4. You Cannot Force or File Federal Bankruptcy We are in Colorado, so we are familiar with the fact there is and has been an industry here that our federal laws do not allow. As we learned from In re Way to Grow, Inc.1, industries with even indirect business relationships to cannabis companies cannot file federal bankruptcy. But the holding of Way to Grow does not preclude creditors of cannabis-related companies or cannabis-related companies themselves from filing Rule 66 receiverships to administer assets and debts, distributing value in the order of priority, and obtaining something akin to discharge orders. 5. Discharge Orders Finality, by way of ordered releases and discharge orders, is a key sought after component that one can obtain in a receivership, generally the same as in a bankruptcy. The one caveat to this is there can be challenges to a Colorado state court discharge order, or any other order in the receivership, extending to bind out-of-state parties and courts. That said, doctrines and legal concepts such as the Barton doctrine, full faith and credit, and comity may allow orders to apply broadly to parties, or receivers to seek assets in other states.2 For example, in Wright v. Philips3, a case decided by the California Court of Appeals, the court stated that: “Receivers appointed under a jurisdiction other than that of the state forum may be permitted to sue in a stranger state as a matter of comity only. That this privilege of comity will be extended, wherever the rights of local or domestic creditors are not prejudiced, is now the general rule in the United States.” Colorado courts, similarly, have recognized such comity, and the limits of it.4 Ultimately, while there is law providing leverage against out-of-state creditors and parties, the best laid scheme is to investigate the existence, nature, and extent of any out-of-state creditors, assets, and claims before electing to proceed with a Rule 66 receivership, to weigh the advantages/ disadvantages, and perhaps more appropriate venue. 6. Adding Value and Preventing Loss Just as in the Three Party Case, where the client had neither the means nor drive to prosecute the client’s claims, letting those claims potentially melt away, a receivership can allow a creditor to add value, where others do not care, do not see value, or are not protecting assets. Intangible or intellectual property do not stand out immediately to all as being valuable, but placed in the hands of a competent receiver with investment banker contacts and creditors angling to extract what they can, a receiver can obtain much more value beyond that seen by the debtor’s abandoning officers and owners. Akin to that, officers and owners of insolvent companies may seek to have value leave out the back door, and a creditor that uses evidence of threats of theft to obtain ex parte orders appointing a receiver can swiftly and tactfully protect collateral’s value. Conclusion The maxim that possession is nine-tenths of the law has its merits. Rule 66 receiverships allow creditors and claimants to possess, figuratively, a nimble, creative avenue to collect, assert claims, and close tumultuous matters, and possess, precisely, assets of a counterparty to achieve those goals. When the route to relief appears unclear, a state receivership may be the less traveled device to achieve the creditor client’s objectives. 1In re Way to Grow, Inc., 597 B.R. 111 (Bankr. D. Colo. 2018). 2Herstam v. Bd. of Directors of Silvercreek Water & Sanitation Dist., 895 P.2d 1131, 1134 (Colo. App. 1995) (citing U.S. Const. art. IV, § 1). 3Wright v. Phillips, 213 P. 288, 289 (Cal. Ct. App. 1923). 4McCague v. Dodge, 114 P. 648, 650 (Colo. 1911) (though denying the application of comity, finding the receiver failed to state a cause of action in using his NE court orders to control assets located in CO, of a CO corporation). 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 ready-to-go institutional knowledge. Continued from page 27 www.coloradobankers.org 28
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