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ARIZONA STATE SENATE
Fifty-Fourth Legislature, First Regular Session
uniform receivership act; commercial property
Purpose
Establishes the Uniform Commercial Real Estate Receivership Act (Act).
Background
Current statute allows the superior court to appoint a receiver to protect and preserve property or the rights of parties within. A written application for the appointment of a receiver will be served on the adverse party with a reasonable notice of the time of the hearing. The adverse party is allowed to file counter affidavits with testimony as the court admits. The court may stop the adverse party from removing, secreting or otherwise disposing of the property to the injury of the applicant for receivership, pending the hearing of the application (A.R.S §§ 12-1241 and 12‑1242).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Notice and Opportunity for Hearing
1. Allows a court to issue an order under the Act after notice and opportunity for a hearing appropriate in the circumstances, except:
a) without prior notice if the circumstances require issuance of an order before notice is given;
b) after notice and without a prior hearing if the circumstances require issuance of an order before a hearing is held; or
c) after notice and without a hearing if no interested party timely requests a hearing.
2. Specifies that the Act applies to a receivership for an interest in real property and any personal property related to or used in operating the real property.
3. Specifies that a receivership for an interest in real property improved by one to four dwelling units is not ruled by the Act, unless:
a) the interest is used for agricultural, commercial, industrial, or mineral-extraction purposes, other than incidental uses by an owner occupying the property as the owner's primary residence;
b) the interest secures an obligation incurred at a time when the property was used or planned for use for agricultural, commercial, industrial or mineral-extraction purposes;
c) the owner planned or is planning to develop the property into one or more dwelling units to be sold or leased in the ordinary course of the owner's business; or
d) the owner is collecting or has the right to collect rents or other income from the property from a person other than an affiliate or the owner.
4. Excludes a receivership not authorized by the Act, in which the receiver is a governmental unit or an individual acting in an official capacity on behalf of the unit, from the rules of the Act.
5. Specifies that the Act does not limit the authority of a court to appoint a receiver under any other law.
6. States that the principles of law and equity supplement the Act, unless displaced by a provision of the Act.
Power of the Court
7. Grants a court that appoints a receiver exclusive jurisdiction to direct the receiver and determine any controversy related to the receivership or receivership property.
8. Allows a court to appoint a receiver before judgement, to protect a party that demonstrates an apparent right, title or interest in real property that is the subject of the action, if the property or its revenue-producing potential:
a) is being subject to or is in danger of waste, loss, dissipation or impairment;
b) has been or is about to be the subject of a voidable transaction; or
c) needs to be protected and preserved or if the rights of the parties need to be protected and preserved, even if the action does not include any other claim for relief.
9. Allows a court to appoint a receiver after judgement:
a) to carry the judgement into effect;
b) to preserve nonexempt real property pending appeal or when an execution has been returned unsatisfied and the owner refuses to apply the property in satisfaction of the judgement;
c) in an action in which a receiver for real property may be appointed on equitable grounds; or
d) during any time allowed for redemption, to preserve real property sold in an execution or foreclosure sale and to secure its rents to the person entitled to the rents.
10. Allows a court, in connection with a foreclosure or other enforcement of a mortgage, to appoint a receiver for the mortgage property, if:
a) appointment is necessary to protect the property from waste, loss, transfer, dissipation or impairment;
b) the mortgagor agreed in a signed record to appointment of a receiver on default;
c) the owner agreed, after default and in a signed record, to appointment of a receiver;
d) the property and any other collateral held by the mortgagee are not sufficient to satisfy the secured obligation;
e) the owner fails to turn over to the mortgagee proceeds or rents the mortgagee was entitled to collect;
f) the holder of a subordinate lien obtains appointment of a receiver for the property; or
g) the property or the rights of the parties need to be protected and preserved, even if the action does not include any other claim for relief.
11. Allows a court to condition appointment of a receiver without prior notice or without a prior hearing on the giving of security by the person seeking the appointment for the payment of damages, reasonable attorney's fees and costs incurred or suffered by any person if the court later concludes that the appointment was not justified.
12. Requires a court to release the security if the court concludes that the appointment was justified.
Disqualification from Appointment
13. Prohibits a court from appointing a person as receiver unless the person submits to the court a statement under penalty of perjury that the person is not disqualified.
14. Disqualifies a person from appointment as receiver if the person:
a) is an affiliate of a party;
b) has an interest materially adverse to an interest of a party;
c) has a material financial interest in the outcome of the action, other than compensation the court may allow the receiver;
d) has a debtor-creditor relationship with a party; or
e) holds an equity interest in a party, other than a noncontrolling interest in a publicly traded company.
15. Specifies that a person is not disqualified from appointment as a receiver solely because the person:
a) was appointed receiver or is owed compensation in an unrelated matter involving a party or was engaged by a party in a matter unrelated to the receivership;
b) is an individual obligated to a party on a debt that is not in default and was incurred primarily for personal, family or household purposes; or
c) maintains with a party a deposit account.
16. Allows a person seeking the appointment of a receiver to nominate a person to serve as receiver and specifies that the court is not bound by the nomination.
Alternative Bond Security
17. Requires a receiver to post a bond with the court that does the following:
a) is conditioned on the faithful discharge of the receiver's duties;
b) has one or more sureties approved by the court;
c) is in an amount the court specifies; and
d) is effective as of the date of the receiver's appointment.
18. Allows a court to approve the posting with the court by a receiver of alternative security, such as a letter of credit or deposit of monies.
19. Prohibits a receiver from using receivership property as an alternative security.
20. Requires that interest accrued on deposited monies be paid to the receiver upon discharge.
21. Allows a court to authorize a receiver to act before the receiver posts the required bond or alternative security.
22. Requires a claim against a receiver's bond or alternative security be made within 30 days of receiver discharge.
Receiver Powers and Duties
23. Allows a receiver, except as limited by court order or law, to do the following:
a) collect, control, manage, conserve and protect receivership property;
b) operate a business constituting receivership property, including preservation, use, sale, lease, license, exchange, collection or disposition of the property in the ordinary course of business;
c) in the ordinary course of business, incur unsecured debt and pay expenses incidental to the receiver's preservation, use, sale, lease, license, exchange, collection or disposition of receivership property;
d) assert a right, claim, cause of action or defense of the owner that relates to receivership property;
e) seek and obtain instruction from the court concerning receivership property, exercise of the receiver's powers and performance of the receiver's duties;
f) on subpoena, compel a person to submit to examination under oath, or to produce and permit inspection and copying of designated records or tangible things, with respect to receivership property or any other matter that may affect administration of the receivership;
g) engage an attorney, accountant, appraiser, auctioneer, broker or other professional;
h) apply to a court of another state for appointment as ancillary receiver with respect to receivership property located in that state; and
i) exercise any power conferred by court order, the Act or any other law.
24. Allows a receiver, with court approval, to do the following:
a) incur debt for the use or benefit of receivership property other than in the ordinary course of business;
b) make improvements to receivership property;
c) use receivership property or transfer receivership property by sale, lease, license, exchange or other disposition, other than in the ordinary course of business;
d) adopt or reject an executory contract of the owner;
e) pay compensation to the receiver and to each professional engaged by the receiver;
f) recommend allowance or disallowance of a claim of a creditor; and
g) make a distribution of receivership property.
25. Requires a receiver to:
a) prepare and retain appropriate business records, including a record of each receipt, disbursement and disposition of receivership property;
b) account for receivership property, including the proceeds of a sale, lease, license, exchange, collection or other disposition of the property;
c) record in the office of the county recorder a copy of the order appointing the receiver which includes the legal description;
d) disclose to the court any fact arising during the receivership that would disqualify the receiver; and
e) perform any duty imposed by court order, the Act or any other law.
26. Allows the powers and duties of a receiver to be expanded, modified or limited by court order.
27. Grants a receiver the status of a lien creditor, upon appointment.
28. Allows a receiver, with court approval, to engage an attorney, accountant, appraiser, auctioneer, broker or other professional to assist the receiver in performing a duty or exercising a power of the receiver.
29. Requires a receiver to disclose to the court the following information regarding an engaged professional:
a) the identity and qualifications of the professional;
b) the scope and nature of the proposed engagement;
c) any potential conflict of interest; and
d) the proposed compensation.
30. Specifies that a person is not disqualified from engagement as a professional solely because of the person's engagement by, representation of, or other relationship with the receiver, a creditor or a party.
31. Specifies that the Act does not prevent the receiver from serving in the receivership as an attorney, accountant, auctioneer or broker when authorized by law.
32. Requires a receiver or engaged professional to file with the court an itemized statement of the time spent, work performed and billing rate of each person that performed the work and an itemized list of expenses.
33. Requires a receiver to pay the amount approved by the court, to the extent the receivership has sufficient assets.
34. Entitles a receiver to all defenses and immunities provided by any other law for an act or omission within the scope of the receiver's appointment.
35. Allows a receiver to be sued personally for an act or omission in administering receivership property only with approval of the court that appointed the receiver and if the court finds that the receiver acted without authority.
36. Allows a receiver to file an interim report or requires a receiver to file an interim report, if ordered by the court, which includes:
a) the activities of the receiver since appointment or a previous report;
b) receipts and disbursements, including a payment made or proposed to be made to a professional engaged by the receiver;
c) receipts and dispositions of receivership property;
d) fees and expenses of the receiver and, if not filed separately, a request for approval of payment of the fees and expenses; and
e) any other information required by the court.
Owner Duties
37. Requires an owner to do the following:
a) assist and cooperate with the receiver in the administration of the receivership and the discharge of the receiver's duties;
b) preserve and turn over to the receiver all receivership property in the owner's possession, custody or control;
c) identify all records and other information relating to the receivership property, including passwords, authorizations or other information needed to obtain or maintain access to or control of the receivership property and make available to the receiver the records and information in the owner's possession, custody or control;
d) on subpoena, submit to examination under oath by the receiver concerning the acts, conduct, property, liabilities and financial condition of the owner or any matter relating to the receivership property on the receivership; and
e) perform any duty imposed by court order, the Act or any other law.
38. Specifies that the duties of an owner apply to each officer, director, manager, member, partner, trustee or another person exercising or having the power to exercise control over the affairs of the owner.
39. Allows the court, if a person knowingly fails to perform the duty of an owner, to:
a) award the receiver actual damages caused by the person's failure, reasonable attorney fees and costs; and
b) sanction the failure as civil contempt.
Court Orders
40. Designates an order appointing a receiver as a stay which is applicable to all persons, of an act, action or proceeding:
a) to obtain possession of, exercise control over or enforce a judgement against receivership property; or
b) to enforce a lien against receivership property to the extent the lien secures a claim against the owner that arose before entry of the order.
41. Allows a court to enjoin an act, action or proceeding against or relating to receivership property if the injunction is necessary to protect the property or facilitate administration of the receivership.
42. Allows a person whose act, action or proceeding is stayed or enjoined to apply to the court for relief from the stay or injunction for cause.
43. Stipulates that an order appointing a receiver does not operate as a stay or injunction of:
a) an act, action or proceeding to foreclose or otherwise enforce a mortgage by the person seeking appointment of the receiver;
b) an act, action or proceeding to perfect or maintain or continue the perfection of, an interest in receivership property;
c) commencement or continuation of a criminal proceeding;
d) commencement or continuation of an action or proceeding, or enforcement of a judgement other than a money judgement in an action or proceeding, by a governmental unit to enforce its police or regulatory power; or
e) establishment by a governmental unit of a tax liability against the owner of receivership property or an appeal of the liability.
44. Allows a court to void an act that violates a stay or injunction.
45. Allows a court, if a person knowingly violates a stay or injunction, to:
a) award actual damages caused by the violation, reasonable attorney's fees and costs; and
b) sanction the violation as civil contempt.
Receivership Property
46. Subjects property, that a receiver or owner acquires after appointment of the receiver, to a security agreement entered into before the appointment to the same extent as if the court had not appointed the receiver.
47. Requires, on demand by a receiver, unless the court orders otherwise:
a) a person that owes a debt that is receivership property and is matured or payable on demand or on order to pay the debt to or on the order of the receiver, except to the extent the debt is subject to setoff or recoupment; or
b) a person that has possession, custody or control of receivership property to turn the property over to the receiver.
48. Prohibits a person, that has notice of the appointment of a receiver and owes a debt that is receivership property, from satisfying the debt by payment to the owner.
49. Allows a creditor to retain possession, custody or control of receivership property, if the validity, perfection or priority of the creditor's lien on the property depends on the creditor's possession, custody or control, until a court orders adequate protection of the creditor's lien.
50. Allows a court to sanction as civil contempt a person's failure to turn property over when required, unless a bona fide dispute of possession, custody or control exists.
51. Determines that a sale of receivership property by a receiver, not in the ordinary course of business, is free and clear of a lien of the person that obtained appointment of the receiver, any subordinate lien and any right of redemption but is subject to a senior lien, unless the agreement of sale provides otherwise.
52. Determines that a lien on receivership property that is extinguished by a transfer attaches to the proceeds of the transfer with the same validity, perfection and priority the lien had on the property immediately before the transfer, even if the proceeds are not sufficient to satisfy all obligations secured by the lien.
53. Allows a transfer of receivership property not in the ordinary course of business to occur by means other than a public auction sale.
54. Allows a creditor holding a valid lien on the property to be transferred to purchase the property and offset against the purchase price part or all of the allowed amount secured by the lien, if the creditor tenders monies sufficient to satisfy in full the reasonable expenses of transfer.
55. Subjects the transferred property to any senior lien unless extinguished by the transfer.
56. Provides that a reversal or modification of an order approving a transfer not in the ordinary course of business does not affect the validity of the transfer to a person that acquired the property in good faith or revive against the person any lien extinguished by the transfer, whether the person knew before the transfer of the request for reversal or modification, unless the court stayed the order before the transfer.
Executory Contracts
57. Allows a court to condition a receiver's adoption and continued performance of an executory contract relating to receivership property, adopted with court approval, on terms appropriate under the circumstances.
58. Deems a receiver to have rejected the executory contract if the receiver does not request court approval to adopt or reject the contract within a reasonable time after the receiver's appointment.
59. Specifies that a receiver's performance of an executory contract before court approval of its adoption or rejection is not an adoption of the contract and does not preclude the receiver from seeking approval to reject the contract.
60. Specifies that a provision in an executory contract which requires or permits a forfeiture, modification or termination of the contract for specified reasons does not affect a receiver's power to adopt the executory contract.
61. Specifies that a receiver's right to possess or use receivership property pursuant to an executory contract terminates upon rejection of the contract, which is a breach of contract effective immediately.
62. Requires a claim for damages for rejection of the contract to be submitted by the later of:
a) the time set for submitting a claim in the receivership; or
b) 30 days after the court approves the rejection.
63. Allows a receiver to assign the contract with court approval if, at the time a receiver is appointed, the owner has the right to assign an executory contract relating to receivership property under any other law.
64. Allows a purchaser, if a receiver rejects an executory contract for the sale of receivership property that is real property in possession of the purchaser or a real-property timeshare interest, to do the following:
a) treat the rejection as a termination of the contract, and in that case the purchaser has a lien on the property for the recovery of any part of the purchase price; or
b) retain the purchaser's right to possession under the contract, and in that case the purchaser is required to continue to perform all obligations arising under the contract and may offset any damages caused by nonperformance of an obligation of the owner after the date of the rejection, the purchaser has no right or claim against other receivership property or the receiver on account of the damages.
65. Allows a court, if the purchaser retains the purchaser's rights to possession, to order the receiver to deliver title to the purchaser in accordance with the contract and relieve the receiver of all other obligations under the contract.
66. Prohibits a receiver from rejecting an unexpired lease of real property under which the owner is the landlord if the tenant occupies the leased premises as the tenant's primary residence and either of the following applies:
a) the receiver was appointed at the request of a person other than a mortgagee; or
b) the receiver was appointed at the request of a mortgagee and either:
i. all of the following apply:
(a) the lease is superior to the lien of the mortgage;
(b) the tenant has an enforceable agreement with the mortgagee or the holder of a senior lien under which the tenant's occupancy will not be disturbed as long as the tenant performs its obligations under the lease; and
(c) the mortgagee has consented to the lease, either in a signed record or by its failure to object that the lease violated the mortgage; or
ii. the terms of the lease were commercially reasonable at the time the lease was agreed to and the tenant did not actually know or have reason to constructively know that the lease violated the mortgage.
Notice of Appointment
67. Requires a receiver to give notice of appointment of the receiver to creditors of the owner by either of the following:
a) deposit for delivery through first-class mail or other commercially reasonable delivery method to the last-known address of each creditor as directed by the court; or
b) publication as directed by the court.
68. Requires a notice of appointment of the receiver given to creditors to specify the date by which each creditor holding a claim against the owner, which arose before appointment of the receiver, is required to submit the claim to the receiver.
69. Requires the date specified in a notice of appointment of the receiver given to creditors to be at least 90 days after notice or last publication, unless the court orders otherwise.
70. Allows a court to extend the period for submitting a claim against the receivership.
71. Specifies that a claim which is not submitted timely is not entitled to a distribution from the receivership.
72. Requires a claim submitted by a creditor against a receivership to:
a) state the name and address of the creditor;
b) state the amount and basis of the claim;
c) identify any property securing the claim;
d) be signed by the creditor under penalty of perjury; and
e) include a copy of any record on which the claim is based.
73. Specifies that an assignment by a creditor of a claim against the owner is effective against the receiver only if the assignee gives timely notice of the assignment to the receiver in a signed record.
74. Allows a receiver to file an objection to a claim of a creditor with the court stating the basis of the objection any time before entry of an order approving a receiver's final report.
75. Requires a court to allows or disallow a claim according to any laws other than the Act.
76. Allows a court to order, if the court concludes that receivership property is likely to be insufficient to satisfy claims of each creditor holding a perfected lien on the property, both of the following:
a) the receiver need not give notice of the appointment to all creditors of the owner, but only to such creditors as the court directs; and
b) unsecured creditors need not submit claims.
77. Allows a court to award a receiver from receivership property the reasonable and necessary fees and expenses of performing the duties of the receiver and exercising the powers of the receiver.
78. Allows a court to order payment of reasonable and necessary fees and expenses of the receivership, including reasonable attorney fees and costs, to:
a) a person that requested the appointment of the receiver, if the receivership does not produce sufficient funds to pay the fees and expenses;
b) a person whose conduct justified or would have justified the appointment of the receiver; and
c) any other person as equity justifies.
79. Requires a distribution of receivership property to a creditor:
a) holding a perfected lien on the property to be made in accordance with the creditor's priority under a law other than the Act; or
b) with an allowed unsecured claim to be made as the court directs according to any law other than the Act.
Removal and Replacement of Receiver
80. Allows a court to remove a receiver for cause.
81. Requires a court to replace a receiver that dies, resigns or is removed.
82. Discharges a replaced receiver if the court finds that a receiver that resigns or is removed, or the representative of a receiver that is deceased, has accounted fully for and turned over to the successor receiver all receivership property and has filed a report of all receipts and disbursements during the service of the replaced receiver.
83. Allows a court to discharge a receiver and terminate the court's administration of the receivership property if the court finds that appointment of the receiver was improvident or that the circumstances no longer warrant continuation of the receivership.
84. Allows a court, if the court finds that an appointment was sought wrongfully or in bad faith, to assess against the person that sought the appointment:
a) the fees and expenses of the receivership, including reasonable attorney fees and costs; and
b) actual damages caused by the appointment, including reasonable attorney fees and costs.
85. Requires a receiver to file a final report on completion of a receiver's duties, which includes:
a) a description of the activities of the receiver in the conduct of the receivership;
b) a list of receivership property at the commencement of the receivership and any receivership property received during the receivership;
c) a list of disbursements, including payments to professionals engaged by the receiver;
d) a list of dispositions of receivership property;
e) a list of distributions made or proposed to be made from the receivership for creditor claims;
f) if not filed separately, a request for approval of the payment of fees and expenses of the receiver; and
g) any other information required by the court.
86. Discharges a receiver if the court approves a final report and the receiver distributes all receivership property.
Ancillary Receiver
87. Allows a court to appoint a receiver appointed in another state, or that person's nominee, as an ancillary receiver with respect to property located in Arizona or subject to the jurisdiction of the court for which a receiver could be appointed, if:
a) the person or nominee would be eligible to serve as receiver; and
b) the appointment furthers the person's possession, custody, control or disposition of property subject to the receivership in the other state.
88. Allows a court to issue an order that gives effect to an order entered into in another state appointing or directing a receiver.
89. Grants an appointed ancillary receiver the rights, powers and duties of a receiver, unless the court orders otherwise.
Miscellaneous
90. Stipulates that a request by a mortgagee for appointment of a receiver, the appointment of a receiver or application by a mortgagee of receivership property or proceeds to the secured obligations does not:
a) make the mortgagee a mortgagee in possession of the real property;
b) make the mortgagee an agent of the owner;
c) constitute an election of remedies that precludes a later action to enforce the secured obligation;
d) make the secured obligation unenforceable;
e) limit any right available to the mortgagee with respect to the secured obligation; or
f) bar a deficiency judgement pursuant to any other law governing or relating to a deficiency judgement, except as otherwise provided.
91. Subjects the ability of a creditor to enforce an obligation that had been secured by the lien to the laws of Arizona that otherwise apply to a deficiency judgement, if a receiver sells receivership property that is free and clear of a lien.
92. Allows a court to issue an order, process or judgement that is necessary or appropriate to carry out the Act.
93. States that in applying and construing the Act, consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.
94. States that the Act modifies, limits or supersedes specific sections of the Electronic Signatures in Global and National Commerce Act and does not authorize electronic delivery of any of the notices set forth therein.
95. Exempts receiverships for which the receiver was appointed before the effective date of the Act from receiver regulations.
96. Designates this legislation as the "Uniform Commercial Real Estate Receivership Act".
97. Defines terms.
98. Becomes effective on the general effective date.
Prepared by Senate Research
February 19, 2019
MG/gs