When your business enters receivership, you may worry about what happens to the agreements that keep your company running. You may have leases, vendor agreements, service contracts or other commitments that you cannot simply set aside. Will they continue as they did before or will the receiver cancel them right away?
Here is what you should know.
Existing contracts remain subject to review
Rhode Island law allows a receiver, with court approval, to adopt or reject certain ongoing contracts involving receivership property. This can include contracts that support daily operations as well as agreements that create significant costs for your company. The court may also place conditions on continued performance.
Beneficial contracts may continue
A receiver may keep agreements that help your business operate. For example, a vendor agreement that provides essential supplies could allow the company to continue serving customers without disrupting its operations.
The same may apply to agreements that provide necessary services, property or resources. If an agreement supports daily operations, keeping it may help the business stay open while the receiver carries out the court’s instructions.
Burdensome contracts may be rejected
A receiver may reject an agreement that places unnecessary costs or obligations on the business. This could include a supply agreement or another commitment that consumes company resources without providing enough value in return.
Under Rhode Island law, rejecting a contract generally counts as a breach immediately before the receiver’s appointment. If the other party seeks damages because of that rejection, it must follow the applicable claims process and deadlines.
Your input can help evaluate those contracts
While you do not get the final say over whether an agreement continues, the receiver may still ask you about the contracts your company has in place. Sharing what you know about how they affect the business can give the receiver useful context when deciding whether to seek court approval to keep or reject them.
Review your contracts as early as possible
If your business faces receivership, reviewing your contracts with an attorney can help you identify obligations that may affect daily operations and understand how they could be handled. It can also help you address important contract issues before decisions about those agreements become part of the receivership process.