R.I. Superior Court Creates COVID-19 Non-Liquidating Receivership Program To Assist Businesses Affected By COVID-19

Published on: April 3, 2020

In order to help struggling Rhode Island Businesses, the Rhode Island Superior Court has implemented a new receivership program (kind of like a bankruptcy reorganization without the stigma) to protect businesses from creditors during the COVID-19 crisis.  I mention this program for two reasons.  Because it is something business that can’t get SBA or PPP loans might want to take advantage of.  Secondly, other organizations that may be creditors or in business with some companies should be aware of this new possibility, as it could impact their own cash flaps and ability to sue.

On March 31, 2020, the Presiding Justice of the Rhode Island Superior Court entered an Administrative Order that created the COVID-19 Non-Liquidating Receivership Program (“Non-Liquidating Program”) to be administered by the justices of the Rhode Island Superior Court Business Calendar.  The Non-Liquidating Program was created to combat the adverse economic impacts that businesses have suffered as a result of the COVID-19 pandemic, and to allow Court-supervised protection of those businesses.

The Non-Liquidating Program is different from a traditional receivership, which generally results in a business and its assets being sold for the benefit of creditors.  Under the newly established Non-Liquidating Program, an eligible business may continue to operate under the supervision of a Court-appointed non-liquidating receiver.  A receiver is a neutral and impartial fiduciary appointed by the Court.

Pursuant to the Non-Liquidating Program, the business operates under a receiver’s supervision, pursuant to a Court-approved operating plan.  Most importantly, during this time, the business is under the protection of a Court-ordered injunction that precludes, among other things, lawsuits and actions by the business’ creditors.  That same injunction also precludes the enforcement of any judgment against the business; the creation or perfection of any lien against the business; and an action to collect, assess or recover money from the business.

If the business successfully maintains and completes its operating plan, the business may exit the Non-Liquidating Program by submitting a proposed exit plan to the Court.  The proposed exit plan provides for the payment of the business’ debts from revenues generated during operating in the Non-Liquidating Program.

If the business cannot operate according to the Court-approved operating plan, or cannot present a viable exit plan, the business may be subject to an additional liquidating receivership proceeding.  However, this additional liquidating receivership proceeding will not begin until a hearing takes place before the Court, and a finding by the Court that the business is in default of the Court-approved operating plan.

To be eligible for the Non-Liquidating Program, a business must not be in default of its financial obligations as of January 15, 2020, and:

Have experienced a reduction in gross revenue of at least twenty percent during any sixty-day operating period beginning January 15, 2020 as compared to a similar operation period prior to January 15, 2020; or

Was forced to cease a substantial portion of its operations due to any governmental or regulatory order at some time after January 15, 2020; or

Can certify or otherwise sufficiently demonstrate to the Court’s satisfaction, that the COVID-19 pandemic created an adverse impact on the business’ operations resulting from either:

  1. A government and/or regulatory mandated partial or complete closure, or
  2. A substantial interruption of cashflow occurring after January 15, 2020, attributable to the COVID-19 pandemic, which would have been utilized to fund ongoing business operations and, as a result, the business cannot continue/or resume operations and pay its debts as they become due in the usual course of business.

The Administrative Order creating that COVID-19 Non-Liquidating Receivership Program can be found [here].

If you have any questions about the new receivership program, please contact Ed Allcock at 781-849-3637 or via email eallcock@meeb.com.