Our post last month titled Of Whiskey and Martha’s Vineyard Realty: Federal Receivership Ordered for Fast Growing Uncle Nearest Brand discussed a federal court’s decision to grant a lender’s motion for the appointment of a receiver for its borrower. Set forth below are: (i) brief updates on developments in the Uncle Nearest case; and (ii) discussion of a recently issued Third Circuit decision in the completely unrelated matter of Whittaker Clark & Daniels Inc. dealing with the power of a corporate board to commence bankruptcy after the appointment of a state court receiver.
Uncle Nearest
After deciding to grant the lender’s motion, the United States District Court judge evaluated candidates for receiver proposed by the parties. In an order issued on August 22, 2025, the Court appointed the borrower’s proposed candidate – an experienced restructuring and insolvency lawyer with prior experience serving as a receiver. Thereafter, the receiver filed with the court a list of various financial, operational, regulatory and legal professionals engaged to assist the receiver in fulfillment of his duties under the appointment order.
The receivership order provides the receiver with broad authorization to take exclusive control of receivership assets (including bank accounts) and exercise a wide range of other actions as attorney in fact for the company. The order specifically provides that the receiver is authorized to commence a proceeding under Title 11 of the United States Code on behalf of Uncle Nearest and related entities.
With barely a month served as receiver, it is unlikely that the receiver has made any determination whether commencing a bankruptcy case will prove necessary or prudent. The receiver’s immediate focus will continue to be on the immediate tasks at hand: identifying receivership assets and preserving and maximizing the value of those assets. If the receiver determines that a Chapter 11 proceeding would be appropriate, then quite clearly, he is authorized to commence such a case pursuant to the specific terms of the receivership order as noted above.
Whittaker Clark & Daniels Inc.
The Third Circuit Court of Appeals recently issued an opinion in In re Whittaker Clark & Daniels Inc. dealing with the ability of a duly appointed state court receiver to compel dismissal of a Chapter 11 proceeding.
Prior to the receivership appointment, the company was found liable for a large verdict entered in a South Carolina state court proceeding. The plaintiff succeeded in having the South Carolina court appoint a receiver with full authority to administer all assets and take any and all steps to protect the interest of the judgment creditor.
Shortly thereafter, the company commenced a Chapter 11 petition in the United States Bankruptcy Court for the District of New Jersey. The state court receiver moved to dismiss the Chapter 11 proceeding arguing that the board no longer had the power under New Jersey law (which both parties agreed applied) to commence such a case. Both the bankruptcy court and the district court rejected the receiver’s arguments and the Third Circuit affirmed those lower court rulings.
The Third Circuit noted that the South Carolina receiver failed to seek recognition of the receivership order in New Jersey and failed to pursue appointment of an auxiliary receiver in New Jersey. Such failures were fatal to the receiver’s attempt to dismiss the bankruptcy proceeding. The Third Circuit determined that the company’s board thus retained “authority over those corporate decisions reserved to it by New Jersey law, including the decision whether to reorganize by filing for bankruptcy.”
Summary
As more companies become subject to non-bankruptcy proceedings such as receiverships, the law will continue to develop on pertinent issues such as corporate and receiver authority. Creditors affected by financially challenged companies should carefully review entered orders in any proceeding and seek guidance from counsel when needed to protect rights to payment and performance.
