In a recent decision (Protopapas v. Brenntag AG (In re Whittaker Clark & Daniels Inc.), 2025 U.S. App. LEXIS 23439 (3rd Cir. 2025)), the Third Circuit held that the appointment of a state-court receiver over a corporation chartered in a different state cannot displace the authority of that corporation’s board of directors to file for bankruptcy unless the receiver applies for, and is granted, recognition in the courts of the corporation’s home state.
In this case, a New Jersey corporation faced thousands of asbestos-related tort lawsuits related to their production of asbestos-contaminated talc products. One asbestos plaintiff secured a $29 million verdict in South Carolina state court and, later, the South Carolina court appointed a Receiver vested “with the power and authority [to] fully administer all assets of [the corporation], accept service on behalf of [it], engage counsel on behalf of [it] and take any and all steps necessary to protect the interests of [the corporation] whatever they may be.”
Soon thereafter, the corporation’s board of directors, without consulting with the Receiver, passed a resolution to file for bankruptcy in the U.S. Bankruptcy Court for the District of New Jersey. The Receiver immediately moved in the Bankruptcy Court to dismiss Whittaker’s bankruptcy as an unauthorized petition, arguing that the Receivership Order “divested [its] board of the authority to approve a bankruptcy filing on [its] behalf and instead gave such authority to the Receiver alone.” The Bankruptcy Court dismissed the motion. The Receiver appealed to the District Court, which upheld the Bankruptcy Court’s determination. The Receiver then appealed to the Third Circuit, which agreed with the Bankruptcy Court and District Court.
The Third Circuit reviewed New Jersey law, which provides that foreign receivers “should be acknowledged and aided,” so long as doing so does not disadvantage creditors residing in New Jersey. Under New Jersey law, the Superior Courts of New Jersey are authorized to appoint ancillary receivers for New Jersey corporations. The Third Circuit then turned to the Restatement (Second) of Conflict of Laws, which observes that “only a receiver appointed by a court in the state where the corporation was incorporated can institute action to dissolve a corporation.” Thus, to displace the board’s authority to file for bankruptcy, the Receiver needed to move for, and be granted, recognition in New Jersey and the appointment of an ancillary receiver. Because the Receiver did not do so, the corporation’s board retained its authority to file bankruptcy.