client win or settle its breach of contract claim, the client bringing in money that the receiver would then distribute to the developer. The developer de facto attained more claims, all because of a strategically placed receiver. 2. Cost Effective Alternative In the Three Party Case, placing the client into federal bankruptcy was not the answer, because a bankruptcy stood to take too long, cost too much, have too many costly and regular reporting requirements, and have too many parties involved (e.g., a trustee, an actively involved judiciary). Further, the client was a non-profit, which per 11 U.S.C. § 303(a) cannot generally be placed into involuntary bankruptcy. This is where the receivership, with no costly monthly operating report requirement, no regular fee application requirement, and more manageable receivership fees versus U.S. Trustee fees, presented a significant financial advantage. The real estate developer could prearrange fees and reporting requirements, with the court’s blessing, creating a budgeted, efficient process. Continued on page 28 3. Flexibility Another notable positive attribute of a Colorado state court receivership of a business, versus pursuing federal bankruptcy, is more flexibility in dictating the scope and process of the receivership, which contributes to the additional advantage of control over cost. Additionally, narrowing and refining the scope of the receivership orders artfully reigns in the control and power of the receiver and interested parties. Still, to the outside observer, even an efficiently run receivership can appear to be a broadly extending hydra, with its reach into every aspect and issue of the business, which can seem administratively cumbersome. That does not have to be the case, though. To the contrary, and by the open design of Rule 66, a strategically planned receivership with narrowly tailored orders intended for specific tasks, can add a relatively inexpensive tool to a creditor’s belt. Using the Three Party Case, to further create value-added efficiency, having the receiver share counsel with the real estate developer was important, because then the receiver could prosecute the subsequent suit against the breaching third party with counsel loaded with readyto-go institutional knowledge. But conflicts could arise if other creditors sought relief against the receivership, because the receiver and the developer’s counsel could not “split” duties, seeking a pot of money that could ultimately be divided then amongst multiple parties with conflicting interests. The answer to this involved a thorough front-end investigation to determine that there very likely were no other creditors, obtaining affidavits from former client officers that there were no other creditors, and designing a portion of the receivership orders that allowed the receiver to first investigate this, and then hire the developer’s counsel if the receiver reasonably determined there were no other creditors, while also having orders that extended privilege among the collective of the receiver, the developer, and the counsel for then the developer and the receiver. This wellcrafted plan set the stage to cost-effectively pursue the at-fault breaching third party, now further armed with a breach of contract claim alleged by the receivership/ defunct client against the wrongdoing third party. Tools of this nature are highly unlikely to be found in the Bankruptcy Code or pass muster with the U.S. Trustee or a Federal bankruptcy judge, both of which are bound to adhere to the Bankruptcy Code. May • June 2022 27
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