N.C. Ct. of App.: In re White Oak Missionary Baptist Church- No Appointment of Receiver

Summary:

An internal conflict within the White Oak Missionary Baptist Church arose over financial affairs and administrative authority, leading to a division among church leaders and membership. In 2018, disputes escalated when church leaders implemented accountability measures that were opposed by other leaders.

An audit revealed untraceable spending of a significant donation fund. The church filed a petition for receivership in 2021, claiming substantial debts and mismanagement. The trial court denied the motion for a receiver, citing insufficient evidence of insolvency. The church appealed, arguing that the ongoing internal conflict and evidence of financial mismanagement warranted a receiver's appointment.

The North Carolina Court of Appeals reviewed the case, noting that such appeals are typically interlocutory but permissible if substantial rights are affected. The Court of Appeals held that the following criteria were to be evaluated in determining whether to appoint a receiver:

1. Whether the debtor is insolvent;
2. Whether the debtor is not paying its debts, unless those debts are the subject of a bona fide dispute;
3. Whether the debtor is unable to pay its debts as they become due; or 
4. Whether the debtor is in imminent danger of insolvency. N.C. Gen. Stat. § 1-507.24(e). 

The Court of Appeals found no abuse of discretion in the trial court's decision, as evidence indicated the church was not in imminent danger of insolvency. The court also addressed the church's objection to an untimely affidavit but concluded there was no prejudice as the church had been given time to respond. The trial court's decision to deny the appointment of a receiver and consider the affidavit was affirmed.

Commentary:

Another receivership instead of a bankruptcy.   See, for example, my post about Live Oak v. Mafic in March 2023. 

The recent article in the ABI Journal,  Why State Court Receiverships Are Becoming the Norm for Smaller Companies,  begins the discussion of why this is happening,  but it would be helpful,  both on this specific topic and for the general health of the NC Bar Association Bankruptcy Section,  if some of the attorneys  making these choices would buck  the restraints  that their Tall Building Law firms seem to have against commenting or even participating in these communities. The absence of any conversation,  even in response to my most obnoxious and flawed posts,  is leading to a serious decline in the section.

To read a copy of the transcript, please see: