An unsecured creditor of a business that is not paying its bills often believes that the creditor’s only remedies are to simply file a lawsuit against the business and hope that the business will be frightened into making payments, or join with other creditors and file a petition to place the business into an involuntary bankruptcy under Chapter 7 or Chapter 11 of the United States Bankruptcy Code. While a creditor with an unsecured claim should always consider filing a lawsuit against the delinquent business to obtain a judgment, filing a motion for the appointment of a receiver to liquidate, or temporarily operate, the business may also be available to the creditor, depending on the circumstances.
Of course, the possibility exists that, even if a creditor obtains an order in state court appointing a receiver to liquidate the debtor’s property or operate its business, the debtor could then file a voluntary petition for relief under the Bankruptcy Code. The filing would result in a stay of the state court receivership case and a transfer of control of the debtor to a bankruptcy trustee, or to the debtor itself as a debtor-in-possession under Chapter 11. Even so, the appointment of a state court receiver would result in judicial oversight of the debtor’s business, whether by a state court judge in the receivership proceeding or by a bankruptcy judge in a subsequent bankruptcy case.
Section 2735.01 of the Ohio Revised Code (“R.C.”) is the general receivership statute in Ohio. That Section authorizes the state courts of Ohio to appoint a receiver, by motion of a party in a pending action, under certain stated conditions. The following conditions, included in R.C. 2735.01, are of particular relevance to unsecured creditors that desire a court-appointed receiver to take control of a debtor’s property or business:
After judgment, to carry the judgment into effect; 
(3) After judgment, when an execution has been returned unsatisfied and the judgment debtor refuses to apply its property in satisfaction of the judgment;and
When a corporation has been dissolved, or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights.
R.C. 2735.01also provides for the appointment of a reciever under other circumstances, less important to unsecured creditors. For example, if property encumbered by a mortgage is the subject of a foreclosure action, and the property is worth less than the debt that the property secures, the mortgage holder may move the court for the appointment of a receiver to take control of the property and its rentals and other income.
This article will discuss some of the circumstances under which an Ohio court may appoint a receiver to take charge of a debtor’s property, upon the motion of a creditor. Excluded from this article are circumstances under which only a secured creditor may obtain the appointment of a receiver.
Conditions for the Appointment of a Receiver
Carrying a Judgment Into Effect
Under Ohio law, a creditor that obtains a judgment has several remedies to collect the judgment, including, among others, execution against the judgment debtor’s non-exempt real and personal property, garnishment of the judgment debtor’s bank accounts, and garnishment of the non-exempt portion of the judgment debtor’s wages. Under certain conditions, in conjunction with the exercise of those remedies, the court may appoint a receiver to take charge of the judgment debtor’s property for the purpose of carrying the judgment into effect, as provided in R.C. 2735.01(C). Several Ohio courts have appointed a receiver for the specific purpose of carrying a judgment into effect.
For example, in State ex rel. Celebrezze v. Gibbs , the Ohio Supreme Court recognized that a trial court is vested with sound discretion as to whether to appoint a receiver under the circumstances presented to the trial court. in Gibbs, citing R.C. 2735.01(C), the Ohio Supreme Court approved the trial court’s appointment of a receiver, and also the trial court’s order authorizing the receiver to enforce a judgment against the defendant by collecting rents from tenants of the defendant’s propeorty. The Ohio Supreme Court determined that the trial court had exercised its sound discretion in authorizing the receiver to collect the rents. Moreover, the Ohio Supreme Court pointed out that the Ohio Revised Code specifically authorizes a court-appointed receiver to receive rents in his or her capacity as receiver of the defendant’s property.
Several Ohio Courts of Appeal have also held that a receiver may carry a judgment against the debtor into effect. For example, in Dyczkiewycz v. Tremont Ridge Phase I Ltd. Partnership , an arbitrator had ordered the defendant contractor to replace certain items at the plaintiffs’ house. The defendant did not abide by the arbitrator’s order, and the arbitrator then ordered the defendant to pay a third-party contractor to perforn the work, and awarded the plaintiffs their attorney fees. The defendant contractor again failed to perform, and the arbitrator awarded $400,000.00 in damages to the plaintiffs  The plaintiffs then obtained a judgment for their damages and attorneys’ fees against the defendant contractor.
The trial court, however, denied the plaintiffs’ motion for the appointment of a receiver to take control of the defendant’s assets to satisfy the judgment. On appeal, the Court of Appeals for Cuyahoga County first noted that the appointment of a receiver is an extrtaordinary and drastic remedy, but held that the trial court abused its discretion in denying the plaintiffs’ motion for a receiver. According to the Court of Appeals, the case presented an “extraordinary situation,” because the defendant had: (1) breached a contract with the plaintiffs; and (2) disobeyed the arbitrator by failing to specifically perform the contract with the plaintiffs, failing to pay a third party to replace items at the plaintiffs’ house, failing to pay the plaintiffs’ attorney fees, and failing to pay the plaintiffs’ damages.
Several Ohio courts have authorized the appointment of a receiver to liquidate the defendant’s assets to pay a judgment against the defendant and thereby carry the judgment into effect. For example, in Bank One Columbus, N.A. v. W.T. Invest. Group , the plaintiff, Bank One, obtained a money judgment against the defendant borrowers. Bank One was also the owner and holder of first and second priority mortgages against real propoerty owned by one of the defendants. Upon motion by Bank One, the trial court appointed a receiver to execute on the money judgment, although Bank One probably could have obtained the appointment of a receiver based on the foreclosure of its mortgages against the defendant’s real property. The receiver took possession of the real property and had it appraised, and then applied to the trial court for authority to sell the real property. The receiver advertised the property for sale for a thirty (30)-day period, in accordance with the Ohio execution statutes,, obtained an offer to purchase the property, and sold the property to the offeror after receiving the approval of the trial court.
The Court of Appeals for Franklin County affirmed the judgment ordering the sale of the propoerty, holidng that the trial court appointed the receiver to carry into effect the plaintiff’s judgment against the defendants under R.C. 2735.01(C), rather than to take control of the property as in a mortgage foreclosure case under R.C. 2735.01(B). Moreover, because the sale of the property was to carry out a judgment rather than to foreclose a mortgage, the trial court was not required to determine the validity of the plaintiff’s mortgage or the outstanding amount secured by the mortgage, or to issue a judgment decree in foreclosure. The Court of Appeals also noted that, because the mortgage was not foreclosd, the defendant’s right to redeem the property by paying the debt secured by the mortgage was also not foreclosed.
In Huntington Natl. Bank v. Weldon F. Stump & Co. , the plaintiff obtained judgments against the defendant corporation on three promissory notes and against the defendant individual on a personal guaranty. The trial court appointed a receiver to carry the judgments into effect and liquidate the assets of the corporation. The opinion does not cite R.C. 2735.01(C), nor does it indicate whether the plaintiff bank had a security interest in any asset of the defendant corporation. Before the appointment of the receiver, the defendant corporation had been a dealer and broker of used machinery and equipment for nearly 40 years.
As a corollary to the ability of a judgment creditor to obtain the appointment of a receiver to carry a judgment into effect, the Ohio Revised Code provides for the appointment of a receiver in “proceedings in aid” of execution of a judgment. Specifically, R.C. 2333.22 provides that, if a judgment creditor has filed a motion to subject the judgment debtor to a debtor’s examination (similar to a deposition), the judge hearing the motion may appoint the sheriff “of the proper county, or other suitable person,” as the reciever of the judgment debtor’s property. Under R.C. 2333.22, the judge may forbid a transfer, or other disposition or interference with, the judgment debtor’s non-exempt property.
Judgment Debtor’s Refusal to Apply Property to Payment of the Judgment
As noted above, if a judgment creditor has requested a writ of execution and the sheriff or other levying officer has executed the writ but the judgment debtor refuses to apply his or her property to the payment of the judgment, the court may appoint a receiver to take control of the judgment debtor’s property.
The types of property that a sheriff or other levying officer can execute upon, under a writ of execution, are indicated in various sections of the Ohio Revised Code, including R.C. 2327.02 and 2329.01. The procedure for the service of a writ of execution is set forth in R.C. Chapter 2329, in particular, R.C. 2329.09 through 2329.12. Within sixty days following the date of issuance of the writ, the sheriff or other levying officer must file with the clerk of court that issued the writ a return on the writ. The return indicates what happened when the officer served the writ on the judgment debtor or other person in possession of the judgment debtor’s propoerty. If the return indicates that the officer served the writ, and property not exempt from execution is available to sell and thereby apply to the judgment, but the judgment debtor refuses to turn over the property to the officer, then, under R.C. 2735.01(D), the judgment creditor could file a motion for the appointment of a receiver of the judgment debtor’s property. The receiver would then take control of that property and sell it to pay the judgment.
Insolvency of a Corporation
Under R.C. 2735.01(E), an Ohio court has the authority to place an Ohio corporation into receivership if the corporation has been dissolved, is insolvent or in imminent danger of insolvency, or has forfeited its corporate rights. The relevant Ohio cases indicate that a creditor may obtain the appointment of a receiver under R.C. 2735.01E) if the corporation is insolvent or in imminent danger of insolvency, even though other bases for the appointment of a receiver are also present in those cases.
For example, in Maynard v. Cerny 
, the creditor plaintiff obtained a judgment against the defendant corporation. The corporation had refused to apply its assets to the payment of an agreed judgment in favor of the plaintiff. The trial court appointed a receiver to proceed with the dissolution of the defendant corporation and to liquidate its assets to satisfy the plaintiff’s judgment.
The Court of Appeals for Summit County affirmed the appointment of the receiver, holding that the plaintiff had demonstrated to the trial court, by the appropriate standard of ”clear and convincing evidence,” that the defendant had refused to apply its property to the payment of the judgment, and that the defendant was in “imminent danger of insolvency” under R.C. 2735.01(E) because the defendant was attempting to transfer its assets to avoid paying the judgment.
In Malloy v. Malloy Color Lab, Inc. , a shareholder of a corporation filed an action against the corporation to recover past due wages and the balance of past due loans that he had made to the corporation, and filed a motion for the appointment of an interim receiver of the corporation. The trial court granted the motion, finding that the corporation was no longer doing business with the public, had a default judgment rendered against it, was not paying its other creditors, and was insolvent, and that the shareholders were accusing each other of misuse of corporate funds.
The corporation appealed the order appointing the receiver, and the Franklin County Court of Appeals affirmed on the basis that the disagreements and dissension among the shareholders supported the appointment of a receiver under R.C. 2735.01. The Court of Appeals, however, did not cite any of the specific bases for the appointment of a receiver set forth in R.C. 2735.01. The Court of Appeals noted that, if the corporation was still conducting business with the general public, the appointment of a receiver would not be warranted.
Based on the foregoing cases, an unsecured creditor should be cautious in filing a motion for the appointment of a receiver of an Ohio corporation based solely on the insolvency, or imminent insolvency, of the corporation. An unsecured creditor should try to include additional bases to support the motion, if available.
Under R.C. 2713.01, if the following conditions are present, a creditor with a claim against an Ohio debtor can obtain a court order attaching the debtor’s property for the purpose of satisfying the claim, even before the creditor obtains a judgment on the claim:
(1) The debtor, or one of several debtors, is a foreign corporation, unless the foreign corporation is registered with the Ohio Secretary of State as a foreign corporation or is otherwise exempt from attachment under Ohio law;
(2) The debtor is not a resident of Ohio;
(3) The debtor has “absconded with the intent to defraud creditors”;
(4) The debtor has left the Ohio county of his or her residence to avoid the service of a summons;
(5) The debtor so conceals himself or herself that a summons cannot be served upon him or her;
(6) With an intent to defraud creditors, the debtor is about to remove property, in whole or in part, out of the jurisdiction of the Ohio court in which the creditor filed a complaint against the debtor
(7) The debtor is about to convert property, in whole or in part, into money, for the purpose of placing the property beyond the reach of creditors;
(8) The debtor has property or causes of action, which the debtor conceals;
(9) The debtor has assigned, removed, disposed of, or is about to dispose of, property, in whole or in part, with the intent to defraud creditors;
(10) The debtor has fraudulently or criminally contracted the debt, or incurred the obligation, for which the creditor has filed a complaint or is about to file a complaint; or
(11) the creditor’s claim is for work or labor.
After obtaining an order attaching the debtor’s property, the sheriff or other levying officer normally takes possession of the attached property. Under R.C. 2715.20, the creditor that obtained , or is filing a motion for, an order of attachment, however, can file a motion, supported by good cause, asking the court to appoint a receiver to take possession of, and control over, the attached property until the court renders a decision on the creditor’s underlying complaint against the debtor. Under R.C. 2715.21, the receiver must take possession of the debtor’s promissory notes, due bills, books of account, accounts, and other evidence of indebtedness, which comprise the attached property, and liquidate them. If the creditor obtains a judgment against the debtor on the underlying claim, the receiver must turn over the property under his or her possession or control to the creditor to satisfy the judgment.
The Ohio Revised Code contains several statutes that permit a court to appoint a receiver to take control of a debtor’s propoerty if the debtor transferred some or all of his or her assets to defraud creditors, or fraudulently incurred an obligation to defraud creditors. For example, although awkwardly written, R.C. 1313.56 provides:
“A sale, conveyance, transfer, mortgage, or assignment, made in trust or otherwise by a debtor, and every judgment suffered by him against himself in contemplation of insolvency and with a design to prefer one or more creditors to the exclusion in whole or in part of others, and a sale, conveyance, transfer, mortgage, or assignment made, or judgment procured by him to be rendered, in any manner, with intent to hinder, delay, or defraud creditors, is void as to creditors of such debtor at the suit of any creditor. In a suit brought by a creditor of such debtor for the purpose of declaring such sale void, a receiver may be appointed who shall take charge of all the assets of such debtor, including the property so sold, conveyed, transferred, mortgaged, or assigned, and also administer all the assets of the debtor ffor the equal benefit of the creditors of the debtor in proportion to the amount of their respective demands, including those which are unmatured.”
In Cordemex, S.A. De C.V. v. Dayton Importers Corp. , the Court of Appeals for Montgomery County, Ohio, cited R.C. 1313.56, among other statutes, as a basis for the appointment of a receiver in cases where the allegations extend to fraudulent conveyances. The Court of Appeals, however, terminated the receivership of several affiliated corporations because one of the corporations was utilizing the receivership to shield the assets of an affiliate from the plaintiff creditor’s claims. The Court of Appeals also opined that a court, through the apointment of a receiver, should not conduct the business of a corporation except in cases where it may be necessary, for a short time, to protect the assets of the corporation for the benefit of its creditors.
R.C. 1313.57 of the Ohio Revised Code provides that R.C. 1313.56 does not apply, thereby rendering unavailable the appointment of a receiver based on a fraudulent conveyance, unless the person to whom the sale, conveyance, transfer, mortgage, or assignment was made knew of the debtor’s fraudulent intent. R.C. 1313.57 also provides that, if the debtor mortgages his property in good faith and simultaneously with the creation of a debt or liability, R.C. 1313.56 will not vitiate or affect the mortgage (1) if the mortgage is filed for record, in the county where the property is located, within three days after its execution, and (2) when the mortgagee forecloses on the mortgage or takes possession of the property, “the mortgagee fully accounts for the proceeds thereof.”
Under R.C. 1313.58, a creditor that was harmed by a fraudulent transfer under R.C. 1313.56 and 1313.57 may file suit to
have a court declare the transfer void.
The court must then appoint a trustee, or a receiver, to recover possession of all property sold, conveyed, transferred, mortgaged, or assigned, and to administer the property for the equal benefit of all creditors. The trustee or receiver is bound to act under court supervision, as if the trustee or receiver were an assigneee for the benefit of creditors under Ohio’s assignment for the bvenefit of creditors statute, contained in R.C. Chapter 1313.
In addition to granting creditors the remedy of a receivership under R.C. 1313.56 and R.C. 1313.58 based on a fraudulent conveyance, Ohio has also enacted the Uniform Fraudulent Transfer Act, which contains provisions for the appointment of a receiver. Ohio’s rather complex Uniform Fraudulent Transfer Act (the “OUFTA”) is codified in R.C. 1336.01 through R.C. 1336.11. When seeking to have a receiver appointed for the debtor’s property based on a fraudulent conveyance, a creditor should plead violations of both R.C. 1313.56, and the OUFTA, if the facts appear to support those allegations.
. R.C. 1336.01(L) of the OUFTA defines “transfer” as “every direct or indirect, absolute or conditional, and voluntary or involuntary method of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.”
R.C. 1336.04(A) of the OUFTA provides that a transfer by a debtor, or an obligation incurred by a debtor, is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation incurred, if the debtor made the transfer or incurred the obligation in either of the following ways:
(1) with intent to hinder, delay, or defraud any creditor of the debtor, or
(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation and if either of the following applies:
(a) the debtor was engaged or was about to engage in a business or a tansaction for which the debtor’s remaining assets were unreasonably small in relation to the business or transaction; or
(b) the debtor intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.
R.C. 1336.04 also sets forth some of the factors (“badges of fraud”) that a court may consider when determining whether the debtor had actual intent to defraud a creditor when making the transfer or incurring the obligation.
With respect to a creditor whose claim against the debtor arose before the debtor made the transfer or incurred the obligation, under R.C. 1336.05(A), the transfer or obligation is fraudulent if
(A) the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor was insolvent at the time of the transfer or the incurrence of the obligation or the debtor became insolvent as a result of the transfer or obligation; or
(B) the debtor made the transfer or incurred the obligation with respect to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasoable cause to believe that the debtor was insolvent.
Therefore, under the OUFTA, a creditor whose claim against the debtor arose before the debtor made the transfer or incurred the obligation may seek to have the transfer or obligation deemed fraudulent under R.C. 1336.04 or R.C. 1336.05, while a creditor whose claim against the debtor arose after the debtor made the transfer or incurred the obligation must utilize R.C. 1336.04 to have the transfer or obligation deemed fraudulent.
The OUFTA, specifically R.C. 1336.07, provides a choice of one of the following remedies to a creditor, or a child support enforcement agency, when a debtor’s transfer or obligation is fraudulent as to that creditor or agency:
(1) avoidance of the transfer or obligation, to the extent necessary to satisfy the claim of the creditor or agency;
(2) an order of attachment or garnishment against the asset transferred or other property of the transferee (see discussion above concerning attachment and garnishment); or
(3) subject to general equitable principles and the Ohio Rules of Civil Procedure, any of the following:
(a) an injunction against the debtor, the transferee, or both, preventing any additional disposition of the transferred asset or any other property;
(b) appointment of a receiver to take control of the transferred asset or other property of the transferee;
(c) any other relief that the circumstances may require.
Under R.C. 1336.08, the transferee of an asset from a debtor, or an obligee of an obligation incurred by a debtor, may avoid the remedies in R.C. 1336.07 set forth above if the transferee or obligee took the asset or obligation “in good faith and for a reasonably equivalent value.”
In Victory White Metal Co. v. N.P. Motel Systems, Inc. , the Mahoning County Court of Appeals held that a trial court is without authority to appoint a receiver under R.C. 1336.07 unless rendering a judgment based on a trial or a motion for summary judgment. The court also held, however, that the standard of proof for the appointment of an interim receiver under R.C. 2735.01, the general receivership statute in Ohio, is much less stringent than the standard of proof for the appointment of a receiver under R.C. 1336.07. Under R.C. 2735.01(A), for example, the creditor need only show that there is a genuine issue of material fact that the property or fund in dispute is in danger of being lost, removed, or materially injured.
Before undertaking to join other creditors in order to file an involuntary bankruptcy petition against a debtor, creditors in Ohio should consider whether the facts at hand justify seeking the appointment of a receiver over the debtor’s property. As discussed above, the appointment of a receiver for income-producing real estate in Ohio is common and is provided for in R.C. 2735.01. Less common, but also available to secured and unsecured creditors alike, is the availability of a receivership if the creditor already has obtained a judgment against the debtor but is unable to collect, if the debtor is an insolvent corporation, if the debtor’s property is subject to an order of attachment, or if the debtor has made a preferential or fraudulent transfer that harms the creditor. The more circumstances justifying the appointment of a receiver, the more likely the court will, in fact, grant a creditor’s motion for the appointment of a receiver.
Donald E. Miehls, Esq.
Walter & Haverfield LLP
This overview is intended as general information only. Please note that this information is not legal advice. The reader should consult an attorney with knowledge in this area of the law to determine how the information applies to any specific situation.