Illinois Adopts Expansive Receivership Act Effective January 1, 2026

The Illinois Receivership Act (the Act) creates a comprehensive statutory framework for commercial receiverships, effective January 1, 2026, that in practice functions as a "mini bankruptcy."

The Act modernizes and significantly expands receivership powers, granting the receiver similar powers to those of a trustee or debtor-in-possession in federal bankruptcy, and provides new tools for creditors and distressed businesses.

Illinois' prior receivership law, which is part of the Illinois Mortgage Foreclosure Law, provided limited options for secured creditors and limited powers for receivers. The new Act, codified at 765 ILCS 1090/1 et seq., is modeled on the Uniform Commercial Real Estate Receivership Act (UCRERA) and federal bankruptcy law, aiming to provide clarity, flexibility and predictability for commercial receiverships through a code-based procedural system mirroring other types of insolvency proceedings.

The Act resembles the federal bankruptcy code in core respects, such as an expansive definition of property of the estate, automatic stay protection, sales free and clear of liens without owner (i.e., borrower) consent or redemption rights, assumption and rejection of executory contracts (i.e., contracts where substantial performance remains, like leases), and claims administration, creating a robust commercial alternative to bankruptcy while leaving legacy mortgage receiverships and other non‑bankruptcy alternatives intact.

The following is a summary of the expansive powers provided to Illinois courts and a receiver under the Act.

Broad Coverage of Assets and Entities

The Act applies to receiverships concerning interests in not only commercial real estate, but also personal property (regardless of whether tied to real estate), fixtures and business entities (corporations, LLCs, trusts, etc.). The Act defines the property subject to the receivership estate and Illinois courts' jurisdiction broadly. Receivership property includes: "all" right, title and interest in real and personal property, tangible and intangible, and "wherever located." 

The Act's definition of property is lifted nearly wholesale from the Bankruptcy Code, which has been used by the bankruptcy courts for decades to find bankruptcy court jurisdiction over both legal and equitable property interests of a debtor located around the world. An open question to be resolved by Illinois courts is whether they will find this expansive language to grant them territorial jurisdiction to approve of the sale of receivership assets outside of Illinois, which territorial limitation has often been a practical impediment in certain receivership proceedings. To the extent that Illinois courts find territorial limitations still remain, the Act permits the appointed receiver to commence an ancillary receivership in another state where receivership property is located.

Broad Receiver Powers to Manage Business in the Ordinary Course

The Act grants broad discretion for the court to appoint a receiver pre- or post-judgment for enforcement of liens, corporate disputes, mismanagement, insolvency or to prevent irreparable harm. Appointment may occur with or without prior notice or hearing in exigent circumstances. Once a receiver is appointed, the receiver is granted broad powers to manage the business similar to a bankruptcy trustee. Without further order of the appointing court, receivers may 1) collect, manage, conserve and protect property, 2) operate businesses constituting receivership property, 3) incur unsecured debt and pay ordinary‑course expenses, 4) continue performance under existing secured facilities, and 5) prosecute or defend owner claims relating to receivership property.

Codification of Common Receivership Terms

The Act includes codification of various bankruptcy/receiver protections that were often inconsistently applied through receivership orders, such as: 1) an automatic stay prohibiting creditors from taking action against the receivership estate, 2) the ability of the receiver to assume or reject executory contracts and unexpired leases, with certain exceptions, and 3) the ability of the receiver to hire third-party professionals and compensate them with court approval.

Sale of Assets without Redemption Rights

Similar to a sale under Section 363 of the Bankruptcy Code, the Act provides for the sale of receivership assets free and clear of liens, claims and encumbrances (with security interests attaching to proceeds). Notably, the Act does not maintain the redemption rights and other borrower protections set forth in Illinois' foreclosure statute. Sales under the Act may be less susceptible to a collateral attack than a sale under Article 9 of the Uniform Commercial Code (UCC), which is performed outside of the courts and is not subject to court approval.

Receivership Estate and Claims Allowance Process

The Act sets forth a procedure for the submission of claims to a receivership estate. This procedure permits the receiver to seek disallowance of these claims, similar to the procedures in bankruptcy.

Practical Implications and Recommendations

For creditors, the Act establishes a comprehensive statutory framework that facilitates more efficient and expedited sales of receivership property, thereby enhancing the potential recovery for creditors holding liens in distressed assets. The Act also offers a practical and cost-effective alternative to traditional bankruptcy proceedings, which are lengthy and expensive.

When negotiating new loan documents or amending existing loan documents, creditors should consider including an express provision in security agreements, mortgages, deeds of trust and other security documents whereby the owner/borrower authorizes and consents to the appointment of the creditor as receiver under the Act upon the occurrence of an event of default.

For owners/borrowers and operating companies, the Act provides an alternative to bankruptcy. Receivership under the Act can stabilize operations, reduce certain contractual burdens and allow for going‑concern sales without the cost and complexity of bankruptcy proceedings.

For commercial tenants, the Act differs from bankruptcy in that the Act provides, with only limited exceptions, a general prohibition against commercial lease rejection. Although the Act’s general prohibition against commercial lease rejection differs legally from a bankruptcy, where commercial leases are subject to rejection, in practice it represents a different route to largely the same result.  Just as commercial tenants whose landlords are subject to a receivership under the Act are generally protected against dispossession, tenants whose leases are rejected in a bankruptcy case have the statutory right to remain in possession for length of the lease term.

For any questions regarding the implications or potential applications of the Act in specific matters, please contact the authors.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.