Bar Bulletin Blog: General
Managing Receiverships in the Public Eye
https://www.kcba.org/?pg=News-Bar-Bulletin&blAction=showEntry&blogEntry=153890
By Al Davis
Despite the roaring success these days on Wall Street, those gains do not always translate to Main Street. Many businesses continue to struggle, some becoming insolvent and entering receivership. Many of these companies do not generate much press interest unless they involve a well-known enterprise with which the public is familiar. Nonprofit receiverships, on the other hand, can be a much different story.
When these organizations become insolvent, they often make headlines because the community is losing a resource residents typically know about and may have relied on for years. Their services and programs touch lives. In some cases, they save lives. The connection between the constituents they serve and the organization can be extraordinarily strong. In other words, it becomes personal. It’s not just business.
Stakeholder Pressures
There are often more stakeholders involved, especially those in the public eye. There can be questions from the press, questions from civic leaders or elected officials and, of course, questions from the groups who depend on the organization for their economic livelihoods.
Within a restructuring of this type, however, there can be no constituency more important than creditors. Under Washington state law, the hierarchy of claim rights is quite clear:
Administrative claims (incurred during the receivership)
> Employees
> Secured claims
> Unsecured claims
> Estate
This rank order is well known to any bankruptcy attorney or judge overseeing a receivership. Most journalists, however, will not be aware of these distinctions, particularly when covering the possible closure of a revered community institution. Nor should they be. Their interest and professional training focus on the reader or audience, the people directly affected by the discontinuation of service.
Case in Point
We saw this firsthand when we recently wound down a 78-year-old community blood bank in Tacoma. Its financial fate was sealed when it lost a large hospital contract that represented a disproportionate share of its recurring revenue. To the organization’s credit, its board recognized the futility of trying to financially hang on and compromise the standard of customer care for which it was known. Instead, the blood bank took the high road and quietly opted to transition its operations to a rival blood center.
While the nonprofit did not formally enter receivership, the process of managing stakeholder interests in the wind-down was much the same. Among the constituencies directly affected: a 70-person workforce — the overwhelming majority of whom would lose their jobs because of the impending closure.
As easy as it would have been to take the blood bank’s case to the public and make the organization and its employees sympathetic victims of circumstance, the organization took a different approach: keep things under wraps. It was critical to maintain local blood donation levels while the operational transition unfolded. If news of the impending closure were to leak, the supply to patients in need would be immediately threatened.
Threading the Needle of Success
After the transition was complete, a structured competitive bidding process for the blood center’s real estate, its most valuable asset, took place. The process yielded a final sale price well above appraised value.
That last part typically doesn’t make good newspaper copy, but it is where every stakeholder and their legal counsel hope a receiver’s efforts stay focused. The fact that the sale left the organization with enough liquidity to not only satisfy all outstanding claims but also create a community fund to advance blood therapeutics research was icing on the cake.
Not every restructuring journey ends on such a positive note, but the case serves as a reminder of the difficult choices a receiver makes when upholding their fiduciary responsibilities. The goal always is to deliver the greatest amount of value to the estate from the time of engagement until the day the receivership is closed. Everything else is secondary.
It’s business. Not personal.
Al Davis serves as Principal at Revitalization Partners LLC, a corporate and board advisory firm that specializes in restructuring and receiverships. He is a Court-Appointed General Receiver in the State of Washington, as well as an interim CEO and advisor to middle-market companies. He can be reached at adavis@revitalizationpartners.com or 206-903-1855.
