There’s a lot to wonder about receiverships. Like, how is the Receiver’s compensation calculated? And does it make a difference to compensation if a corporate shareholder says the receivership was unnecessary, and that it was obtained for improper purposes?
Judge Bledsoe answered those questions this week in Ekren v. K&E Real Estate Investments, LLC. 2015 NCBC 107,
Compensation Can Be Based On Gross, As Opposed To Net, Receipts
A Receiver, once appointed by the Court, is paid per the terms of G.S. §1-507.9. The statute says that: the court shall allow a "reasonable compensation to the receiver for his services, not to exceed five percent upon receipts and disbursements, and the costs and expenses of administration of his trust and of the proceedings in said court, to be first paid out of said assets."
Let’s say that a receiver sells a piece of property for $100,000 which is subject to a $90,000 mortgage. Is the five percent allowed by the statute calculated on the $100,000 gross receipt, or the net receipt of $10,000 which is left following the payment of the mortgage?
The receiver for K&E Real Estate Investments had submitted two previous requests for compensation based on net receipts, but in the request before the Court requested that it be based on the gross receipts.
Judge Bledsoe denied an objection to the request for compensation, stating:
N.C. Gen. Stat. sec. 1–507.9 . . . does not require that commission be paid on net receipts, and the Court does not find that the Receiver’s decision to seek commission based on net receipts in his first two applications precludes his request to be paid on gross receipts in the current Motion.
Op. ¶5.
Compensation Of Receiver Appointed For "Spiteful Purposes"
The Court also rejected the Defendant’s argument that the Receiver’s fees should be reduced because the lawsuit which led to the appointment of the Receiver was "motivated strictly by [Plaintiff’s] spite." Order ¶8. Judge Bledsoe said that ‘[t]he Receiver’s compensation should not be dependent upon the wisdom of his appointment." Op. ¶8.
Do The Same Rules Apply To Receivers For LLCs As For Corporations?
Eagle-eyed readers will have noticed that the receivership in this case was for an LLC, and that Section 1-507.9 only mentions the compensation of receivers for "insolvent corporations."
Judge Bledsoe noted that the Order appointing the Receiver for the LLC (entered by Judge Murphy in 2012) said that the Receiver would be paid per G.S. Section 1-507.9 Op. ¶3 & n.1.
The NC Limited Liability Company Act has multiple provisions providing for the appointment of a Receiver. It has no specific provision regarding the compensation of a Receiver. The closest it comes is Section 57D-6-04, which says that:
The court may order the LLC to compensate the receiver and reimburse the receiver’s expenses, including the fees and expenses of attorneys and other professionals retained by the receiver.