state of Connecticut is asking what should government Regulators consider when drafting legislation to address

(08:13) receiver licensing language it’s a great question okay yeah go ahead go please go Ahad no I think for the first question at least in my experience the receiver doesn’t have to hold license but and typically the receiver would work under the license that’s already been issued to The Entity but with that being said I think they have to qualify as any other you know interested party would have to qualify uh you know under state law to be able to you know touch the Cannabis you know typically you go through

(08:52) various licensing requirements even for the individuals involved in cannabis operation so uh I think state law would likely mandate that but the notion that a receiver would have to hold his or her own individual license i’ I’ve never seen that requirement before and what about considerations then Matt for government Regulators who are sort of trying to build an architecture in their program for receiverships and businesses that fail so my first comment about that actually doesn’t seem like it’s about

(09:28) receiverships but it really is um most of the time I see there’s a question about you know who is a party and interest in a receivership such that that party could um initiate a receivership or participate in a receivership um and that that’s sort of related to this in a way also um generally speaking of landlord a customer creditor um potentially even an a equity security holder could um initiate a receiver ship but the truth of the matter is what tends to happen a great majority of the time is that the entity seeking the

(10:16) appointment of the receiver is a and often the uh senior secured party and as a result the relationship between the security interests in the accents of what I’ll call the Deb or the entity that’s going into receivership um those statutory Provisions be they in AR in the state’s um enactment of article 9 in the ECC or and or um in the Cannabis you know specific um legislation I think Oregon does a good job of calling out in the statute and in the administrative rules that it’s contemplated that the secure Creditor

(11:08) might get a judgment or a receiver appointed and in that instance it’s appropriate for that party to have the same general rights and remedies that it would have um if the collateral was something other than a cannabis license or cannabis material and so I think making sure it’s not just about what the receivership statute or rules provide it’s also sort of in those other areas that touch it making sure that those areas are sort of as receiver friendly as possible if that makes sense I was going to pick up a one

(11:52) comment that that Matt uh made when he was talking about who typically appoints the receiver in a cannabis case at least in Arizona again we don’t have any statutes but we do have a corporate statute that if there is a deadlock for a company that the appointment of a receiver is an appropriate remedy and that’s often at least in Arizona how you end up in a receivership matter now we likewise have statutes or the ability to point a receiver if you have a secured lender involved and there’s been a

(12:22) default and actually in 2020 Arizona introduced uh new legisl that’s been passed that we now have separate statutes for commercial real estate that are actually pretty comprehensive but in this instance when it comes to cannabis I think it’s more typical that you would see a partnership dispute uh that would essentially initiate uh receivership uh B hey Vince can I jump in and can I jump in addressing two things that I see in the comments yeah no M too yeah go ahead anything you think’s interesting so so

(13:03) there just there are a couple questions that to me suggest something so one comment is um a question how long does the quote unquote taint of Cannabis follow the assets um and there was another one to hear about [Music] um the number of uh receiverships of state law receiverships growing and why that might be and what I think what I think is interesting there I think this is one of the best things about cannabis state law receivership is that there isn’t this Federal overlay of you’re doing something wrong and your

(13:50) business is bad and um you should feel bad about what you’re doing it’s like the state cannabis law the state receivership law the state you know um UCC they’re all sort of on par with one another and you this is my experience at least you walk into a court and the court just sort of takes it as given that it’s a legal cannabis business in the state where that judge is a judge and it’s sort of of a piece it doesn’t mean every judge that you deal with is going to love cannabis that

(14:21) isn’t what I’m saying it’s just the sort of acknowledgment that it’s real it’s legal it’s part of what we do here um and it’s it lends itself for lack of a better way of saying it to that remedy and then and to use of that statute the same as anything else and as someone who does it on a regular basis I can tell you that that makes some kind of a difference um that you’re not sort of like no one talks about schedule one or cares about schedule anything in that in that specific context and I think for

(14:54) the company that’s in receivership the going through it you know and for actually all the parties that are involved that’s kind of a nice thing that isn’t you know Nuance legal Point necessarily but it is something that’s worth saying is that you’re sort of staying within the scope of the kind of law that creates and respects the cannabis license and business and I think that’s a positive thing or it can be to pick up on one uh question that came in that touched on in terms of cannabis receiverships growing I mean at

(15:33) least in Arizona there were a fair number of receiverships uh that were filed after medical was passed uh I think approximately 2010 and I think part of that was you had a lot of small business owners right and there were conflicts and I think as our Market has matured you know we’ve seen a lot of msos come into the market a lot of very mature companies and I think the number of receiver ships over time has actually gone down because of that well and just to be specific something I my point in raising that

(16:08) before was I don’t think there is a taint um to the assets uh at least in my experience when you’re in a state court receivership and the business is a state licensed business um you sort of dealing you know I’m not going to say it’s widgets because it’s not widgets and it’s licensed and it’s illegal and like things we were saying in the beginning but it’s not really a taint um and people are able to buy and sell and do things in the Cannabis receivership whether it’s buying plant touching type

(16:42) material or buying equipment um or buying a license um and I I don’t see that there’s any taint like morally or perception wise and there also isn’t a legal taint sure I have a question that’s kind of based on what Ethan said earlier about bankruptcy code being kind of comprehensive and statutory and all sorts of case law it goes back and back and receiverships I think you said the wild west for lack of a better word in bankruptcy we have all different kinds of bankruptcies right we have debt are

(17:13) in possession and to stuff the farms and just a lot of things sometimes a business in bankruptcy can kind of go into bankruptcy and come out successfully and exit the bankruptcy can that happen in a receivership or is it just a selloff process every time I mean I think you know that it’s a great question actually whether a company can be reorganized within the receivership matter uh yes I mean I think that can happen I think it’s at least in my experience in receiverships it’s less likely uh you typically

(17:48) see a sale of the assets or one partner bowing out and bringing in a new partner um and sometimes there have been you know successful reorganizations because you know there was a lot of conflict there may have been fraud involved you put a receiver in you know they kind of iron out the business and you know get things up and running again I think uh you know more like a normal business without those uh issues but at least in my experience it’s more typical to see some kind of transaction uh transpire or more like a

(18:21) chapter seven where you’re just going to dispose the assets and go out of business it just depends I mean right is it a viable business concept that just needs some help to kind of make it through a certain period versus you know it’s just not a good concept or the markets oversaturated or whatever the case may be somebody asked a related question to that which is how do you go about valuing the business as a whole or its assets when you’re in the selloff process who values it how do they do it my experience

(18:54) oh no I’ve just I’ve done a fair amount of valuation work and uh you know typically you would bring in an Mai uh that’s someone who’s a member of the appraisal Institute the appraisal Institute is really the gold standard for appraiser um and they can value assets individually or they can do enter enterprise-wide value uh you know there’s other individuals who qualify as an expert in that space as well you could have Brokers but they don’t they don’t carry the same weight as someone who has an

(19:25) maai behind them and you know there’s various ways and methods that are standard within uh the mai World in which you value a business so that’s typically at least in my experience if you’re going in front of a judge uh or if you just want credibility in general you would pick an Mai phaser and just to just to approach that from a slightly different perspective when I first started as a bankruptcy lawyer I used to hear um the more experienced lawyers say like it’s worth what the market says it’s

(20:05) worth kind of thing and none of this means that you don’t bring in appraisers and have battles of the experts and that kind of stuff like Ethan is describing because you do when there’s enough at stake but sort of conceptually when you’re in the receivership world like in Banky world this is one way in which I think they’re very similar if you properly notice to the parties in interest the creditors and whoever else requested or needs to be noticed that the rece you as the receiver or trustee intend to sell this

(20:41) asset for this much money to this party the Court’s sort of default position is if proper notice of that it’s given and no one objects that’s what that’s what it’s worth it’s worth that much and and to take it even one step further what I’ve seen is judges say to someone who comes in objecting to that price like hey that’s great is your client offering more because otherwise not interested not interested in talking about so again none of that’s to say that that valuation isn’t important it’s just to

(21:18) shine a certain light on this process because something else that’s associated with that that I want to throw out because the question is coming up buying something for from a receivership to state or a bankruptcy to state is not the same as buying it in the normal world and I say it like because this will solve a lot of problems for people who don’t realize this yet like if you’re dealing with a receiver or a trustee take all your reps and warranties and flush them down the tubes because the receivers not going to give

(21:53) you those trustees not going to give you those Court’s not going to give you those you’re not getting know you’re buying whatever you’re buying as is where is um and there’s no warrantee that it’s even what the trustee or receiver says it is which sounds ridiculous but it’s actually true um you know and if you if a sale like that is consummated and the judge signs off on it um it’s done it’s over um it’s almost impossible to reverse that on appeal and so that’s

(22:26) something to keep in mind and um one thing I want to just I want to just reach back to something the great question from the Connecticut um folks about statutes um one of the things that I think is exciting generally speaking across time with receiverships in the US is the move toward or the trend toward having a more comprehensive statutory scheme under state law for the receivership um and Oregon’s a good example not just because it’s where Vince and I happen to be right now it’s also because this happened relatively

(23:16) recently where for who knows like many decades um I don’t I don’t know if it’s true that it’s more than a hundred years but Oregon receiverships were determined solely by a pretty arcane sort of rule of civil procedure that governs um provisional process and like Ethan said earlier when that was the regime the order Point receiver is like is it’s it it’s the law it’s the it’s like private law almost and that’s totally what governs the Court’s actions it’s what would govern review of

(23:54) um different questions on appeal when you have the more comprehensive statute however the order appointing receiver is still very important obviously but now all that order is doing is it’s just recapitulating what’s in the statute and the things that you tend to have in a comprehensive statute that you don’t have otherwise because outside of this context there’s no way for normal law to provide this is the idea of an automatic stay which is really important and so if you’re going to have a receivership

(24:30) statute then can you explain what a stay is really quickly I think a lot sure so yeah I say that like it’s a given um the automatic stay is one of the defining features of bankruptcy as we you know in this country understand it’s an injunction which means it’s a court order that you as a predator a landlord or a stockholder or anybody whatever you’re claim whatever you beef is with this debtor this entity that’s going in to bankruptcy or receivership collection activity stops

(25:07) foreclosure stops eviction stops um you know litigation stops everything pauses and that pause is called the automatic stay and it’s called automatic because it arises automatically by operation of Law and violating it is a serious business and you can violate it by doing something that violates it even if you don’t know that you’re violating it um if that came out right so it’s something to be super careful of if you’re on the other side of an entity that is in bankruptcy or receivership um

(25:51) so that’s what the automatic stay is and it’s part and partial of the US bankruptcy code it’s also part of for example was Washington State’s receivership statute and Oregon’s receivership statute and when someone goes and prates receivership code it tends to look like a mini bankruptcy code in that it doesn’t have every Bell and whistle that the US bankruptcy code has but it has a bunch of them and another one that’s worth mentioning um in the sort of um category of importance of the

(26:25) automatic stay is that the receiver the ability to assume certain contracts of the entity and receivership um that the fancy word for that is is something called an executory exe executory contract um it just means it’s a contract that’s sort of in play where both sides still have performance left so if it’s a lease a lease is executory because the tenant still has to pay rent and the landlord still has to provide by the space That’s a classic executory contract and just e what been said earlier if we

(27:07) give examples or I say things I’m not talking about a case that you think I’m talking about because I’m sort of combining examples and trying to um construct things in a way to make certain points and so all these cases tend to share the same kinds of issues so um I’m not speaking about any particular case I’m just speaking in general but if you’re having lease issues as a cannabis business then getting into a receivership where there is an automatic State and there is the ability to assume or take on or take

(27:42) over a lease that existed before the receivership well now you’re really talking about you know not necessarily reorganizing as much as probably preparing it to sell um with the with the proceeds going to the cost of the receivership and um as many creditors as can be paid you know in order of but those are some really unique FES to the bankruptcy code to a receivership statute um that I think can make all the difference in the world thought Ethan go ahead oh yeah in terms of like at least in Arizona we don’t even have a priority statute so if

(28:27) you get into a case and there’s actually money to be distributed outside of a senior secure lender whatever the case may be we don’t have a distribution scheme and so I’ve had judges actually adopt the bankruptcy codes distribution scheme in the past you know because they I Le some of the judges in my experience you know they will look for analogies in the bankruptcy world and see if those can be adopted uh and to match point about the automatic stay Arizona does now have an automat state but it only

(29:00) applies to commercial real estate uh receiverships not to just a known shareholder dispute type so uh that is an interesting concept uh that’s been introduced out here oh one last thing in terms of sales as well at least in the bankruptcy context one of the things you have to show the port is that You’ got the highest and best pit and you do that typically by showing you’ve marketed the asset you know if there’s other buyers what they’ve offered right I don’t think in general you have the same requirement

(29:33) in a receivership matter although it’s probably smart to do the same right at least to Market it try to get the highest and best and if there is an objection well now you’ve got evidence right that I’ve marketed it I’ve done a good job and this is the best we can do here’s a question I get a lot as a business lawyer and I’m guessing a few people will be interested in this in the audience I get businesses coming to me all the time and saying things are not going well like I’m just kind of looking

(30:04) ahead cash flows bad I’m going to owe bunch of money on balloon or whatever I’m struggling to pay rent can I put myself into RIS shoer [ __ ] can I kind of like just get it in there so I can get away from any sort of whatever consequences I don’t want to get sued can I just do this proactively can you do that or do you need a secured creditor a creditor a landlord or anybody to sue you first at least in Arizona it requires a legal Act to appoint a receiver uh and I’m unaware of being able to sue

(30:33) yourself for the appointment of the receiver so um I’ve never seen that scenario before where you know the party themselves you know somehow ask for the appointment of receiver but maybe Matt has I I’ve not seen him it’s an interesting question I mean I think in the in the way that in the context that you’re asking it Vince I think the answer is generally know that I can’t like put myself or like my LLC that I own or own most of and the manager of like into its own receivership just to do because I’m

(31:15) worried about people getting paid um as soon as you get into any kind of more advanced corporate structure with inter company agreements and loans and um other sorts of then then the possibility opens up to sort of like what does it mean to sue yourself so to speak um and that’s a whole sort of discussion that you could go down but in terms of the I don’t think that’s how it’s being asked and I think the way it’s being asked is more like I’m sort of this business and what can I do I don’t think you not only can you

(31:56) not easily put yourself in receivership I don’t think really what you want to be doing because generally speaking I think the company goes into receivership as sort of chapter seven bankruptcy alternative and chapter seven is the liquidation bankruptcy um like Ethan said it’s not impossible that a company could come out under receivership reorganized but in my experience that would happen through sort of an almost like a workout you know it’s not out of if there’s a receivership but it would almost be like

(32:30) hey let’s if we figure this all out this way let’s agree we’ll stipulate to terminate the receivership and then you’ll do this and I’ll do this and you’ll get this so I mean that that’s something you can definitely do but um but if the receivership sort of goes through its entire process the idea is that all the assets are sold and administered and creditors are paid uh the costs of the receiver are paid and then you know it’s goodbye you know um everything’s owned by new owners so to

(33:00) speak so you mentioned the creditors are paid and before Ethan talked a little bit about a preference statute uh and I’m kind of curious do all the creditors get paid out of receivership do unsecured creditors ever get paid in a receivership who gets paid and how does it work typically at least in my experience uh the answer really is dependent upon the kind of receivership uh in my experience like I said earlier in a commercial real estate setting uh the you know I filed I can’t tell you how many during the Great Recession most

(33:33) were uncontested no one you know the defendant even show up the secured lender who I represented you know had a blanket mean on everything the property was way underwaterI know that scenario no’s getting paid other than my client at a steep discount uh but uh you know in a receivership matter where you have an operating company uh and say a partnership dispute well the company’s still operating still making money right well it can still be making money in which case then you can afford to pay predators and the like or at least you

(34:08) know at least a portion of what they may be owed so yes it does happen but I think it’s highly dependent upon the business type and how it enters receivership and what’s a typical timeline for receivership uh for an operating cannabis company say let’s say a secured creditor sues an operating cannabis company gets an order app pointing receiver I does it take a month a year six years like what how does that play out I think it can take any it doesn’t take a month um it could take a year it could take six months it could take I

(34:46) mean there’s some bankruptcies Federal bankruptcies that last years and years receiver ships tend to not last as long um I want to speak for a second to the of who gets paid because it’s important to be to be real about that um and for the benefit of everyone who’s on every side of it you know the type of receivership that I have the most experience with in terms of number of receiverships done is the type of stuff that I used to do during the recession where I would be representing a bank that can loan

(35:24) millions of dollars to someone to acquire some big pile of somewhere that the people had all these grandiose Visions for and never did anything with but the money somehow got spent on something and the big pile of dirt is still the big pile of dirt and basically the bag sues the borrower as the court to Appo a receiver so the bank could get into the property get it sold get their money back that process is great for the bank it’s not helping any other creditor um at least not directly um it may want other people may wind up

(35:59) getting paid as a result of like the property getting prepared to be sold and then sold um but you know receiverships where unsecured creditors get paid meaningful amounts on their claims are exceedingly rare in my experience because you know in the absence of any special priority statute you’re going to go with what priorities are generally under state law which doesn’t vary that much like it’s sort of secured you know perfected first and then you know the Bey code scheme then you know gets you to um

(36:40) taxing authorities and certain employment wages you know and then you get down to like Junior secured you know and then unsecured and then underneath unsecured are people who own the company who almost always get wiped in every bankruptcy and every receivership and then you Ved unsecured are they going to get something maybe not um and sometimes there is there are um distributions and the way that you would get paid V to that part of the question is part of the receivership process so and I can do

(37:12) timing on this one to try to do them both so let’s say we go to court um we file a lawsuit file a motion to a point a receiver and there’s a hearing um you know in a week or 10 days or something and then the court appoints the receiver at that moment the receiver is in charge the receiver is now the sole legal Authority you know over the assets of that entity and it is it’s instantaneous it’s like sign my name boom receiver you’re the guy or the woman you know the person um and now you’re in

(37:54) charge um and you have to figure out like or is the business going to stay open is it not going to stay open are we going to sell it are we gon to get a broker are we going to keep these employees on are we gonna not are we going to sell these vehicles you know and so on and so forth um as part of that process the receiver will eventually establish this is like generally speaking in most of receiverships in most places the receiver or the court will establish what’s called a claims bar date and then creditor other parties

(38:28) in interests get notice of that and also provide a proof of claim form like in a bankruptcy and then a creditor ported creditor sends out their claim they send it into the address and then assuming there are assets in the receivership for distribution to anybody then the receiver has to go through usually with the help counsel and vet those claims and decide you know are some of them objectionable let object you really only doing that you know to the extent that there’s a chance that there are enough assets to maybe pay out

(39:04) some of those people um but that’s how that process proceeds and so you don’t really know until you know whether there’s money for people and so you just sort of go through those steps every time you know assemble the assets liquidate the assets what do we have in the bucket and now like who’s claiming what why sort all that out and then finally there’ll be like a final distribution at some point that the court approves and then the receivership will be terminated and so I mean that could easily take a year like that you

(39:37) know ask oh go ahead and I’m gonna ask the question go ahead Ethan is there a claims form dictated by law as well as you know when you have to mail it out how long parties have to take you know mail it back in or is it just a process you devise with the Court’s help it’s I mean it depends on what your particular State Statute or procedural rules say but generally speaking it’s a little it’s kind of Loosey Goosey there are sometimes deadlines you know by which you have to do a certain thing but

(40:13) um for the most part the receiver has a fair amount of discretion and leeway to kind of figure things out get sorted get information out to creditors and again there’s some basic deadlines in there but it’s not um at least in my experience it’s not um it’s not sort of um overwhelming you know what I mean yeah overly burdensome it’s the forms are are simplistic they’re not even as complex as a bankruptcy proof to claim form which is itself fairly straight quow word so you know

(40:49) receiverships bankruptcy those types of proceedings in law are largely about um notice and opportunity to be heard like there is what there is like what’s left is what’s left and whoever’s going to get it is going to get it and that’s going to be decided you know by the court or courts and arbitrators and trustees or what have you um but you can’t go back in time and change the scenario you know I mean so all there is really is that is the process of evaluating who has you know the best claims on whatever there is um

(41:28) it’s not generally about returning anything like a 100% um recovery to anyone um which it almost always includes the party seeking the receivership which is another thing that’s just worth throwing out there that party is often seen um in different settings by different players to be like the evildoer um but even even that player the party seeking the receivership ship is usually taking a m you so it’s like it’s s like everyone is taking a hit and it’s not like I mean I don’t we’re we’re equal opportunity um

(42:10) lawyers in that like we would represent someone on any side any type of of one of these proceedings but I’m just saying generally speaking even the big bad bank or the big bad going into receivership that may be disappointing it’s partners and employees vendors whatever they’re also likely um having a tough time also because you don’t lightly go and pay to like put something in receivership um unless you really believe that there’s no choice you know um and that and what you’re really looking to do in that

(42:45) instance is try to preserve especially if you’re a going concern and you want to preserve that going concern value the only way to do that when you have landlords trying to evict you taxing authorities you know leaning you um various other people you know coming after you threatening you doing this doing that um the only opportunity that you would ever have to not just go down the tubes then is to be able to stop all that predator and collection activity you know sort through what’s going on typically get a

(43:24) neutral this is also why you don’t tend to see people filing their own receiver ships because a lot of the time by the time the receivership is warranted there’s not Universal agreement among all parties and interest in who’s the right person to be making these decisions and that’s why you know the court will will appoint a receiver that can demonstrate that he or she is in fact not just qualified to be receiver but is also truly neutral and doesn’t have connections with any of the party because that neutrality is important and

(44:01) and U I think it enables um buy in to the process that you might not get otherwise by the way there’s there’s one question from Saba do any of you three attorneys work non-cannabis cases uh the answer is yes I handle primarily you know commercial litigation and you know insolvency proceedings uh proceedings outside of the context I know Matt has well and I know Vince has well so you know cannabis obviously raises special issues you know both you can’t file bankruptcy you’re forced to your

(44:39) receivership but uh you know that’s just one regulated industry right all the regulate Industries where you run into issues as well and you just deal with them as they arise I had a receivership of psychiatric hospital in Arizona we appointed a receiver we represented the secure party but the receiver was a financial expert not a h you know a hospital operations expert and so he rained we had a stalking horse which was a large uh Pik uh Hospital provider that was the stalking horse to buy our particular hospital so we brought them

(45:18) in as essentially the manager right they could appoint a chief of staff right they could appoint someone to be the director of quality uh and that’s not the receiver’s expertise so you know it’s not unusual to have various regulated Industries involved in the receivership matter if again you deal with those particular issues you know as they arise so some good questions trickling in our friend Sean funny running down like do like do like a game show yeah totally I think we can do a little speed round on some of these

(45:58) um Sean’s question is great I sort of was speaking to it before without being explicit um Sean’s question is if the receivership ends not having paid off all debts what happens to the unpaid debts and the answer is they never get paid by anyone and that’s why the I think the best answer about like what is a receivership most like is the answer is chapter seven because in order to like they say chapter seven is where companies go to D die and um the reason they say that is because it’s

(46:31) all over like there is no company there are no debts there are no owners there are no predictors like it just wiped off the map and if that wasn’t all true then it would be inequitable arguably like wait the company can continue but I don’t get paid like that doesn’t make sense like the equity isn’t wiped out but my debt which is above that in priority isn’t getting paid that doesn’t make sense and that’s why it’s kind of All or Nothing um this question about is there an opportunity to cancel or modify

(46:59) leases and receivership the answer is definitely yes that’s the flip side to what I was talking about before which is called assuming an executory contract so receivers appointed I have this the company has this great lease and the people who own the building want us to leave and we don’t want to leave and so yeah the receiver can if the lease is not in default and the landlord doesn’t have certain other arguments to bring to bear then the receiver can assume that lease and keep paying the rent and be

(47:29) the tenant but the flip side is that if the landlord if the receiver doesn’t want the lease it can be rejected   which is what which is the equivalent of you saying cancel um modifying the leases as an interesting question and isn’t really something that the law gives you the ability to do in terms of modify the terms um but the receiver can certainly negotiate with the landlord to get a new lease and the Leverage is well if you don’t do that I’ll just keep the existing one which you can’t

(48:04) prevent me from assuming um this question about the UCC filing for cannabis receivership the only relevance of the UCC filing would be what we were talking about earlier in that if I am wanting to Institute the receivership because I am a creditor of your business then I’m your lender and you’re in default Etc then then I as the lender party need to have a UCC one on file um to perfect my interest in your assets as my collateral but in terms of getting a receiver appointed there’s no UCC angle on that nor does the receiver

(48:52) have any obligation to it might arise in some context but the receiver doesn’t go in and start doing the ECC FS so it’s really about being in the right position to Institute the receivership or assert your rights as a secured party in a receivership that that happens you know um more than anything else once a receiver is appointed somebody asked this question actually just before the webinar once the receiver’s appointed is there a legal time mandated for the receiver to notify creditors

(49:27) and if it’s not executed it’s what they wrote what can be done Ethan I I think you’ve dealt with that haven’t you yeah well yeah I’ve dealt with a similar issue uh we I had a receivership matter uh we we represented a secured lender um and it was a hotel and right right next to the Border in Arizona of all places um and the receiver filed their final fee application and we objected uh we thought something Services weren’t provided and so on and so forth we went in front of the trial court we prevailed

(50:03) uh the receiver took it up on appeal the appeals court overturned the trial court and said that if we wanted to go after the receiver we had to amend the complaint serve it on the receiver with a Summons like any other defendant which to this day I still find pretty insane um you know part of filing a complaint and serving it is you know notice purposes well certainly receivers on notice of the receivership and the complaint and everything else certainly they seem to be to be an interested party they’re being paid out of the receivership

(50:39) estate but nonetheless that’s how the Court ruled and I think unfortunately I think that that uh opinion has been cited in other states as well so it’s notice is incredibly important in receivership uh matters but then the secondary question is who can you buy to the order in the receivership matter uh is it only a defendant is it any party that has notice of the receivership matter uh you know typically you’ll see at least in Arizona there’ll be a turnover requirement for any third party

(51:14) that’s holding assets that say of the deor uh well if that part’s not Nam the complain can you still compel to turnover those assets so it it does raise very interesting issues about no in the light the other thing I’ll just say about that generally speaking is and you know for non lawyers in the audience this may sound like a sort of technical distinction that doesn’t mean much but um historically you know going back to you know England um hundreds of years ago there’s this historical division in

(51:52) the law between like the law or matters of law and matters of equity um and it’s an interesting distinction it’s a lot that you could say about it that isn’t really super relevant here but when a court like a bankruptcy court for example is a court of equity um and when a court in a state when a state court appoints a receiver it’s acting as a court of equity what that’s meant to signal is generally speaking that there’s a greater degree of leeway and discretion in the court inherently um for the purpose of doing

(52:31) Justice and fairness um and those terms are all squishy Wishy on purpose because the idea if you’re in a court of equity scenario is the judge is going to Case by case really evaluate who’s saying what who’s doing what who did what who seems like they’re a good person who seems like be bad person and I don’t mean I should say actor good actor bad actor um you know and then make decisions and so there’s no one rule that like you this kind of creditor needs this many days or a notice of this kind or else this happens

(53:07) because everything is Case by case everything is subject to the judge in that instance like who’s complaining about not receiving notice what’s that person’s relationship to the case what do they actually know because if you actually know about it and you’re complaining that you didn’t receive the piece of paper in a court of equity as an example a judge may not get overly bent out of shape about that and might say well I’m sorry Mr Sliwoski but you didn’t know about it right you didn’t

(53:35) know that the hearing was today right isn’t that why you’re at the hearing you know like it’s sort of you know it’s almost like a way of saying there’s a there’s a common sense quality sometimes to what happens when a court is sitting in equity that he might not see when it’s sitting at law um and again I don’t we’re not in law school and I’m not trying to you know be impressive or fancy with those terms but it’s important because it really affects like in Oregon for example I think this is

(54:06) generally true across the board the court that appoints the receiver is the only court is the exclusive court that can weigh in on any of those things I don’t mean an appeals court um there can be an appeal or to a receivership certainly um maybe not until it’s over but that’s a different question um but no other court in the state at a at the same level can sort of come in and say no like you shouldn’t you shouldn’t have that receivership judge and so each judge that appoints a receiver is actually has quite a bit of

(54:42) power and discretion um in a way that subtly kind of goes beyond what most judges might have in like a quote unquote normal regular sort of lawsuit between two parties for breach of contract you know all right I just want to introduce one last concept and I it doesn’t come up very often but there is the notion of a general receiver versus a specific receiver a good is someone who essentially takes over the business if you’re a secured lender do you have a blanket lead on all assets you essentially you know can take over the

(55:19) ass the business you have an interest in all the assets if either you have a more limited security interest or to have a particular reason you can ask for the appointment of a specific receiver and a specific receiver is just that they would oversee a deal with specific asset or asset and so you know it just really depends on a variety of factors whether you want to request the appointment of a general or specific receiver at least in my experience it’s always been a general receiver but I could conceive of

(55:52) instances where a specific receiver would make sense quick question because we’re going to give it short shrift but we should talk about it a lot of people watching or some maybe hemp businesses right so they aren’t locked into their creditors aren’t locked into pursuing only receivership as far as remedy they could go to Bankruptcy Court why would a creditor choose a receivership over a bankruptcy court if they’re doing let’s say a pemp business or an ancillary business that isn’t barred from

(56:20) Bankruptcy Court well if you think back to the example I was given before or a bank during the reception going after um property that had had become financed for some construction that didn’t happen um that doesn’t involve anything federally illegal and the bank tends to choose State Court receivership as the first in the first instance because it in a way that they say about arbitration which is sometimes true and sometimes not like on the whole people will say that State Court receiverships can be easier slightly less formal um possibly

(57:05) less expensive than trying to accomplish the same thing in bankruptcy um another reason this ties into something that someone asked here in the questions about look back periods and fraud one reason that people will stay away from bankrupcy um is if they have certain issues you know in their facts that suggest clawback of certain monies either as um a preference payment in the 90 days before bankruptcy because most receiver St statutes don’t deal with that piece of it um you know the bankruptcy code has several

(57:48) different um fraudulent transfer related Provisions you know a state court receiver can use I mean every state as far as I know has uh its own version of the uniform fraudulent transfer act or uniform fraudulent conveyance set um and they’re all very similar and receivers can utilize those statutes in a like the receiver can sue some other entity Under the Umbrella of a receivership forur ref fraudulent transfer in exactly the same way thaty truste can um and so butso sometimes people will choose State Court

(58:29) receivership to have somewhat less formalities somewhat fewer opportunities for certain kinds of clawbacks um and overall maybe a more um inexpensive less formalistic process just to pick up what Matt said those actions are collectively referred to as avoidance actions and bankruptcy there’s four specific statutes five 11 us see 547 are preferences 548 fraudulent transfers both under bankruptcy laws you can incorporate state law as well 549 is turnover of the debtor’s assets then 550 is the ability to go after subsequent

(59:14) transferees of an avoidance action so there’s there’s four statutes that are very very powerful um at least in Arizona you don’t have that analog in receivership matters I mean I think some states have adopted preference type statutes as Matt said you always have uh prolog and transfers under state law turnover depending upon the order right or the statutory regime in your state but uh you can accomplish that as well in the receivership it’s just bankruptcy uh these things are a lot more well

(59:49) defined all right gentlemen it’s been an hour thanks to everybody who came thanks for everybody who asked questions do you have any final thoughts I’ll give you 15 seconds you’re good I thought you were trying to speak man okay let’s we’ll do a part two at some point yeah we’ll do a part two and we may follow up on the blog a lot of you guys probably found us through the Cal La blog so we may write more or answer additional questions about receivership there until then an email

(1:00:18) with the link to the replay will be sent to all of you registrant so in case you missed something I realize some of this stuff can be kind of dense and you might want to watch it again at your own speed but otherwise call us if you’re in and around receivership or have those considerations we’re here we like doing this stuff um thanks everybody for your time easy thanks for the opportunity thank you [Music]