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It Starts Here Podcast: Ep. 8 | Dan Collins on Receivership

It Starts Here Podcast: Ep. 8 | Dan Collins on ReceivershipMH: Hello, I'm Mike Hackard. I'm the chair of Hackard Law. A law firm focusing on estate, trust, and elder financial abuse litigation in California's major urban areas. This is Hackard Law's podcast It Starts Here. This is an October 2017 podcast featuring Dan Collins, a well-experienced California receiver. We're going to discuss how a receiver can help clean up very messy family business situations both inside and outside of an estate. Dan has stories to tell and lessons for all of us to learn. I first want to compliment him on his outfit, you know, the blue, and it's just standing out... I don't know how you came up with it. But in any event, thanks for being here, Dan.

DC: Thanks Mike, I appreciate being invited and yeah, I am wearing the uniform of the day.

MH: Yeah, that's good. So I like your stories, I have heard lots of stories and I think I'm drawn to them as other people are. First of all, I guess, tell us what a receiver is, and we'll start with that.

DC: Well, a receiver is an individual, never a corporation or a business. It's just an individual who is brought before court and usually has the appropriate qualifications to handle any type of matter really that involved litigation and where the parties need to be equally represented. A receiver is a fiduciary who owes his allegiance to all of the parties involved in litigation equally.

MH: And does a receiver get appointed by the parties or by the court, or how does that work?

DC: Typically, the receiver is nominated by one of the litigants' attorneys, who is seeking the appointment of the receiver for protection of either business or real property assets.

MH: Okay, and so there is actually a petition that's placed before the court, and that court could be a superior court or could even be a federal court. Is that right?

DC: That's correct.

MH: Okay, and so do you appear in court at the time that you are appointed?

DC: Yes, the receiver needs to be present when it's brought before the court to appoint the receiver.

MH: Okay.

DC: Usually a judge is gonna have questions for the receiver to make sure that they are qualified for the case.

MH: So, what are the kind of questions that a judge asks you?

DC: Well, by way of example, if it's a rents and equities case that involves a lender and a borrower, they are gonna probably be interested in the receiver's background in terms of managing the asset class that's in question. And what the receiver might need in the scope of the duties and authority, because a well-crafted order is really the essence of a good outcome with the appointment of a receiver.

MH: I sometimes explain to clients that that well-crafted order is like a birth certificate in terms of identifying who you are and your nationality and how you can go forward or have the rights to citizenship. So, if the well-crafted order is not well crafted, you can be forced to come back to the court to ask the court to please direct you as to how to handle a situation, isn't that right?

DC: That is correct, and actually, sometimes it's difficult to anticipate what's going to occur once a receiver is appointed. So it's not unusual to have to go back and have the court expand the powers and duties or even the scope of what is actually being taken over. By way of example, there was a case that we had in Reno that involved a high rise condominium project that was a fractured condominium development project. One tower was completed and received the map and was occupied with residents; the other tower was just bare bones. And there was a dispute amongst the property owners, but really we were appointed because there was a litigation going on with the owners association. But really there were a lot of underlying issues with the actual property itself. And so we had to go back to the court and greatly expand the appointment and the scope of the duties.

MH: Okay. So, how do you...? You know, I know most people that are in business and professions like to get paid; how does a receiver get paid?

DC: Well, a receiver gets paid on an hourly basis typically. But before a receiver can get paid, they have to submit that reporting to the court with their billings, and the billings have to be approved by the court before the receiver can pay himself or his team.

MH: Okay. Now that's an interesting issue. So talk to us about what's a team that a receiver comes to appoint?

DC: Well, a team would include experts that have abilities to perform tasks that the receiver doesn't, but that the receiver understands and is familiar with those tasks. By way of example, I am not a CPA, I'm not even a bookkeeper, and I don't use any of the off the shelf programs like QuickBooks and things of that nature. So I'll always bring in a bookkeeper, I'll usually bring in a receiver administrator, and then I'll bring in contractors if necessary, specialty licenses those all sorts of people and license...

MH: Oh, you're covering the bases, just like a professional. So, let's move it a little bit because I like to hear the stories of the kind of businesses that receivers come into. You talked about rents and equities, and I think I know what that's about. Generally that's gonna be about real estate, right?

DC: That's correct.

MH: And it's gonna be about the ... You got collecting rents and paying obligations related to the property. And you talked about one of the high rises up in Reno.

DC: Yes.

MH: But I've seen it in other events. Where else have you done some rents and equities receiverships?

DC: Well, the appointments that I have been appointed to in rent and equity cases have primarily involved income property. Now to define income property: a receiver probably is not appropriate in a situation where you have only one to four units of residential property. It's more appropriate for multi-family of five or more units or any other type of income property which could be an industrial warehouse, retail or office.

MH: Okay, we'll switch; in estate and trust matters it oftentimes happens that the decedent either owned the business by, say, ownership of stock or LAC interest, or maybe might have been a sole proprietor. So when that person passes away, oftentimes family members are left with, you know, real consternation. How do you keep this thing going?

DC: Well, I am reminded of a case in a situation where a party passed away and one of the children was appointed as the trustee. Now, the estate was comprised of three different properties that were operated as licenced care home facilities. And this case actually occurred back in the last big recession of 2009 and 2010. This trustee who was one the decedent's children was not able to really properly manage a licensed care facility. And the siblings took objection to some of the actions of the trustee, and they hired an attorney, and then the trustee started using income from the business to protect themselves by hiring an attorney. But the consequence was that there wasn't enough resources left to properly take care of the operation. Now, a care home is a particularly onerous that situation in that it's what we call a special assets class or a single-purpose use of real estate. In other words, it's designed and constructed for one use, and that's the care for the elderly. So, that type of facility isn't going to be able to be converted into an apartment complex, you have to be able to take care of the elderly in there. In order to do that, you have to preserve your licence. Now in the last big downturn, the state of California - the department of licensing - they had budget cuts like everybody else, and they hadn't been out doing the inspections and protecting people as they were charged to do. And at this time there were press releases in the newspaper accounting sensational stories that demonstrated how residents were not being protected. And in this situation the attorneys were smart; they recognized that they were at great risk of losing the value of the estate, and so they sought appointment of a receiver to step in and take charge. Which was a smart thing to do.

MH: So, the receiver was brought in just for the businesses, no other assets?

DC: That's correct.
MH: Okay. So, that's kind of a can of worms. So tell me about whats your first day like as a receiver.

DC: Well, the takeover day, what you do is show up to the place of business or property with the court order and you present that court order to whoever needs to it, whether it's a managing, whether it's a manager or whether it's the owner of the business. And then what you do is you start going through the books, you start inspecting the property, and you have to provide a complete and accurate inventory of everything that's involved in the business. So there is a lot of, lot of work on the front end. And you step into a situation that you don't really know or understand, you understand the principle behind it, you understand how it should be operated. But you don't know what the actual circumstances are, so it's kind of like the old adage from the movie with Tom Hanks where it's a box of chocolates, and you don't know what you're gonna get when you open it up.

MH: Yeah, okay. We talked a little about banking, and you know it takes a little while for you to be able to go open bank accounts and whats there, and in estate and trust litigation we have an element to litigation oftentimes that I loosely refer to as "safecracking."

It is not unusual at all that the decedent had a safe or safes in his or her house or business, and with family lore or knowledge that there was a lot of money in those safes. And lo and behold, when they're opened after the decedent's death, everything is gone. Sometimes we are able to prove and address just who took that, the money. But have you ever run into anything like that?

DC: Well, certainly. In several of my cases I had been faced with safes that I have not been able to access. And usually you want to get into those right away; there is no time to waste on that. So I'll hire a specialist to come in and open that safe. Now there have been situations, by way of example, where the safe is on a timing program, and those are very particular, and sometimes it takes several days before you can get somebody out to open those safes.
MH: Yeah.

DC: So you have to be prepared to have somebody standing guard in front of that safe until it can be opened.

MH: Have you ever had anybody tell you that there is nothing in the safe, and you find out there is something?

DC: I certainly have, and there is one case in particular that was a rents and equity case. It was a motel, and the operator of the motel had a very large safe in their office. And I asked the owner of the hotel to open the safe, and he told me it was an old safe , he didn't know the combination, that it was just simply too heavy to move, and he has never taken it out. But he assured me there was nothing in there.
MH: So, did you take his word for that and say, "That's good enough for me?"

DC: Not for a minute did I do that.

MH: So, what did you do?

DC: I did phone the right locksmith; he was able to come and drill out that safe right away. When we opened the safe, we actually found over $400,000 in cash.
MH: Well, the owner must have been somewhat surprised.

DC: Well, he acted surprised, but I don't think he was surprised at all.

MH: Okay, well, that's a nice beginning through the bank account and your receivership.

DC: It really is, and that's one that scores points for the benefit of the lender because really one of the reasons a lender seeks the appointment of a receiver in rents and equity cases is they don't want their borrower to be using their rightful assets that they are entitled to by assignment of rents in the language of their loan to protect the borrower who was already in default.
MH: Yeah. Now I know you have been on this show It Starts Here once before, and we're gonna want you to come back and tell us more stories. But I think for today we've covered enough as to businesses, and I'll do my own summary here. And that is for people that watch this and that have estates or businesses that require some expertise of people to come in that it makes.... I have seen it over the over the years, it makes a lot of sense to bring in an experienced, knowledgeable, bright receiver like you that can either save the business or make it more profitable or save major assets of an estate. So with that, Dan, thank you for being here, and we'll meet again.

DC: Well, thank you, Mike, for having me. I always appreciate it.

MH: Thank you.

It Starts Here Podcast: Ep. 8 | Dan Collins on Receivership from Hackard Law on Vimeo.

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