Simon PLC Attorneys & Counselors – November 2020 Memorandum
CHANGES IN MICHIGAN RECEIVERSHIP LAW PROVIDE REMEDY FOR MARIJUANA BUSINESSES
AND PROTECTION FOR LENDERS
Bloomfield Hills, Michigan –Frank R. Simon, the founder and managing member of Simon PLC Attorneys & Counselors, is frequently appointed as Receiver by courts throughout Michigan. The firm has a significant practice area dedicated to representing him and other Court-Appointed Receivers. Thanks to recent changes in Michigan law, that practice may now include the receivership of marijuana businesses.
The legislature recently passed, and the Governor signed, significant bills affecting Receiverships, including amending the Commercial Real Estate Receivership Act to now apply to all commercial receiverships, regardless of whether they involve real or personal property. Two additional new laws amend the Michigan Regulation and Taxation of Marihuana Act (MRTMA) and the Medical Marihuana Facilities Licensing Act (MMFLA). As a result, the state Marijuana Regulatory Agency is now authorized to approve Court-Appointed Receivers to operate businesses in the marijuana industry.
This is welcome news that may permit many lenders to open up to an industry they have been avoiding and allow them to stop walking the tightrope of state versus federal law. All but eight states have at least decriminalized some use of marijuana. Eleven states and the District of Columbia have legalized its recreational use, subject to regulation. Six more states have marijuana legalization on the ballot this year, whether outright legalization or specific use for medical purposes.
Under federal law, however, marijuana remains illegal. In fact, the federal government identifies it as having a high risk for addiction and no approved use for medical purposes. The current administration has signaled little intention to change its classification. In 2018, the Justice Department revoked the former administration’s instructions for prosecutors to ignore or lower the priority of federal anti-marijuana laws in states that had had legalized it or that had their own laws for that purpose. Federal prohibition makes bankruptcy protection, which provides certain protections for secured lenders, unlikely.
Financial institutions have been left to form their own policies—if lending to the industry at all—with little federal guidance or predictability. New institutions specifically designed to serve marijuana-related businesses faced the difficulty of obtaining a federal reserve master account without putting their customers’ money at risk.
Now, Michigan lenders can benefit from the availability of a Court-Appointed Receiver, and Michigan marijuana businesses can benefit from a process that is similar in many ways to bankruptcy. When controlling a business, a Receiver can liquidate or reorganize, protect the collateral of secured creditors, and administer a claims process that may or may not pay out to unsecured creditors. Most orders appointing receivers also prohibit any new legal action against the subject of the receivership without court approval, making the result somewhat similar to the automatic stay of Section 362 of the Bankruptcy Code. A Receiver answers to and is an agent of the court that appoints him or her.
Financial Institutions would be wise to draft loan documents that provide for the appointment of a receiver upon default. The attorneys of Simon PLC Attorneys & Counselors are available on both the front and back ends of lending relationships. We frequently draft loan origination documents, including those referenced here, and we assist lenders in exercising their rights in collection, workout, bankruptcy, and receivership.
N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.