By Arthur R. van der Vant | Illinois Receiver

A distressed loan presents lenders with a difficult question: How do you maximize collateral recovery while minimizing the risk that the disposition itself becomes the next major legal dispute?

A recent Illinois Appellate Court decision offers a sobering reminder that the answer involves much more than the price received at sale. It also raises an important question for lenders, their counsel, and workout professionals: Could a court-supervised receivership provide a more defensible path to asset disposition?

In Marchi v. Centrust Bank, N.A., 2026 IL App (1st) 231476-U, the First District Appellate Court affirmed a finding that a secured lender’s private sale of business assets failed to satisfy the commercial reasonableness requirements of Uniform Commercial Code Article 9. The consequences were substantial: the lender’s deficiency claims against personal guarantors failed.

For Illinois commercial lenders and the professionals who advise them, the decision deserves attention, particularly now that the Illinois Receivership Act, 765 ILCS 1090/1 et seq., has taken effect.

The lesson from Marchi. Process matters as much as price

The dispute arose from loans exceeding $1.5 million made to a wedding dress manufacturer. The loans were secured by business assets that included equipment, inventory, accounts receivable, and intangible property.

Following the borrower’s default, the lender pursued a private disposition of the collateral under Article 9. The assets were ultimately sold for $775,000 to a group that included two of the borrower’s guarantors, with the lender financing the acquisition.

The sale subsequently became the subject of extensive litigation.

Among the issues examined were the extent of the marketing efforts, the lender’s handling of customer payments during the sale process, the financing provided to the purchasers, and the substantial differences between competing appraisals. One earlier appraisal valued the collateral at approximately $3.8 million, while a later appraisal placed the value at approximately $275,000, based on a different assessment of the assets.

The trial court found the sale commercially unreasonable, and the appellate court affirmed.

Under UCC § 9-610, every aspect of a collateral disposition, including its method, manner, timing, place, and terms, must be commercially reasonable. A seemingly defensible sale price does not, standing alone, establish compliance.

The practical message is clear: A lender must be prepared to demonstrate not simply what it received, but how it arrived at the transaction.

The financial consequences can extend beyond the collateral

The implications of Marchi go well beyond a disputed valuation.

Under Illinois’ version of UCC § 9-626, when a disposition is found commercially unreasonable, a rebuttable presumption may arise that a compliant disposition would have produced enough proceeds to satisfy the secured obligation in full. The secured party may rebut that presumption with appropriate evidence.

In Marchi, the lender did not rebut the presumption. As a result, its deficiency claims against the guarantors failed.

That is a significant risk for any lender expecting to pursue guarantors after liquidating collateral.

The litigation also illustrates the difficulty of reconstructing a sale years after the event. Appraisals must be revisited, marketing decisions scrutinized, and witnesses asked to explain a process that may have occurred under very different market conditions.

A disposition intended to resolve a troubled credit can become a separate, expensive dispute over whether the lender handled the recovery properly.

For lenders and workout professionals, the lesson is not to abandon Article 9. It is to recognize its risks, build a defensible record, and consider whether another enforcement strategy would better serve the circumstances.

The Illinois Receivership Act creates another option

Effective January 1, 2026, the Illinois Receivership Act provides a comprehensive statutory framework for receiverships involving commercial assets, personal property, and business interests.

For eligible matters, the Act gives lenders and their counsel an additional tool to consider when a borrower defaults and collateral must be preserved, managed, marketed, or sold.

One particularly important feature is Section 16. With court approval, a receiver may transfer receivership property outside the ordinary course of business, including through a sale. Subject to statutory conditions and the rights of senior lienholders, such a sale can be structured to transfer property free and clear of certain liens and redemption rights, with extinguished liens generally attaching to the proceeds.

This creates a potentially valuable alternative when the collateral consists of operating business assets or a complex collection of property that requires more than a straightforward liquidation.

Rather than relying exclusively on a private sale followed by possible litigation over the adequacy of the process, the parties can consider a receivership in which the proposed disposition is presented to the court for approval before it closes.

That distinction matters.

A court-supervised sale can provide an opportunity to address questions about marketing, valuation, proposed terms, and the treatment of interested parties while the transaction is still pending. It can also create a contemporaneous record of the process and the court’s decision.

It is important, however, to distinguish a court-approved receivership sale from an automatic determination that every aspect of the transaction satisfies every requirement of Article 9. The governing law, the nature of the collateral, the proposed transaction, and the rights of affected parties must all be considered. Court approval is a risk-management tool, not a guarantee against future litigation.

Where an experienced receiver can make a difference

A receivership is not simply a mechanism for taking control of distressed property. Properly structured and administered, it can be a practical framework for protecting value, managing risk, and executing an orderly disposition under court supervision.

As an Illinois receiver, I see several areas in which early consideration of receivership can be valuable to lenders and their counsel.

1. Preserving collateral before value deteriorates

Distressed businesses can lose value quickly. Equipment may be neglected, inventory may deteriorate, receivables may become harder to collect, and customers or employees may lose confidence.

A receiver can help secure and preserve assets, evaluate immediate operational concerns, and implement a management plan consistent with the court’s order and applicable law.

2. Establishing a credible valuation and marketing process

A defensible disposition begins before a buyer is selected. Independent valuation work, an appropriately designed marketing strategy, documented buyer outreach, and a clear record of offers and negotiations can help establish why the proposed transaction makes commercial sense.

The appropriate approach will depend on the assets, the industry, the available market, and the need to balance time, expense, and preservation of value.

3. Providing transparency and accountability

An independent receiver operates within the authority granted by the court and owes duties associated with the receivership. Clear reporting, documented decisions, and appropriate notice to interested parties can help make the process more transparent.

For lenders, borrowers, guarantors, and other stakeholders, a well-documented process can be preferable to a transaction whose rationale must later be reconstructed from incomplete records.

4. Coordinating a complex recovery

A troubled credit may involve real estate, equipment, inventory, receivables, contracts, employees, and multiple competing interests. A receiver can help coordinate the practical administration of those assets while counsel addresses the legal issues and the lender evaluates its recovery objectives.

The goal is to keep the operational realities of the distressed situation aligned with the legal strategy.

Receivership is a strategic choice, not a universal solution

The new Act does not mean every default should lead to a receivership.

A conventional Article 9 disposition may remain appropriate where the collateral is straightforward, the market is established, and the lender can execute and document a commercially reasonable process.

Receivership, by contrast, may warrant closer consideration when:

• The collateral is complex or includes an operating business.
• The value of the assets is deteriorating or requires active preservation.
• The borrower, guarantors, or other interested parties are likely to challenge the disposition.
• Multiple asset classes, contracts, or competing claims must be coordinated.
• A court-supervised sale could improve transparency and provide a stronger contemporaneous record.

Receiverships also involve court proceedings, professional fees, notice requirements, and the possibility of objections or appeals. Timing and outcomes depend on the facts, the applicable law, and the court’s schedule.

The appropriate question is not whether receivership is always better than Article 9. It is whether the available remedies have been evaluated early enough to select the right approach for the particular credit.

A conversation worth having before the sale

Marchi v. Centrust Bank is a reminder that collateral recovery does not end when the assets are sold. The process leading to that sale can determine whether the lender’s recovery strategy withstands later scrutiny.

With the Illinois Receivership Act now in effect, lenders and their counsel have another statutory framework to evaluate when managing distressed commercial assets.

For attorneys advising secured creditors, bankers managing criticized or nonperforming loans, and workout professionals responsible for maximizing recoveries, the opportunity is to consider the available options before a disposition strategy becomes difficult to change.

I welcome the opportunity to speak with lenders, attorneys, and workout professionals about how an Illinois receivership may fit into a distressed-credit strategy.

As an Illinois receiver, I work with the professionals involved in troubled commercial situations to help preserve assets, support an orderly administration, and pursue practical, court-supervised solutions where appropriate.

When a credit begins to deteriorate, an early conversation about receivership may help clarify the options before the costs and risks of a contested disposition become much greater.

Arthur R. van der Vant, Illinois Receiver, 312-607-4646, vandervant@illinoisreceiver.com

This article is for informational purposes only and is not legal advice. The discussion of Marchi v. Centrust Bank, N.A., 2026 IL App (1st) 231476-U, concerns an order issued under Illinois Supreme Court Rule 23, which generally limits its precedential use. Counsel should review the opinion, applicable court rules, the Illinois Receivership Act, and the facts of any particular matter before relying on a proposed enforcement or disposition strategy.

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