Court Appoints Receiver to Protect Partnership Assets

Courts loathe the appointment of receivers. First, it is often the death knell to any viable business. The appointment of a receiver is commonly good cause to default on virtually any well-drawn contract, and it send anyone otherwise interested in doing business running for cover.

However, when the dysfunction of the partnership puts the assets of the partnership at risk, a Court can and should appoint a receiver, holds the Appellate Court of Illinois in Schultz v. Halpin, 2016 IL App (3d) 160210-U (Ill. App., 2016).

Partnership Assets Must Be Protected in Dispute Says Court

The case involved a dispute among the members of a farming partnership, all of whom were related. After the original founders died or withdrew, the defendant in the case alleged to have taken control of the partnership without actually being elected as the managing agent. They complained that he failed to provide an accounting of the income and expenses of the partnership on an ongoing basis, as was required by the partnership agreement, and that the business could no longer engage in group decision making.

Receiver Used to Prevent Damage to Partnership Assets

The plaintiffs filed suit seeking the appoint of a receiver, which the trial court found to be an appropriate remedy because the was a danger of loss of partnership income as a result of the failure to provide financial reports, deception of the other partners because the “partners can’t agree on anything.” The appellate court affirmed the finding that the partnership had ceased to be able to function.

Injunction Bond Requirement is Waived

Initially, the court required the posting of a bond in the amount of $200,000. The plaintiffs then moved for relief from the bond requirement arguing that there was “good cause” for the waiver because they could not find am insurance company willing to issue the injunction bond.

The appellate court noted that the good cause requirement for waiver of a bond is not established with a vague conclusion that good cause exists to waive the requirement. Rather, the trial court must articulate the specific reasons for its finding.

The plaintiff’s testimony that it had sought to acquire an injunction bond from multiple insurance companies, but that none were interested, was sufficient to meet the good cause requirement, according to the court.