Receivers Cull Value From Failure
GRAND RAPIDS — When a business is struggling, with debts going unpaid and creditors getting nervous, bankruptcy may not be the only option available.
Daniel J. Yeomans, president of Amicus Management and vice president of Management Service Realty Inc., can help. As a court-appointed receiver, he is able to take over the day-to-day running of a business, including collecting rent and preparing the business for sale or liquidation in order to pay back the debts that are owed, sometimes saving the business owner time and money. Yeomans formed Amicus Management in June to deal specifically with receivership, separating it from his position as a broker at Management Service Realty.
Yeomans said there are many reasons businesses and assets become distressed: poor management, waste, fraud — or sometimes just the economy or a lack of demand.
“Usually, there’s an attorney involved,” he said of the process that leads to receivership. “A creditor, debtor or investors that need to take action on a business or assets.”
It is not as easy as phoning the first receiver found in the phone book and asking them to take over the business, Yeomans said. Receivers are appointed by judges after being requested by one or more parties. Attorneys representing the debtor and creditor identify the receiver’s powers in court before he or she works with the business.
Yeomans said his main purpose is to operate the business and straighten out the problems before selling or liquidating the assets. Solving the problems in a particular business is important because potential buyers will not offer much if they are concerned about its viability.
“If you’re a buyer and there are all these unknown variables to a business, it’s very, very risky, so you’re going to offer 50 cents on the dollar,” he said.
Instead of selling the business for less than its potential, Yeomans works to identify the problems and determine the actual worth.
“You define exactly what’s going on in the business and then you can arrive at a fair price,” he said.
Sometimes businesses are sold as a whole, while others with less demand or potential are sold in pieces and may get a better price.
Although business owners may not walk away from the receivership with a profit, they may get away without a loss.
“They get the business off their back and they have somebody that’s experienced in insolvency and dissolving businesses,” Yeomans said. “Most business owners that are just running a business don’t know how you would properly close down.”
In some cases, creditors may forgive debts or negotiate a settlement in exchange for releasing the lien in order to avoid a foreclosure where they may receive nothing if they are not the first-position mortgagee. Yeomans said in one case, the bank released the business owner of the deficiency in order to sign off the deed to the new buyer.
“The bank was happy to get that asset off the books and the owner was happy and he got off with nothing,” he said.
Yeomans said he will work with owners if they are willing to cooperate.
“They still own it,” he said of the business. “But they don’t have any control. I have control of it.”
Yeomans said one of the benefits of a receivership is the ability to negotiate.
“Most of the time we just negotiate things out, which is different than bankruptcy when every single thing has to go to the judge,” he said. “You can use practical common sense and negotiate and act quickly. It’s very nimble and quick, and you make business decisions, not bureaucratic decisions.”
Donald A. Snide, counsel at Varnum, Riddering, Schmidt & Howlett LLP, has worked with receiverships and said the process can be easier than bankruptcy.
“I find that the process of the state court receivership is sometimes easier to deal with than going through a bankruptcy because you have a little bit more flexibility,” he said. “You can ask a judge to do things that are really not covered by the bankruptcy code.”
It also allows business owners the potential to gain more from the sale of their business, Snide said.
“It allowed us to have the receiver operate a business at the same time as we were trying to get the property sold,” he said. “The receiver was both running the business and looking for a buyer at the same time.”
Snide said if a business cannot continue to run while looking for a buyer, it can cause unnecessary damage.
“A lot of times if the business has to shut down while you find a buyer, there’s a going concern value that you may lose, just because it’s closed,” he said. “A lot of time there’s some value just to the business itself that isn’t identifiable to any particular asset that you can get your hands on.”
Finding those assets and continuing the business is one of the challenges of the job, which Yeomans said varies from business to business. He said his most difficult receivership was working with The CyberNET Group, when he had to identify assets before handing the project to Chapter 7 bankruptcy court.
“I just went in and found different assets,” he said. “Then I handed it off to the trustee and then the trustee proceeds to liquidate it, and he will hand it out to all the creditors waiting.”
One of the biggest challenges in the CyberNET case was the people who were involved, he said.
“A lot of people were emotional about it because they got scammed so bad,” he said. “They were really, really upset.”
Yeomans said a receiver can work with bankruptcy court in the way he worked on the CyberNET case.
“They’re all just different vehicles to get the end result, and that’s to get the most amount of money you can and to divide it fairly to the creditors and to the owner,” he said.