Receivership 101

Many hotel contracts have a clause that allows cancellation of a meeting without liability if the hotel files for federal bankruptcy or changes its management company.  

But in tough economic times, many hotels face a slightly different situation, called “receivership,” which can be just as troublesome, yet is often not mentioned in a contract’s termination clause.   

Receivership is sort of like the state version of federal bankruptcy. A court-appointed receiver—typically a lawyer, accountant, or company specializing in management of distressed property—is assigned when there is a lawsuit pending that involves a debt dispute or a foreclosure on the property’s mortgage. The receiver is given broad powers to operate and manage the property to preserve its value for creditors until the court can resolve the legal disputes. A receiver’s powers can include the ability to hire and fire personnel, modify contracts, and even close or sell the property. 

Many receivers will leave the hotel’s management staff in place and keep them under supervision. Thus, the receiver has the real power and is approving contracts and expenditures behind the scenes, but an on-site manager with limited powers may be the one who answers the phone when you call. Unless the receivership is announced in the news, you may never know that a receiver exists and would almost certainly never see or talk to the actual receiver. 

Receivership is not necessarily a reason to cancel. Research the facts and talk to groups that used the hotel recently to see if there are signs that staff levels have been cut, quality has declined, or the property appears on the verge of closing.   

If the hotel is in decline, read the contract carefully to see if receivership is mentioned in any clause allowing for termination. If not, an argument can be made that it should be covered by any language allowing termination in the event of a “change of management” or “bankruptcy,” since the receiver is the new legal manager of the property and the hotel’s financial situation is analogous to a bankruptcy. In the future, ensure that the contract clearly covers receivership as a ground for termination without liability.