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ACAS, LLC v. New England Confectionery Company, Inc.

Superior Court of Massachusetts, Suffolk

March 30, 2018

ACAS, LLC
v.
NEW ENGLAND CONFECTIONERY COMPANY, INC.

          MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF’S EMERGENCY MOTION FOR APPOINTMENT OF RECEIVER

          Mitchell H. Kaplan, Justice

         This action arises out of plaintiff ACAS, LLC’s request that a receiver be appointed to take control over and liquidate all of the assets of defendant New England Confectionery Company, Inc. (NECCO) to aid ACAS in the recovery of NECCO’s debt to it, which, it alleges, is secured by a perfected security interest in all of NECCO’s assets. On March 21, 2018, ACAS filed both a Verified Complaint (the Complaint) and a pleading which it labeled: Request for Expedited/Emergency Hearing on Assented-To Emergency Motion for Appointment of Receiver (the Motion). On March 23, 2018, the court convened a hearing on the Motion. At the hearing, ACAS presented the court with a proposed from of order entitled: Order Appointing Receiver and Preliminary Injunction in Aid of Receivership (the proposed Order). Another party also appeared at the hearing, Americraft Carton, Inc. (Americraft). Americraft presented the court with a motion to intervene in order to oppose the appointment of a receiver. It asserted that it, too, was a creditor of NECCO and had previously filed an action against NECCO to recover the debt (Suffolk Superior Court CA No. 18-0731). It went on to state that, on March 22, 2018, it obtained a Trustee Process Attachment in the amount of $515,185.29 on any of NECCO’s credits held by Eastern Bank, as well as a preliminary injunction enjoining reach and apply defendants from making payments to NECCO in a similar amount (both issued by Ames, J.). After hearing from the parties, the court continued the matter to March 28, 2018, with leave for the parties to file additional pleadings in support of their positions. ACAS and Americraft each filed supplemental pleadings and the court heard additional argument on the Motion on March 28, 2018.

         For the reasons that follow, ACAS’ Motion is denied without prejudice.

         ADDITIONAL BACKGROUND

         As relevant to the Motion, the Complaint alleges that NECCO is indebted to ACAS through term loans and a revolving line of credit in the aggregate sum of $102,105,563 and that, as of March 19, 2018, the debt is in default. This debt is secured by all of NECCO’s assets and the security interests were perfected by UCC-1 Financing Statements filed on February 22, 2017 and August 8, 2008.

         The Complaint also alleges that NECCO is in the process of negotiating a sale to a prospective buyer, but that the amount of the sale proceeds will be significantly less than the secured indebtedness to ACAS. NECCO issued a WARN ACT notice to its employees on March 6, 2018, notifying them of their potential termination and starting the 60 day period during which they must be paid. ACAS has agreed that a receiver will pay these wages during the 60 day period.

         With respect to the reason that the court should appoint a receiver, the Complaint simply states: " Emergency appointment of a receiver is necessary to provide an orderly process (a) for NECCO’s operations to be conducted for the remaining period until NECCO’s assets can be sold, and (b) for sale of NECCO’s assets to take place on such terms and in such time frame as will maximize the value to be received for the assets." No facts supporting this conclusory allegation are alleged.

         The Complaint did not allege, nor did ACAS explain in either the Motion or the proposed Order, that, through a holding company, ACAS is the indirect owner of all of NECCO’s capital stock and has appointed a majority of its Board of Directors. These facts were first disclosed by Americraft and then confirmed by ACAS.

         Americraft is an unsecured trade creditor of NECCO. It represented to the court that, on information and belief, at least one other NECCO creditor has filed suit against NECCO in Middlesex Superior Court, and that there are numerous other such creditors. Americraft also contends that ACAS sold, or caused the sale of, NECCO’s real estate in May, 2017 for in excess of $50 million and used that sum to retire debt due it. It posits that this payment might constitute a preferential payment to an insider avoidable in bankruptcy under 11 U.S.C. § 547, if a petition is filed within a year of the transfer. ACAS responds that it, or its predecessor entity, has owned that real estate since 2007.

         DISCUSSION

         There exists very little appellate case law in Massachusetts describing the Superior Court’s equitable authority to appoint a non-statutory receiver to assist creditors in recovering debts from corporate defendants. In Charlette v. Charlette Brothers Foundry, Inc., 59 Mass.App.Ct. 34 (2003), a case factually very dissimilar from the pending action, in which the Appeals Court was addressing an issue of collateral estoppel, it generally explained that:

A receivership is an equitable remedy designed to protect and preserve the assets of a corporate debtor for those creditors who the court ultimately decides are entitle to them.... The appointment of a receiver is incidental to other relief requested by a plaintiff, ..., because such an appointment seeks to preserve property until the court can adjudge the parties’ rights.... Because receivership seriously interferes with a defendant’s property interests, a judge should appoint a receiver only if he sees no other way to protect the plaintiff and other creditors.... Receivership is not solely for the benefit of the petitioning creditor or creditors.

Id. at 45-46. (internal quotations and citations omitted)

         The only guidance that the court has found in Massachusetts appellate case law that addresses a situation such as the one presented by this case, where the creditor with the debtor’s acquiescence asks the court to enter a " friendly" receivership, i.e., one that is supported by the debtor corporation, is New England Theatres, Inc. v. Olympia Theatres, Inc.,287 Mass. 485 (1934) (New England Theatres ). Although the Supreme Judicial Court (SJC) issued this opinion several decades ago, it appears still to be authoritative and to explain the factors that a court ...


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