Hamilton Herald Masthead


Front Page - Friday, April 14, 2023

A simple solution to often-chaotic crisis

Atherton’s idea for receiver post helps those left behind by death

Chancellor Jeff Atherton penned unanimously passed legislation that allows counties in Tennessee to appoint a public receiver in probate cases in which there was no plan of succession in place for the decedent’s business. - Photograph provided

“The scariest words in the English are, ‘Hi, I’m from the government and I’m here to help,’” says Chancellor Jeff Atherton. “But part of my job is to ensure equity, which sometimes means stepping in to help.”

Case in point: Hamilton County’s robust probate activity, which Atherton says constitutes as many as 100 filings a month. While most estates are settled without the court’s intervention, the chancellor adds, a concerning number of probate cases involving the decedent’s business become mired in muck due to the lack of a succession plan.

“Say the decedent was the owner and operator of a retail establishment,” Atherton proposes. “He had employees, creditors and a family to support – and he passed away.

“Just like that, his employees have no wages, his family has no income, his suppliers aren’t being paid and no one is paying taxes. There’s a host of problems.”

These kinds of probate cases generally don’t land in Atherton’s court until they’ve boiled over and there’s a mess to clean, he says. Unfortunately, months might pass before this occurs.

“There were cases in which the beneficiaries and heirs received nothing because all of the assets were gone by the time a case came to my attention. And that was happening a lot.”

Atherton says a possible solution came to him in 2001.

“There are laws that say if an individual who owns an LLC passes away, someone needs to wind down the business. That means someone needs to pay the liabilities and convey the assets to the appropriate parties,” he explains. “The key for us is knowing on the front end. As with any estate, the longer it sits around, the more things go missing, whether it’s money or personal property.

“The only thing that doesn’t go missing is real property; you can’t pick up land and walk away with it, but people who have claims against the property tend to grow.”

Atherton says he believed the solution hinged on him learning when such a probate case is filed.

“I thought that would allow us to ensure an efficient, effective and economic transfer of the business, or its assets, and address the liabilities immediately instead of six months later.

“I felt I should be able to intervene in the beginning, if necessary, rather than wait until a creditor has filed a claim and the family, which has no idea how to run the business, is left out in the cold.”

In theory, Atherton says, he already had the authority to assign a receiver – a person appointed as custodian of an entity’s property, finances, assets or business operations – as Chancery Court has inherent equity jurisdiction, and receivers fall within the confines of equity jurisdiction.

“However, there was no statutory authorization,” he adds.

Statutory authorization dealing with absentee estates existed, Atherton notes, but there was no codified support for active, normal estates.

“I thought I should have the same statutory authority in a normal estate as I’d have in an absentee estate.”

So, Atherton said to the right people, “Let’s do something about this.” Sen. Todd Gardenhire and Rep. Patsy Hazlewood sponsored the bill, which the House and the Senate passed unanimously.

He says he kept the idea simple. “When someone files a petition for probate administration, we ask a couple questions. Did the decedent have a business enterprise in which they were the owner or a substantial participant? And if so, should we look at it before what was a source of income for the family becomes a millstone around its neck?

Atherton proposed adding the questions to the state’s probate code.

“It’s all well and good for me to have inherent authority through Chancery Court; it’s a lot better if I have statutory cover.”

Atherton’s proposal prompted discussions, negotiations and, ultimately, the unanimous passage of legislation that authorizes the position of receiver for each county in Tennessee.

Atherton says the role spends none of the state’s tax revenues.

“My approach was to do an initial low-dollar analysis. So, when someone files a petition that indicates there was an ongoing business enterprise in which the decedent had ownership or significant interest, a representative of the estate speaks with the receiver to determine whether or not the business needs help.”

Atherton insists he’s interested only in the “efficient, effective and economic transfer of businesses,” and promises the court will not step in where it’s not needed.

“This camel does not want to stick its nose in your tent. So, if appropriate steps have been taken for transfer of ownership or interest in an LLC – boom. A report comes from the receiver that they already have a plan in place and no receiver is required.”

One of the keys to keeping the cost of a receiver to a minimum was authorizing each county to appoint its own receiver, Atherton says.

“I had a case several years ago that involved the management of certain properties, and I couldn’t locate an adequately experienced receiver in southeast Tennessee. The receiver that was appointed was well outside this region and came with a price tag that was well above what I would consider to be an appropriate rate for southeast Tennessee.”

On the other hand, if the receiver’s report says there’s no plan with regard to the transfer of ownership, or addressing the operation or wind down of a business, and advises the court to intervene, Atherton has a hearing with the parties involved to discuss whether or not this will be necessary.

“This meeting takes place expeditiously,” Atherton says.

If the parties involved provide a good reason for the court to not intervene, it won’t, Atherton assures. If not, then he dispatches the receiver, who will ensure the operation of the business, the conveyance of its assets and the payment of its bills.

“The parties can request a private receiver, but in the absence of that, I have a resource I can use,” Atherton says.

Atherton says it’s not the receiver’s job to stand at a cash register and ring up sales; rather, it’s their responsibility to make sure the appropriate persons are hired and someone is there to run the operation.

“It’s a supervisory role,” he clarifies.

Atherton appointed trusts and estates attorney Jennifer Kent Exum of Baker Donelson’s Chattanooga office as Hamilton County’s receiver. (See this issue’s cover story.) This makes Exum the first receiver in the state under the new law, as no other county has appointed one.

“Ms. Exum has a broad business-related practice as well as a probate practice, and it seemed to me that someone with their hands in both pies would have a better understanding of where the line should be drawn.”

Atherton says he’s confident the new law will help him accomplish Chancery Court’s mission of achieving equity.

“Chancery Court is called the do-right court,” he says. “Now we have another tool that will help us do our job.”