When a business is in financial distress, the urgent questions tend to get most of the attention.
Should the company file for bankruptcy? Should it pursue an out-of-court restructuring? Should it sell assets? Should it consent to a receivership? Should it challenge a lender’s remedies or an Article 9 sale?
Those are important questions. But before any of them can be answered, there is often a more basic question: Who has the authority to make the decision?
That question was front and center in the recent Chapter 11 case involving Ashley Stewart. The company’s bankruptcy case was dismissed after the bankruptcy court found that the individuals who filed the case lacked corporate authority to do so.
The parties behind the filing included a former CEO and director, along with an investor. They argued that the bankruptcy filing was necessary to address concerns about an Article 9 sale of substantially all of the company’s assets. Among other things, they alleged that the sale process had been structured to favor an insider and that the company had been subject to undue lender influence.
But the threshold problem was authority.
The sole director of the company moved to dismiss the bankruptcy case immediately after it was filed. He argued that the filing had been authorized by a purportedly “reconstituted” board that lacked authority to act on behalf of the company. He also pointed to a consent order entered in pending state court litigation, which required approval from the managers of the majority owner of Ashley Stewart’s corporate parent before a bankruptcy filing could be authorized.
The bankruptcy court found that the required approval had not been obtained. As a result, the court did not need to decide whether the Article 9 sale process was fair, whether the lender had exerted improper influence, or whether the sale should somehow be unwound. The case was dismissed because the bankruptcy filing itself was not properly authorized.
That is the broader lesson for distressed businesses and their stakeholders. In a restructuring situation, authority is not a mere formality. It can determine whether a strategy is available at all.
This issue is not limited to bankruptcy filings. Similar questions can arise in out-of-court workouts, receiverships, assignments for the benefit of creditors, Article 9 sales, asset sales, forbearance agreements, and disputes among owners, managers, directors, officers, lenders, and investors.
In many cases, the answer will be straightforward. The company’s board, managers, members, or officers may have clear authority under the governing documents and applicable law. But in distressed situations, the facts are often less clean.
Control may be disputed. Directors or managers may have resigned or been removed. Prior agreements may limit who can act. Lenders or investors may have consent rights. A court order may affect decision-making. Former officers, former directors, minority owners, or competing factions may believe they can still act on behalf of the company.
Those issues should be addressed before major restructuring action is taken.
At a practical level, that means asking a few threshold questions:
Who has authority under the company’s governing documents?
Are there board, member, shareholder, lender, or court-order consent requirements?
Has anyone’s authority changed because of a resignation, removal, default, prior transaction, or pending litigation?
Is the company acting through current decision-makers, or through people who previously held authority?
Has the authorization been properly documented?
These questions are especially important when a restructuring step is being taken in the middle of a broader dispute. A bankruptcy filing, receivership request, asset sale, or challenge to a secured creditor’s remedies may be strategically important. But if the action is not properly authorized, the dispute may never get to the merits.
That appears to be what happened in Ashley Stewart. The parties seeking bankruptcy relief wanted to challenge the consequences of a prepetition sale process. But the bankruptcy court focused on the threshold issue of corporate authority. Because the filing had not been authorized by the proper decision-makers, the court dismissed the case.
For distressed companies, lenders, investors, and other stakeholders, the takeaway is simple: before choosing the restructuring path, confirm who has the authority to choose it.
In an effort to keep you apprised of what’s happening in the realm of bankruptcy and restructuring, here are four recent developments to be aware of.
1. Bankruptcy filings continued to rise in March, with Subchapter V filings showing particular strength in both the month and the first quarter. According to Epiq AACER data, total bankruptcy filings in March 2026 increased 16 percent year over year, while total commercial filings increased 5 percent. Subchapter V elections within chapter 11 increased 48 percent in March, from 183 to 271. Looking at the full first quarter, Subchapter V elections increased 67 percent year over year, from 499 to 833, while total commercial bankruptcies rose 14 percent and commercial chapter 11 filings rose 37 percent. The numbers continue to suggest that financial stress remains real across the market, and that more small businesses are turning to the streamlined Subchapter V process as pressure builds.
2. Congress is again pushing to expand access to Subchapter V. Bipartisan legislation introduced in both the House and Senate would permanently raise the debt-eligibility cap for Subchapter V cases to $7.5 million. That higher threshold had been available on a temporary basis during and after the pandemic, but it expired in June 2024. Since then, the cap has reverted to a much lower level, leaving many distressed small businesses outside the reach of Subchapter V’s faster and often more practical restructuring framework. ABI has backed the legislation and said that a meaningful number of would-be debtors likely missed the opportunity to use Subchapter V after the higher threshold expired.
3. The Supreme Court ruled that motions to set aside a void judgment still must be made within a “reasonable time.” In Coney Island Auto Parts Unlimited, Inc. v. Burton, the Court held that Rule 60(c)(1)’s reasonable-time requirement applies even when a party seeks relief under Rule 60(b)(4) on the ground that the judgment is void. The case arose out of a bankruptcy adversary proceeding in which a defendant argued, years later, that a default judgment was void because service had been improper. The Court rejected the view, adopted by many lower courts, that void judgments could be challenged at any time. The decision is a reminder that even arguments framed in jurisdictional or due-process terms may be subject to meaningful procedural limits.
4. Bankruptcy venue reform is back on the table in Congress. Representatives Zoe Lofgren and Ben Cline recently introduced the bipartisan Bankruptcy Venue Reform Act, which is aimed at curbing forum shopping in large chapter 11 cases. As introduced, the bill would generally require a company to file where it has its principal place of business or principal assets, rather than allowing venue to rest on incorporation in a favored jurisdiction. It would also narrow the affiliate-filing rule, restrict last-minute asset or entity manipulation designed to manufacture venue, and require courts to act more quickly on venue objections. The bill is not new in concept, but renewed attention to perceived venue gamesmanship in recent large cases may give the effort more momentum this time around.
In an effort to keep you apprised of what’s happening in the realm of bankruptcy and restructuring, here are several February 2026 developments to be aware of.
1. Commercial Chapter 11 activity started 2026 at an elevated pace. Epiq AACER reported 956 commercial Chapter 11 filings in January 2026, up 76% from January 2025 (544). Overall, commercial filings were also higher, at 2,840 (up 18% year-over-year), and Subchapter V elections totaled 255 (up 68%).
2. Some notable Chapter 11 filings in February included recognizable names across retail, energy, and gaming. A few companies that filed during the month are Nine Energy Service (oilfield services), Francesca’s (specialty retailer), Eddie Bauer store operator (Catalyst Brands portfolio), and Hawthorne Race Course (Chicago-area racetrack / sportsbook / OTB).
3. In mid-February, Reuters reported negotiations focused on whether consigned/concession inventory (from brands that typically retain ownership until sale) could be swept into collateral for Saks’ bankruptcy financing—an issue that put vendors in an unusually strong negotiating posture. A week later, Reuters reported the court approved a $1 billion financing package, after Saks reached deals addressing vendor concerns (including treatment of consignment goods and payments tied to prepetition amounts).
4. In February, the long-running dispute over Serta Simmons Bedding’s 2020 debt transaction resurfaced in Houston bankruptcy court, with excluded lenders pressing claims that the deal improperly elevated participating lenders and sidelined the rest. The renewed fight follows an appellate ruling that reversed a prior decision approving the transaction under an “open-market purchase” theory—keeping the spotlight on how far borrowers and majority-lender groups can push documentation in out-of-court restructurings.
Michigan’s cannabis industry continues to post strong sales numbers. Consumer demand remains steady, and cannabis has become a durable part of the state’s economy. Yet a growing number of licensed operators are facing sustained financial distress. Cultivators, processors, and retailers alike are struggling with compressed margins, rising operating costs, and limited access to capital.
This dynamic reflects a market that has moved beyond early growth and into a more mature phase. Competition has intensified. Wholesale prices have fallen. Compliance costs remain high. Federal tax treatment continues to erode profitability. For many operators, these pressures have made traditional turnaround strategies difficult to execute.
Because cannabis remains illegal under federal law, bankruptcy is not available to most cannabis businesses in the United States. As a result, Michigan cannabis companies experiencing financial distress must rely on state-law remedies. In this environment, receivership has become one of the most effective tools for stabilizing operations, preserving value, and facilitating orderly exits.
Financial Pressure in Michigan’s Cannabis Market
Michigan is one of the largest cannabis markets in the country. In 2025, cannabis sales exceeded $3 billion. That scale, however, has not translated into consistent profitability across the industry.
Several factors continue to weigh on operators:
Oversupply and price compression. Increased cultivation capacity has driven wholesale prices down, particularly for flower.
High regulatory costs. Licensing, testing, security, and reporting obligations create fixed costs that are difficult to reduce.
Tax limitations. Internal Revenue Code Section 280E prevents cannabis businesses from deducting many ordinary operating expenses, and Michigan recently implemented a new 24% tax on wholesale cannabis transfers.
These and other pressures have led to missed loan payments, vendor disputes, tax delinquencies, and operational instability. In many cases, the underlying business still has value, but the capital structure and liquidity profile are no longer workable.
Receivership as an Alternative to Bankruptcy
For most distressed businesses, federal bankruptcy provides a structured process to address these issues. Cannabis businesses do not have that option. Courts have consistently held that companies engaged in federally illegal activity cannot seek bankruptcy protection, even when cannabis is legal under state law. Receivership fills this gap.
A receivership is a court-supervised process in which an independent third party is appointed to take control of a company’s assets and, in some cases, its operations. The receiver’s role is to preserve and maximize value for the benefit of creditors and other stakeholders, subject to court oversight.
In Michigan, receivership has become a practical restructuring and liquidation mechanism for cannabis businesses because it offers:
Judicial supervision and transparency
A neutral decision-maker with authority to stabilize operations
A structured path to sell assets or businesses
Ongoing coordination with regulators
Rather than functioning as an emergency measure, receivership has evolved into a more streamlined process that courts, regulators, and market participants increasingly understand.
Michigan’s Legal Framework for Cannabis Receiverships
Michigan has taken steps to accommodate receiverships in the cannabis context. In 2020, amendments to the Michigan Regulation and Taxation of Marihuana Act and the Medical Marihuana Facilities Licensing Act authorized court-appointed receivers and trustees to operate licensed cannabis businesses, subject to regulatory approval.
This framework allows Michigan courts to appoint receivers while maintaining oversight by the Michigan Cannabis Regulatory Agency. As a result, receiverships can proceed without automatically jeopardizing licenses, provided regulatory requirements are met.
Over time, Michigan courts and regulators have gained experience with these cases. What once required ad hoc solutions has become more standardized, with clearer expectations around reporting, compliance, and asset sales.
How Cannabis Receiverships Work in Practice
In many respects, a cannabis receivership in Michigan follows the same legal structure as any other receivership. The distinctions arise from licensing, regulation, and the industry’s operational realities.
Appointment of the Receiver: Receiverships are often initiated by secured lenders, though owners or other stakeholders may also seek court intervention. Once appointed, the receiver acts as an officer of the court and assumes control over the assets specified in the court’s order.
Assumption of Control: Depending on the circumstances, the receiver may take control of real estate, inventory, licenses, bank accounts, and operating entities. In cannabis cases, particular attention is paid to ensuring that control aligns with regulatory requirements and does not trigger license violations.
Stabilization and Compliance: Early stages of a cannabis receivership typically focus on stabilization. This includes:
Confirming the status of all licenses
Addressing payroll and employee issues
Reviewing tax compliance and regulatory obligations
Maintaining required security and inventory controls
Notice to, and coordination with, regulators is essential. Even routine operational changes can require notice or approval, including the movement of cannabis products or changes to management structure.
Ongoing Operations: Whether operations continue during a receivership depends on where value resides. In Michigan, licenses alone may have limited standalone value, making continued operations necessary to preserve enterprise value. In other cases, a controlled wind-down may be appropriate.
The receiver evaluates these issues against market conditions, regulatory constraints, and the costs of continued operations.
Sale of Cannabis Assets and Businesses: Many cannabis receiverships ultimately result in a sale. These transactions involve several layers of approval and coordination.
Receivers typically prepare comprehensive data rooms, require proof of funds, and seek court approval of any transaction. Buyers must also obtain regulatory approval for licensing or changes in control, which can affect timing.
Because the receiver is a neutral party acting under court supervision, the sale process often benefits from increased credibility. This structure can reduce disputes among lenders, owners, and other stakeholders while providing transparency to regulators.
In some cases, interim management agreements are used to bridge the period between closing and regulatory approval, allowing operations to continue without interruption.
Distribution and Closing the Estate: After a sale or liquidation, the receiver distributes proceeds in accordance with court orders and applicable priority rules. Final reports are filed detailing asset dispositions, payments to creditors, and remaining obligations.
Fee scrutiny is common in receivership matters, particularly in contested cases. Regular reporting and an agreement on fees at the outset help reduce disputes and provide clarity to the court and parties involved.
Once distributions are complete and the court approves the receiver’s final report, the receivership is terminated.
Conclusion
Market forces, regulatory costs, and federal tax treatment continue to challenge cannabis operators across Michigan. Because bankruptcy remains unavailable, state-law receivership has become a central tool for restructuring and exit.
Michigan’s statutory framework and growing experience enable receiverships to proceed in an organized manner. When handled properly, receivership can preserve value, protect stakeholders, and support orderly transitions in a highly regulated industry.
As the market continues to mature, cannabis receiverships are likely to remain an important feature of Michigan’s legal and commercial landscape. With significant experience representing various stakeholders, including receivers, in some of Michigan’s largest cannabis receiverships, Dragich Law Firm is well-equipped to help your business protect and enforce its rights in these complex matters.
Looking back at the past year of corporate restructuring activity, a clear and somewhat unusual pattern emerged in 2025: distress was widespread, not concentrated.
In prior cycles, restructuring activity often clustered around a specific shock or sector—energy, retail, or crypto, for example. In 2025, there was no comparable focal point. Instead, financial stress emerged across industries, company sizes, and capital structures.
Several themes defined the year.
Broad-Based, Cross-Sector Distress
No single industry dominated restructuring activity in 2025.
Industrials recorded the highest number of bankruptcy filings, but healthcare, consumer discretionary, logistics, hospitality, airlines, retail, and technology all saw significant distress. High-profile Chapter 11 cases included Sonder, Spirit Airlines, Claire’s, and Omnicare, each reporting more than $1 billion in liabilities.
According to S&P Global Market Intelligence, large corporate bankruptcy filings reached their highest annual level in 15 years—even before year-end figures were finalized. Unlike past cycles, restructuring activity was not “industry sticky.” Distress appeared across a broad mix of sectors simultaneously.
Layoffs as Strategic Realignment
Workforce reductions were a defining feature of 2025, but many were driven by strategy rather than crisis.
More than 1.1 million job cuts were announced during the year, largely tied to restructuring, operational streamlining, and capital reallocation. Technology companies such as Intel, Microsoft, Amazon, and Meta reduced headcount while increasing investment in AI and automation.
Similar dynamics were seen outside tech. UPS and Target implemented significant job cuts as part of broader cost and operational resets.
In many cases, layoffs were not a signal of imminent insolvency, but a component of longer-term repositioning.
The Impact of Higher Rates Became Unavoidable
After several years of low-cost capital, the effects of higher interest rates became more visible in 2025.
Rising borrowing costs, tighter credit conditions, and persistent inflation exposed capital structures that were sustainable in a low-rate environment but less resilient under current conditions. The result was an increase in large corporate bankruptcies and a renewed focus on balance sheet repair.
As the American Bankruptcy Institute has noted, bankruptcy is increasingly being used as a tool to stabilize operations and restructure debt, rather than simply to liquidate businesses.
Distress Extended Down-Market
Restructuring activity was not limited to large corporate cases.
Subchapter V filings by small businesses increased nearly 10% year-over-year, reflecting growing pressure on smaller enterprises. Individual bankruptcies also rose, driven by higher household costs and debt burdens. November data showed year-over-year increases in both Chapter 7 and Chapter 13 filings.
The trend was consistent across the spectrum: financial strain was widespread and not confined to any single category of debtor.
Looking Ahead
The defining feature of 2025 was not a single shock or sector-specific downturn. It was a broad recalibration of capital structures, cost bases, and strategic priorities across the economy.
If these conditions persist into 2026, restructuring activity is likely to remain elevated—and increasingly complex—requiring coordination across legal, financial, operational, and strategic disciplines.
Asset-backed finance (“ABF”) is expanding rapidly as companies look for liquidity and private credit funds look for yield. Instead of lending against a company’s overall performance, ABF loans are secured by specific assets—most often receivables, inventory, equipment, or other identifiable income streams. The market is already over $6 trillion and is projected to reach $9 trillion within a few years.
For many businesses, ABF is a practical way to access capital when traditional bank lending is limited. But the speed and scale of the market’s growth have created problems. In some cases, lenders have accepted collateral that is difficult to verify or have relied on diligence that didn’t keep up with the pace of deployment.
Where ABF Creates Risk
Recent bankruptcy cases, including First Brands, show what can happen when ABF structures break down. Disputes arose over whether the same receivables were pledged to multiple lenders—an issue that becomes more likely when many parties are competing to lend quickly.
Problems like this happen for a few common reasons:
Uncertain collateral values, especially receivables and inventory
Multiple lenders claiming priority over the same assets
Liquidity traps, where key assets are fully encumbered
Limited monitoring, because deals were done too quickly
When these issues surface, they can push a company into distress suddenly, even if its operations appear stable.
Impact on Suppliers and Customers
A counterparty’s financing structure affects your risk as either a customer or supplier. If receivables, inventory, and equipment are heavily pledged, there may be little cushion for trade creditors if the business falters.
This makes it important to understand:
How much of a company’s assets are pledged
Whether receivables are factored or used as borrowing-base collateral
Whether multiple secured lenders are involved
With commercial Chapter 11 filings up sharply year over year, having this visibility is increasingly important.
A few steps counterparties can take to protect themselves include:
Review UCC filings for extensive collateral pledges
Ask direct questions during credit reviews about financing arrangements
Adjust payment terms when warning signs appear
Monitor financial statements for tightening cash flow
These steps help avoid being caught off-guard if a customer or supplier becomes stressed.
Conclusion
Projections suggest that ABF will continue to grow. For businesses that sell to or rely on ABF-financed companies, understanding how those companies borrow is an important part of managing credit risk.
On May 14, 2025, the Michigan Court of Appeals issued an important decision for OEMs and suppliers navigating long-term automotive supply agreements. In FCA U.S. LLC v. Kamax Inc., the Court held that a supply contract stating that orders will cover “approximately 65%–100% of our requirements” satisfies the UCC’s statute of frauds and supports an enforceable requirements contract under Michigan law.
The decision reinforces the Court’s earlier ruling in Cadillac Rubber & Plastics, Inc. v. Tubular Metal Systems, LLC and confirms that the Michigan Supreme Court’s decision in MSSC, Inc. v. Airboss Flexible Products Co. did not silently overrule that precedent. Instead, Airboss is distinguished because the contract there contained no quantity term at all.
With the Michigan Supreme Court now granting leave to review Kamax, the case has significant implications for standard supplier terms and purchasing practices across the automotive industry.
Background: FCA–Kamax Supply Relationship
FCA (now Stellantis) and Kamax had a long-standing supplier relationship governed by global terms and nearly 180 individual purchase orders. Each purchase order:
identified a specific part and unit price,
incorporated FCA’s general terms and conditions, and
stated that: “This order is for approximately 65%–100% of our requirements.”
The purchase orders were effective “through the life of the program.” FCA contended that Kamax was, in practice, its sole supplier for the fasteners at issue.
In 2023, Kamax sought to impose unilateral price increases and announced it would cease deliveries under the existing agreements as of February 20, 2023. FCA filed suit for breach of contract and obtained a preliminary injunction requiring Kamax to continue shipping parts while the dispute was litigated.
Kamax moved for summary disposition and to dissolve the injunction, arguing that:
the parties’ documents created only “release-by-release” contracts, not a requirements contract;
the 65%–100% quantity range was too indefinite to satisfy the statute of frauds; and
under Airboss, the percentage-based language was unenforceable under MCL 440.2201(1).
The trial court denied both motions. Kamax appealed.
The Legal Question: Can a Quantity Range Satisfy the UCC Statute of Frauds?
Michigan’s UCC statute of frauds requires that a contract for the sale of goods over $1,000 contain a written quantity term.
At the same time, Michigan law recognizes that a requirements contract can measure quantity by the buyer’s good-faith needs rather than a fixed number of units. MCL 440.2306(1) provides that a term measuring quantity by the buyer’s “requirements” means such actual requirements as occur in good faith, subject to limits on unreasonably disproportionate variations.
In Cadillac Rubber, the Court of Appeals held that a range—“between one part and 100% of [the buyer’s] requirements”—was sufficiently definite to constitute a quantity term. The contract there was enforceable as a requirements contract, and course-of-performance evidence was properly used to flesh out the parties’ obligations.
Kamax argued that MSSC v. Airboss implicitly undercut that reasoning. But Airboss involved a very different contract: the Supreme Court emphasized that there was no quantity term at all in the purchase order or related documents, and it expressly distinguished Cadillac Rubber on that basis.
The Court of Appeals’ Decision in Kamax
The Court of Appeals affirmed the trial court’s rulings and made several key points:
1. The 65%–100% range is a valid quantity term.
Relying on Cadillac Rubber, the Court held that a written commitment to purchase between 65% and 100% of FCA’s requirements for each part satisfies the statute of frauds and supports a requirements contract, even though the precise volume is not fixed.
2. Cadillac Rubber remains controlling law.
The Court rejected Kamax’s argument that Airboss overruled Cadillac Rubber. The Supreme Court in Airboss acknowledged Cadillac Rubber, but distinguished it because that case involved a written quantity range, and expressly declined to decide whether Cadillac Rubber was correct.
3. Airboss is limited to contracts with no quantity term.
The Court stressed that Airboss stands for the proposition that you cannot use course-of-dealing or other parol evidence to supply a quantity term where the writing has none. It does not hold that a flexible or percentage-based quantity term is invalid.
4. Injunction properly left in place.
Because FCA demonstrated a likelihood of success on the merits under Cadillac Rubber, and Kamax’s arguments were “entirely based upon the premise that Cadillac Rubber is no longer binding authority,” the Court held that the trial court did not abuse its discretion in refusing to dissolve the preliminary injunction.
Why Kamax Matters for Automotive Contracts
The Kamax decision reinforces that defined quantity ranges—such as a commitment to purchase “approximately 65%–100% of our requirements”—remain enforceable under Michigan’s UCC. As long as the range appears in a signed writing and is tied to the buyer’s good-faith requirements, it satisfies the statute of frauds.
The opinion also confirms that Cadillac Rubber continues to govern range-based quantity terms, despite the uncertainty that followed the Michigan Supreme Court’s decision in Airboss. While Airboss remains an important warning for contracts that omit any quantity term at all, its holding is limited to those cases where the writing is completely silent on quantity and therefore cannot be cured through course-of-dealing or parol evidence.
Taken together, Kamax underscores the importance of reviewing long-term supply agreements to ensure that quantity commitments are expressed in the contract itself, drafted with reasonable certainty—even if stated as a range—and supported by consistent performance. For OEMs and suppliers alike, those details remain essential to drafting supply terms that can withstand scrutiny under either Airboss or Cadillac Rubber.
Because the Michigan Supreme Court has agreed to take up the case, the legal landscape surrounding requirements contracts may shift. We will continue to monitor developments and provide updates as the Supreme Court appeal progresses.
Corporate bankruptcies are rising fast. The distress is occurring across industries, including manufacturing, services, transportation and retail. A distressed customer creates cascading risks for a business. Late payments strain cash flow. Defaults on receivables create direct losses. Sudden demand changes disrupt forecasts and planning. And when a customer files for bankruptcy, payments can be tied up for months or longer, if any recovery occurs at all.
For CFOs, the growing number of bankruptcies raises a critical question: How do you spot signs of financial distress in your customers before it becomes a problem for your business?
In a recent article published by leading industry publication CFO.com, David Dragich walks CFOs through some of the reliable early warning signs of customer distress. He also provides four practical steps to take once warning signs have been identified.
After years of rapid expansion and record sales, the U.S. cannabis industry is approaching a critical financial juncture. The largest multi-state operators are carrying an estimated $6 billion in debt maturing in 2026, according to Beau Whitney, chief economist at Whitney Economics. For an industry already constrained by high interest rates, declining wholesale prices, and limited access to traditional capital markets, that amount of near-term debt poses a major challenge.
A Market of Growth and Instability
The story of cannabis over the past several years has been one of simultaneous growth and instability. Many operators expanded aggressively into new markets, often relying on expensive debt or sale-leaseback financing to fund cultivation, processing, and retail buildouts. As capital costs rose and margins thinned, the result has been a sector that, despite billions in sales, remains largely unprofitable.
In Michigan—the nation’s second-largest cannabis market, with over $3 billion in sales in 2023—that tension between demand and profitability is especially acute. Oversupply has driven prices to historic lows, competition is intense, and federal tax restrictions under Section 280E continue to erode profits. Even with record revenues, many companies are struggling to generate positive cash flow.
New Pressures in Michigan: A 24% Wholesale Tax
On top of these existing headwinds, Michigan operators now face a new financial hurdle. In October 2025, Governor Gretchen Whitmer signed a 24% wholesale cannabis tax into law as part of the state’s 2026 budget. Scheduled to take effect January 1, 2026, the tax will apply at the wholesale level, adding significant cost pressures for growers and processors that are already operating on thin margins.
For some, the new tax may simply be the final straw. Companies already burdened with high leverage and falling revenues may find themselves unable to meet debt obligations as 2026 approaches.
Bankruptcy Remains Off the Table
The looming debt maturities and new tax burden would, in most industries, prompt a wave of Chapter 11 filings. But for cannabis businesses, that option remains unavailable. Because cannabis remains illegal under federal law, operators are prohibited from accessing the federal bankruptcy system—regardless of state legalization.
Even if the federal government proceeds with rescheduling cannabis to Schedule III under the Controlled Substances Act, as proposed, that shift would not make cannabis companies eligible for bankruptcy protection. The result is that many cannabis operators—both multi-state enterprises and smaller Michigan-based companies—will be forced to look to state law remedies to restructure their obligations.
Receivership: Michigan’s State-Law Process
In Michigan, receivership has emerged as the primary mechanism for addressing financial distress in the cannabis sector. Receivership allows a court-appointed fiduciary to take control of a company’s assets and operations, stabilize its business, and manage restructuring or liquidation efforts for the benefit of creditors.
Recognizing the need for an alternative to federal bankruptcy, Michigan amended the Michigan Regulation and Taxation of Marihuana Act and the Medical Marihuana Facilities Licensing Act in 2020 to allow the state’s Cannabis Regulatory Agency (CRA) to authorize licensed cannabis operations under the control of a court-appointed receiver or trustee. This framework gives creditors and operators a structured path to manage distress while maintaining compliance with state regulations.
Receivership can serve multiple purposes: continuing operations under supervision, selling assets to licensed buyers, or winding down a business in an orderly way. For creditors, it provides oversight and accountability. For regulators, it ensures compliance and transparency. And for distressed operators, it offers a practical means of preserving value and avoiding the chaos of informal workouts.
Experience from Early Cases
Dragich Law has played a leading role in shaping how Michigan’s receivership process is applied in the cannabis industry. The firm has represented receivers in some of the most significant cases in the state, including the Skymint receivership—one of Michigan’s largest and most complex cannabis brands—as well as the Comco and PharmaCo, Inc. receiverships. These cases have helped establish a body of practice and precedent that will guide future restructurings in the sector.
Receivership in the cannabis industry presents unique challenges. Every sale of cannabis-related assets requires approval by the CRA, and only licensed entities may purchase or operate those assets. Even operational changes, such as product relocations or facility modifications, often require regulatory clearance. Navigating these layers of oversight demands both legal and cannabis industry-specific experience.
Preparing for a Difficult Year Ahead
As 2026 approaches, cannabis companies across the country—and especially in Michigan—face a confluence of pressures: rising taxes, maturing debt, and tightening liquidity.
Receivership is a viable tool for cannabis companies experiencing financial distress. It allows stakeholders to preserve value, maintain regulatory compliance, and work toward an equitable resolution in an industry that remains excluded from federal bankruptcy relief.
For investors, lenders, and operators alike, now is the time to evaluate exposure, explore restructuring options, and prepare for what could be a challenging year for the cannabis sector.
A recent Third Circuit opinion highlights two recurring issues for state court receivers and their counsel:
1. The limits of a receiver’s authority to commence or oppose bankruptcy proceedings.
2. The jurisdictional boundaries that arise when a company’s assets or corporate charter cross state lines.
The case, In re Whittaker Clark & Daniels Inc., decided September 10, 2025, shows how questions of corporate control and comity can complicate an otherwise straightforward receivership.
Background: Competing Proceedings in Two States
Whittaker Clark & Daniels, a New Jersey corporation, faced thousands of asbestos-related lawsuits across the country. After a South Carolina jury returned a $29 million verdict against the company in early 2023, the plaintiff moved for the appointment of a receiver in South Carolina state court.
The South Carolina court appointed a receiver with broad powers “to fully administer all assets” and “take any and all steps necessary to protect the interests” of the company. Soon after, however, Whittaker’s board of directors authorized a voluntary Chapter 11 filing in New Jersey federal bankruptcy court, without consulting the receiver.
The South Carolina receiver sought to dismiss the bankruptcy, arguing that the receivership order divested the board of authority to act. Both the bankruptcy and district courts rejected that argument, and the Third Circuit affirmed, ruling that the company’s board retained its corporate authority to file for bankruptcy.
1. A Receiver’s Authority Begins—and Ends—with the Appointment Order
The Third Circuit emphasized that a receiver’s powers are defined by the order appointing them. Because the South Carolina order did not expressly displace the company’s board or transfer corporate governance authority, the receiver lacked standing to act on the company’s behalf in New Jersey.
The court explained that the authority to place a company into—or prevent it from entering—bankruptcy is not automatic. That authority depends on what the appointing court granted and what state law allows.
The takeaway is simple but critical: receivers and their counsel should ensure that the order appointing the receiver explicitly defines the scope of authority over corporate decisions, including whether the receiver may initiate or oppose a bankruptcy filing.
2. A Receiver’s Power Does Not Cross State Lines Automatically
Even if the South Carolina order had gone further, the receiver’s failure to obtain recognition in New Jersey proved fatal. The court explained that while states generally extend comity to foreign receivers, a receiver’s powers are not self-executing beyond the appointing court’s jurisdiction.
Under New Jersey law—and consistent with long-standing principles of corporate governance—only a New Jersey court can appoint an ancillary receiver to administer or control the affairs of a New Jersey corporation. Because the South Carolina receiver neither sought recognition of the South Carolina order nor obtained an ancillary appointment in New Jersey, the company’s board retained its authority to act, including to file for bankruptcy protection.
In short, state receivership orders do not automatically carry extraterritorial effect. When a company’s assets or charter are located in another state, the receiver must take additional procedural steps to ensure their authority is recognized there.
3. Practical Lessons for Receivers
The Whittaker Clark & Daniels decision reinforces several practical points that:
Define the receiver’s powers clearly. The appointment order should specify the range of powers a receiver has, including whether the receiver may file, oppose, or participate in bankruptcy proceedings. Ambiguity invites challenge.
Confirm jurisdiction early. Identify where the company is incorporated and where its key assets are located. Each state may require a separate recognition or ancillary appointment.
A receiver’s reach extends only as far as the jurisdiction that grants it. When assets or corporate authority span multiple states, success depends on anticipating those boundaries—and securing the right authority before acting.
