Why is receivership so common here?

Between Central Falls and WLNE-TV ABC 6, not to mention a number of lesser-known entities, the bankruptcy-like section of Rhode Island state law known as receivership has been getting quite a workout lately.

Not being a lawyer, I have been curious why insolvent organizations were turning to receivership rather than the federal bankruptcy courts. (Though in Central Falls’ case, doing so was not possible until the governor signed the new law on municipal finances last month.)

During an interview for a story that will come out next week, I put that question to Allan Shine, the Providence attorney who is representing WLNE’s current ownership in its case. The bottom line? Receivership is simpler. Here’s what he said:

With a Chapter 11 [aka, a business bankruptcy filing] – which you and your colleagues talk about in the news with companies such as GM or Enron or United Airlines – you’re dealing with huge, huge legal and accounting fees – millions and millions and millions of dollars a month in big Chapter 11s. It’s the nature of the beast with a huge company that has assets in every state and sometimes around the world, and everyone has lawyers and they can be tremendously expensive.

In Rhode Island, we don’t have United Airlines at least, and so we don’t have huge, mega-Chapter 11s. And over the years, members of the bar and the bankers and the people who are interested in creating value and helping out distressed companies, they have actually made use of the receivership process as a means for smaller and middle-sized companies to reorganize or to be sold as a going business, without the expense and the formalities of the federal court proceedings.

As an example, Shine pointed to Bess Eaton, the Westerly-based coffee chain that filed for bankruptcy in 2004 and was bought by Tim Hortons. Bess Eaton had to file in federal bankruptcy court because it had locations in a number of different states, and receivership only covers cases where everything is in Rhode Island, he said. (Shine represented Bess Eaton in its filing.)

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