With the COVID-19 pandemic adversely impacting both the state\u2019s economy overall and individual businesses, the Rhode Island Superior Court, Presiding Justice Alice Bridget Gibney, issued an Order dated March\u00a031, 2020 creating the Non-Liquidating Receivership Program (the \u201cNon-Liquidating Program\u201d or \u201cProgram\u201d), which will provide relief for businesses affected by COVID-19. \u00a0The Non-Liquidating Program will be administered by the Superior Court Business Calendar. \u00a0The Non-Liquidating Program will provide Court-supervised protection to struggling businesses to enable them to remain in operation while they attempt to emerge from their economic circumstances.<\/p>\n
Under traditional receivership law and practice in Rhode Island, the assets of a business that could no longer pay its debts as they come due would be liquidated under the supervision of the Superior Court. \u00a0Typically, the Superior Court would appoint a receiver to act as an officer of the Court to oversee the liquidation of the business assets. \u00a0After the assets of the business are liquidated, the business\u2019 creditors would be paid using the sale proceeds.\u00a0 When possible, the business would be sold as a going concern to maximize the return for creditors.<\/p>\n
The Non-Liquidating Program is different:\u00a0 its objective is to keep the business afloat so it can emerge from receivership. \u00a0While the Program is newly implemented as a protection for businesses impacted by COVID-19, Rhode Island receivership courts have long had the equity power to conduct non-liquidating receiverships. \u00a0See Levine v. Bess Eaton Donut Flour Co.<\/em>, 705 A.2d 980, 983 (R.I. 1998) (\u201cThe appointment of a nonliquidating receiver for an ongoing, solvent corporation is an extraordinary remedy that should be reserved for extraordinary situations.\u201d).<\/p>\n To be eligible for relief under this Program, a business must not have been in default of its financial obligations as of January\u00a015, 2020.\u00a0 In addition, the business must (1)\u00a0have experienced a reduction of at least 20% in its gross revenues, over any 60-day period, since January\u00a015, 2020; or<\/em> (2)\u00a0have been forced to cease a substantial portion of its operations, after January\u00a015, 2020, due to governmental order or regulation; or<\/em> (3)\u00a0demonstrate that the COVID-19 pandemic created an adverse impact on its operations due to government-mandated closure (full or partial) or a substantial interruption of cash flow.<\/p>\n Under the Non-Liquidating Program, the owner(s) of a business (the \u201cPetitioner\u201d) can file for appointment of a Temporary Non-Liquidating Receiver.\u00a0 Within ten days of the appointment of such a Receiver, the Petitioner must submit a proposed Operating Plan, which must address three issues:\u00a0 (1)\u00a0how the business will operate during the Non-Liquidating Receivership and pay its debts as they come due; (2)\u00a0pre-petition debts; and (3)\u00a0the plan for the business to exit the Non-Liquidating Program.\u00a0 The Temporary Non-Liquidating Receiver would review the proposed Operating Plan and work with the Petitioner to make any necessary revisions.\u00a0 Thereafter, the Temporary Non-Liquidating Receiver would submit the proposed Operating Plan to the Court, and provide copies to creditors and parties-in-interest, who would have ten days to submit any comments or objections.\u00a0 The Court would address any objections at a hearing, and ultimately approve or reject the proposed Operating Plan.<\/p>\n If the proposed Operating Plan is approved, the Temporary Non-Liquidating Receiver would be appointed as the Non-Liquidating Receiver (i.e.<\/em>, the permanent receiver).\u00a0 During the Non-Liquidating Receivership, the Petitioner would continue to operate the business; this is unlike an ordinary receivership, during which the receiver usually operates the business.\u00a0 The Non-Liquidating Receiver retains the ability, with notice to the Court, to take control of the business and its assets if the Petitioner does not comply with the Court-approved Operating Plan.\u00a0 As with an ordinary receivership, an injunction would enter prohibiting any actions against the assets of the business (i.e.<\/em>, injunction against lawsuits, imposition of liens, etc.).<\/p>\n If the Operating Plan succeeds, the business will exit the Non-Liquidating Program through a Court-approved exit plan, which would address how the business debts would be paid using the revenues obtained during the Non-Liquidating Receivership.\u00a0 Importantly, the Program does not<\/em> permit the elimination or reduction of any debt; therefore, the exit plan must provide for payment of all debt.\u00a0 Of course, the parties to the case can agree to an exit plan that provides for payment of less than 100% of the pre-petition debt.\u00a0 However, the Court could not order such a result over a creditor\u2019s objection.<\/p>\n If the Operating Plan does not succeed, or if no Operating Plan is ever approved by the Court, or if an exit plan is not approved by the Court, then liquidation of the business could proceed.\u00a0 If the Operating Plan has been approved by the Court, then the case would proceed to liquidation if, after a hearing, the Court finds that the Petitioner defaulted under the Operating Plan.<\/p>\n Although the Non-Liquidating Program is new to receivership in Rhode Island, the concept of providing a distressed business the time and space to recover from adverse economic circumstances is not unfamiliar to the law of insolvency.\u00a0 This concept also underlies the bankruptcy reorganization provisions under Chapter\u00a011 of the Bankruptcy Code. \u00a0There are many differences between a Chapter\u00a011 bankruptcy and Rhode Island\u2019s Non-Liquidating Program.\u00a0 For example, debt can be reorganized and reduced in a Chapter\u00a011 bankruptcy, but not under the Program.\u00a0 It is important to note, however, that cases under the Program likely will proceed in a more streamlined, flexible, quicker, and less expensive manner than a Chapter 11 bankruptcy.<\/p>\n According to the news advisory from the Rhode Island Judiciary, quoting Associate Justice Brian P. Stern, \u201cRhode Island businesses deserve the opportunity to stabilize their operations and generate revenues again.\u201d \u00a0The new Non-Liquidating Program will guide Rhode Island businesses through the financial hardships caused by the COVID-19 pandemic and help them emerge as viable going concerns.<\/p>\n","protected":false},"excerpt":{"rendered":" With the COVID-19 pandemic adversely impacting both the state\u2019s economy overall and individual businesses, the Rhode Island Superior Court, Presiding Justice Alice Bridget Gibney, issued an Order dated March\u00a031, 2020 creating the Non-Liquidating Receivership Program (the \u201cNon-Liquidating Program\u201d or \u201cProgram\u201d), which will…<\/p>\n","protected":false},"author":7,"featured_media":364,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[12,2,122],"tags":[121,5,146],"class_list":["post-363","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bankruptcy-law","category-business-law","category-covid-19","tag-covid-19","tag-rhode-island-business-law","tag-ri-superior-court"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/posts\/363","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/comments?post=363"}],"version-history":[{"count":0,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/posts\/363\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/media\/364"}],"wp:attachment":[{"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/media?parent=363"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/categories?post=363"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/tags?post=363"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}