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On August 1, Illinois governor J.B. Pritzker signed the Illinois Receivership Act (the “Act”) into law, establishing a comprehensive statutory framework for the appointment, powers, and administration of commercial receiverships in Illinois. The Act will be effective on January 1, 2026 and is designed to provide clarity, flexibility, and predictability in receiverships involving commercial assets, including real and personal property, fixtures, and other business assets.

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Receivership can often be a cost-effective alternative to bankruptcy and offers debtors and secured lenders an efficient process for protecting, preserving, recovering, and disposing of the assets of an entity that is insolvent or that has been mismanaged. Receiverships are often initiated by secured lenders under a security agreement and may be commenced with or without the consent of the debtor. In a receivership a court appoints a neutral party, subject to the court’s jurisdiction, to take possession of and preserve property of the debtor and, in certain circumstances, operate the debtor.  

Prior to the adoption of the new Illinois statute, the State’s receivership law consisted of a mix of cursory statutes, aging case law, and varying local practices and rules. As a result, receiverships in Illinois were often unpredictable. In an attempt to modernize the law and standardize receivership outcomes, the Chicago Bar Association formed a legislative subcommittee in 2023 to plan and draft a comprehensive receivership statute. Goldberg Kohn participated on the subcommittee and helped review receivership laws of other states to draft the proposed Act. Using a modified form of the Commercial Real Estate Receivership Act as its precedent, the subcommittee drafted a broad statute applicable to all commercial receiverships (not only those involving real estate) and made other revisions for consistency with existing Illinois law.  The Act was passed by the Illinois House of Representatives on April 8, 2025, and by the Illinois Senate on May 22, 2025, both by a unanimous vote.

The Act applies broadly to all commercial receiverships initiated after the effective date of the Act, including receiverships concerning interests in real property and personal property, and covers business entities such as corporations, LLCs, and trusts. Notably, the Act excludes certain types of property, including:

Interests in real property improved by one to six dwelling units, with limited exceptions (<em>e.g.</em>, commercial or development use, or collection of rents from non-affiliates).

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Receiverships where the receiver is a governmental unit or acting in an official capacity, unless the unit elects to apply the Act.

Receiverships under the Illinois Mortgage Foreclosure Law and other specified statutes.

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The Act authorizes Illinois circuit courts to appoint receivers as agents of the court to take possession, manage, and, if authorized, dispose of receivership property. Appointment may occur before or after judgment, in connection with an enforcement of liens, or in other actions involving business entities (including dissolution, management deadlock, and insolvency). The court may enter a receivership order after notice and opportunity for a hearing, subject to limited exceptions. The Act also imposes a limited stay to protect receivership property, and the court may expand or grant relief from the stay. If any subject property is being sold during the term of the receivership, notice must be provided to any parties with an interest in the property, and, in the case of a sale of real estate, notice must also be made by publication. In the case of an out-of-state receivership, the Act authorizes Illinois courts to appoint ancillary receivers for property located in Illinois and to give effect to orders from other states.

Any qualified person may serve as a receiver. Disqualification criteria are specified to ensure impartiality, including prohibitions on appointing affiliates of parties or judges, those with material adverse interests, or certain financial relationships. A party seeking appointment may nominate a person to serve as receiver, but the court retains the ultimate discretion to name the receiver.

Receivers are granted broad authority, subject to court oversight, to:

Collect, control, manage, and protect receivership property.

Operate businesses, incur debt under existing loan facilities, and pay expenses in the ordinary course.

Assert or defend claims related to receivership property.

Engage professionals (<em>e.g.</em>, attorneys, accountants) with court approval.

Use, sell, lease, or transfer property in the ordinary course of business, or outside the ordinary course with court approval.

Assume or reject executory contracts and leases, subject to specified limitations.

Make distributions to creditors with court approval.

Receivers are required to maintain business records, account for property, and disclose any facts that may affect their qualification. The court may expand, modify, or limit a receiver’s powers as appropriate.

Key Benefits and Protections for Secured Creditors

In order to strike a balance between the authority of the receiver to manage the debtor’s assets and protecting the rights of secured creditors, the Act includes certain key protections and benefits for secured creditors, including:

Pre-existing security interests are protected, including those attaching to after-acquired property.

A secured creditor is authorized to retain possession or control of assets to maintain perfection and priority.

A secured creditor is permitted to take appropriate steps to perfect a lien or maintain priority of a lien, notwithstanding the stay imposed by the Act. 

Assets may be sold free and clear of liens (by public or private sale transactions), but senior lienholders must consent to any sale of assets, or the sale is subject to the interests of such senior lienholders.

Junior lienholders may not force a sale without the consent of senior lienholders.

Secured creditors may credit bid in connection with a sale or other disposition of assets.

Any existing subordination agreements remain enforceable to the same extent as under other applicable law.

Liens attach to the proceeds of any sale in the order of their existing priority on the assets.

In connection with any sale, secured creditors are entitled to sale proceeds according to the existing priority rules under Illinois law.

A secured creditor’s request for appointment of a receiver does not make the receiver a “mortgagee in possession,” constitute an election or remedies, or waive any other rights available to the secured creditor.

When a receiver is appointed, the receiver must give notice to all creditors, which notice will specify the deadline (which must be at least 60 days after the date of the notice) for the creditor to file a proof of claim with the court.  The proof of claim must state the name and address of the creditor, the amount and basis of the claim, and a description of the property securing the claim, be signed by the creditor under penalty of perjury, and include a copy of any records evidencing the claim.

Owners of receivership property must cooperate with the receiver, preserve and turn over property, provide records and information, and submit to examination under oath. Failure to comply may result in damages, contempt sanctions, or other equitable remedies.

The court may award reasonable fees and expenses to the receiver and its professionals.  Fees are paid from estate property, or paid by the parties requesting the appointment if there are not sufficient funds to cover the fees.  Parties whose actions justified or would have justified the appointment of a receiver (such as parties causing waste, loss or impairment of receivership property) may also be required to pay the receivership fees. 

The Illinois Receivership Act introduces a detailed and modernized statutory regime for receiverships, aiming to enhance predictability, efficiency, and fairness in the administration of receivership estates. It will be a useful tool for secured lenders, particularly in situations where a bankruptcy would be too costly or pose too great a burden on the estate. Should you have any questions about the applicability or utility of the Illinois Receivership Act in particular matters, please contact <a href="https://www.goldbergkohn.com/people/zachary-garrett/">Zachary Garrett</a> (<a href="mailto:zachary.garrett@goldbergkohn.com">zachary.garrett@goldbergkohn.com</a>) or another member of the <a href="https://www.goldbergkohn.com/services/bankruptcy-creditors-rights/">Goldberg Kohn Creditors’ Rights and Bankruptcy Group</a>.

Alert: Illinois Receivership Act

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