September 22, 2020

Payment of Debts & Turnover of Property.

As a general matter, a person who owes money or is in the possession of property that is receivership property is required to pay that debt or turnover that asset to the receiver.  If that person has notice of the receivership, but, pays the owner instead of the receiver, the debt will not be satisfied.   A.R.S. §33-2610(A) & (B).  This principle derives from Uniform Commercial Code Section 9-406(a).

The receiver, accordingly, should send a copy of the Receivership Order and a letter to all persons who owe money to the owner, as soon as practicable, demanding that all future payments be made to her.  That letter, obviously, should go to any tenants and account debtors, but, also to any persons holding deposits, such as utilities and even professionals holding retainers, previously paid by the owner.

Any creditor who possesses receivership property and the perfection of a security interest in that asset depends on continued possession will not be required to turnover that property unless and until the court issues an order providing adequately protection to that creditor’s interest.  A.R.S. §33-2610(C).  For example, a creditor with a lien on a bank or brokerage account will not be required to give up possession until the court crafts a means for adequately protecting the creditor such as granting a replacement lien on other property having an equal amount of equity. 

Subsection (D) of this section explicitly grants the court the power to hold a person who fails to turnover property to a receiver in civil contempt unless there is a bonafide dispute over that asset.

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