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BANKRUPTCY & COMMERCIAL LAW FEATURE

Importantly, legal title of the assignor’s empathy (\ ˈem-pə-thē \) noun 1. Understanding another’s
property is vested in the assignee, which feelings; sensitivity to emotions; walking around in someone else’s
means the property is generally out of reach
of creditors but for their rights under the skin, à la Atticus Finch.
assignment. See Christoff v. Brunckhart, Jerome F. Weiss, Mediator
1 Ohio App. 2d 210, 212 (Ohio Ct. App.
1965), citing Marienthal v. Mosler, 16
Ohio St. 566 (1866). While this certainly
benefits the assignor in general insolvency Facilitating dispute resolution
proceedings, it does pose unique problems for individuals and institutions
for the assignee of a business subject to
Ohio’s Medical Marijuana Control Program. Tel 216.589.9995
Importantly, in Ohio, marijuana businesses Fax 216.589.9723
are subject to licensing and regulation by the www.mediate.com/mediationinc

Ohio Department of Commerce, the State
of Ohio Board of Pharmacy, or the State of
Ohio Medical Board. Thus, the continued jurisdiction of the courts through judicial (1)(a) specifically provides for the sale of
operation of the business may be a difficult dissolution. There are separate statutes receivership property free and clear of liens.
hurdle for an assignee to overcome. governing judicial dissolution depending on
Additionally, the assignee could face how the business is organized. Specifically, Not a Perfect Substitute
obstacles selling property free and clear of O.R.C. §1701.91 governs corporations; While these state law alternatives are not a
liens. While some case law indicates that the O.R.C. §1705.47 limited liability companies; perfect substitute for bankruptcy proceedings,

lien of a secured party passes to the proceeds O.R.C. §1782.45 limited partnerships; O.R.C. both could provide an insolvent cannabis
of the sale of property by the assignee, the §1776.45(B)(2)(c) general partnerships; O.R.C. business a judicial remedy to satisfy its
ABC statutory scheme does not address the §1702.52 non-profit entities; and O.R.C. creditors in a controlled manner. However,
issue as clearly as the more recently amended §1729.61 for cooperatives. Depending on the it is important to note that both an assignee
Ohio receivership statute. See Lindermann type of business entity, there are a variety of and a receiver may face the same practical
v. Ingham, 36 Ohio St. 1 (1880); and O.R.C. different circumstances providing grounds to problems the business itself faces. For example,
§§1313.32 – 1313.34, but contrast with initiate an action before an Ohio court. Once an assignee or receiver over an Ohio licensed
O.R.C. §2735.04D(1)(a). an appropriate action for a judicial dissolution cultivator or dispensary will have the same
is filed, the filer or other litigant may seek the banking and financial services challenges as
Receivership appointment of a receiver. the business (however, current legislation such
Another available in Ohio may be a Similar to a debtor in possession under as the SAFE Banking Act of 2019, if passed,
receivership. Receiverships primarily are the Bankruptcy Code, or certain instances may help alleviate those challenges).
utilized under the receivership statute under an ABC, it may be advantageous for Any marijuana business in distress should
O.R.C. §2735.01 et seq. Under Ohio law, a a receiver to operate the business during seek the advice of counsel to discuss the best
receivership is a remedy, not a standalone liquidation. However, the judicial dissolution available options.
cause of action. Wood v. Galpert, 1 Ohio process may pose obstacles to a receiver’s 1 In December 2018, the Agriculture Improvement Act of 2018,
App.2d 202, 204, 204 N.E.2d, 384, 386 ability to operate and potentially sell the Pub. L. 115-334, removed hemp and its extracts (defined as
(8th Dist. 1965). So, unlike an ABC which distressed business as a going concern as the Cannabis sativa L. with a THC concentration of not more
than 0.3%), from the CSA schedules.
invokes the jurisdiction of the probate court, receiver may not be able to transfer any assets
a distressed marijuana business needs to without dissolving the entity.
invoke the jurisdiction of the appropriate That said, a Receivership has some advantages Nathaniel R. Sinn is a Partner with
state court before seeking the appointment over an ABC. First, title to the receivership Buckingham, Doolittle & Burroughs,
of a receiver. property is not conveyed to or vested in LLC. He has been a CMBA member
O.R.C. §2735.01 specifically provides for the the receiver. Rather, a receiver is merely an since 2011. He can be reached at (216)
appointment of a receiver “when a corporation, administrative arm of a court who takes charge 621-5300 or nsinn@bdblaw.com.
limited liability company, partnership, of assets for purpose of conserving them to ends
limited partnership or other entity has been of equity and for benefit of creditors generally.
dissolved, is insolvent, is in imminent danger Tonti v. Tonti, 118 N.E. 2d 200 (Ohio Ct. App. Heather E. Heberlein is an attorney
of insolvency, or has forfeited its corporate, 1951). Consequently, a receiver appointed with Buckingham, Doolittle &
limited liability company, partnership, limited over an insolvent entity may not face the same Burroughs, LLC. She is chair of the
partnership, or other entity rights.” O.R.C regulatory problems an assignee would in CMBA’s Bankruptcy & Commercial
§2735.01(B)(6). attempting to continue the ongoing operations Law Section. She has been a CMBA
In Ohio, insolvent businesses or those of the debtor, even for a short time during a member since 2009. She can be reached at (216)
in danger of insolvency may invoke the liquidation. Additionally, O.R.C. §2735.04(D) 621-5300 or HHeberlein@bdblaw.com.

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