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Stories of people doing business and life well. We explore what it means and what it takes to do business and life well.
I’m your host, Peter Wilson. If you’re like me, you’re intrigued by stories of common people who have achieved uncommon success in business and life. Join me as I interview fascinating people about how they got started, their successes and failures, their habits and routines, and what inspires them.
Jake Flothe - RTC Recievers
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peterwilson: [00:00:00] My guest is Jake Flothe. He is in house counsel for Resource Transition Consultants. They are a receivership company. Jake, welcome to the podcast.
jakeflothe: Thanks, Peter. Good to be here.
peterwilson: What are receivership services?
jakeflothe: people are familiar with a bankruptcy. Tend to be familiar with that. And a receivership is another type of insolvency proceeding. It can happen in federal or state court. We deal predominantly with state court under Washington state law.
And it could be either a turnaround where a distressed business or venture is corrected and then made profitable again and allowed to continue on. Or it can be a liquidation where assets and components of businesses are sold.
peterwilson: Got it. So it's an alternative to
jakeflothe: Yes. It's another option.
peterwilson: Got it. what would trigger, a [00:01:00] lender or somebody to pursue this rather than a bankruptcy? In the case of some business that's failing.
jakeflothe: Yeah. So there are two different ways like you mentioned a lender potentially doing it. So it could come from an involuntary act where a creditor or somebody else, one of the owners, if there's a partnership dispute initiates the process, or it can be a voluntary event where either the individual, an individual or the company files what's called an assignment for the benefit of creditors.
And that starts the receivership process voluntarily.
peterwilson: So what would motivate somebody to do this versus a traditional bankruptcy?
jakeflothe: It's quite a bit cheaper than than a traditional bankruptcy. If we're talking about a business if that'd be going into a chapter 11 bankruptcy, it would be six figures and legal fees without much progress [00:02:00] necessarily. And it's just a tedious, labor intensive, expensive.
Process that bankruptcy, whereas with the receivership, it is streamlined and it can be open and closed in six months or oftentimes less.
peterwilson: Interesting. So are there any particular types of work that you all do at a resource transition consultants? I'm guessing there must be some types of specialties you have.
jakeflothe: My background before I got into doing this, it was a lot of it was dealing with real estate and advising small businesses. And so that's been a good carry over into this industry.
But here we have backgrounds in lending construction and construction financing, land use business management and business operations.
There's quite a wealth of knowledge within RTC.
peterwilson: How long have you been with the company?
jakeflothe: [00:03:00] Since October of 2020, it started when in the early days of Covid, I said,
peterwilson: Wow. Okay. And you all are located you guys located
jakeflothe: We're located in Linwood Washington, but we operate in, we have cases pending in multiple counties throughout the state. We've done receiverships in Alaska, Idaho, Montana, Nevada, California, Hawaii.
Carolina all over the place.
peterwilson: wherever the law takes you or the opportunity,
jakeflothe: Yeah. And on occasion it's taken us to Canada and Great Britain. And so it's pretty exciting.
peterwilson: What led you to becoming in house counsel at RTC.
jakeflothe: I am a father of three young kids and I had my youngest was born in January of 2020. And I just wanted to, with the COVID, stay at home stuff and just the stress of being in private practice, [00:04:00] litigating and being contentious on a regular basis. I personally wanted to shift and wanted to shift to something that was potentially more constructive and focusing on businesses and either turning turnaround type work, which you know, as receiverships or bankruptcies.
And the opportunity arose. So that's what got me here. It was just the right opportunity at the right time.
peterwilson: You have a number of different areas that you guys do work in, one area that I'm familiar with is that you all had done some work in cannabis did you have any experience in that?
jakeflothe: Yes, yeah, I'm on the LCBs. That's the, used to be the liquor control board. Now it's the liquor and cannabis board. I'm on their list of pre approved receivers.
peterwilson: Okay.
jakeflothe: And so with regard to cannabis and those businesses [00:05:00] receivership currently is The only insolvency option that is available due to federal regulations.
Bankruptcy is not an option. Maybe someday it will be an option that's available within that industry, but presently it's not. And there's been a big boom with those businesses going into receivership. When something happens, whether it's a partnership dispute, which is common, or just inability when they become insolvent and are unable to pay bills.
peterwilson: So they're, probably, mismanage is probably not the right term to use, but there's something wrong in. The way that they're, functioning.
jakeflothe: Yeah. And sometimes it is just, it's just mismanagement, there's no other excuse for it. And sometimes it's somebody gets ill and the proprietor gets ill and then they can't they get behind whether it's because they're out of the business or they just have other medical bills that they need to focus on.
peterwilson: In the state of Washington, if I understand it correctly, there's [00:06:00] three functioning elements for the cannabis industry. It's like producer, processor, retailer. And you can only do two.
jakeflothe: It's so you could be a producer or a processor or both producer processor. But they don't want the vertical integration so that you cannot be a retailer and one of the other two.
peterwilson: Is there any particular area of those three where you see the most issues? Is it like producers? Like I, I recall, Seeing something where there was like some guys producing and then they had a bug infestation,
wiped out a million dollars worth of crop or something.
jakeflothe: So I'm not able to put my finger on one of those because we've been involved with producers, processors, producer, processors, and retail.
peterwilson: Oh, got it. Okay.
jakeflothe: And yeah, we've done them all and they, like I mentioned before it's a grab bag of reasons for why they go into receivership, whether it's mismanagement over leverage.
Or [00:07:00] some other outside factor, the illness has been, was one that, recently cropped up with somebody that unfortunately was unable to deal with. Turn it around on their own, their retail location. And so we sold that for them.
peterwilson: What's another field that's you've done a lot. It sounds like you've done like real estate. There, any specific type of real estate situation that you've seen or is it just, again, run the gamut?
jakeflothe: It runs the gamut, but one of the things that I'm seeing that I've been seeing on the rise over the past several months is people that bought when the market was really hot and it seemed like it could only go up. And so they'd acquire, these assets, whether it's a single, like a single family residence or multiple properties that they want to either flip or develop from scratch.
And they just got out over their skis and costs of everything went up. The market cooled down a little bit because of interest [00:08:00] rates. And they were just not able to perform on their proforma. And now they need help liquidating, they need help getting out of it. And so one of the things that we're able to do through the receivership statute is we can sell properties.
As long as we obtain fair market value for it, we can sell it free and clear of any liens. So that could be a first mortgage, second mortgage mechanic and material man's liens. Those are able to be stripped off because with the receivership sale, there's not successor liability, but it can be sold to a third party, free and clear of the encumbrances that made it a non performing asset for the original owner.
peterwilson: Besides real estate and cannabis what are some areas that you find Satisfying to work in.
jakeflothe: We've done some some hospitality recently. And we have an ongoing a case that has been ongoing for years involving a property over in [00:09:00] eastern Washington that is a kind of a resort property on Banks Lake.
peterwilson: Okay.
jakeflothe: And I think those are fun ones to be involved in is the kind of the hospitality hotel, properties, because both we're dealing with.
Real property issues and with the business that's operating as a going concern and dealing with customers and marketing. And so it's just an all inclusive package.
peterwilson: Your title is in house counsel, what percent of your time do you think you spend doing pure legal work versus. Marketing versus, other functions.
jakeflothe: It varies from time to time. And lately within the past several weeks, it's been almost exclusively the legal work. Which when I'm dealing with Nuanced or new issues is a whole lot of fun. Yeah, so just it depends on the project. Depends on what's happening in the various cases that we have going on.
peterwilson: So what are the [00:10:00] other types of things you could be asked to do? Are you, I would imagine you're negotiating your, maybe strategizing
jakeflothe: yeah. Negotiating sales for real property or for business assets managing projects and businesses. So going out and meeting with. The owners and operators and walking through the stores with them to see how they operate, see how all the different people on their team operate cohesively.
And then trying to find any way that we can save money or improve efficiencies.
peterwilson: you guys get paid?
jakeflothe: So we get paid it, it's varies from case to case, the way our compensation structure is organized, but we get paid from the assets of the companies. So when it's a business that's operating as a going concern, we get a monthly, a monthly fee from the revenue that's generated [00:11:00] from that.
And then we also get a fee from the liquidation.
peterwilson: Got it. So you have incentive to maximize the asset value, obviously.
jakeflothe: Yes, that's one of the things that we're charged with when we are appointed by the court. We're not a representative or a fiduciary of the court. The parties to the lawsuit per se, but we do have an obligation to try and get the maximum value for the owners and their creditors.
peterwilson: What sort of legal advice. Would you give to entrepreneurs who are, looking to get into a business? Obviously, you've seen a lot gone wrong, so any advice on, what you can do to get it right?
jakeflothe: Yeah. And it's just, it's the same old cliche stuff where they say, an ounce of prevention is worth a pound of cure. One of the biggest problems that I saw, like both when I was in private practice and I see it commonly now. And seeing it on the tail end, it's Oh, somebody should have told you, or I'm sure [00:12:00] that they did tell you and you should have listened, but you have to put some money down to really inspect the thing that you're thinking about buying and learn about it.
And so that's like getting somebody to review the finances. If you're not, if that's not your bailiwick and then the agreements, the operating agreements, Pay, get private counsel, get your own independent lawyer to look at your operating agreement and make sure that it's going to protect you. Make sure that you have clauses in there for when things do go sideways, like how you can protect yourself and how you can escape.
peterwilson: Got that's, I think that would be my advice is don't be stingy. When it comes to doing your preparations
Your due diligence
and
jakeflothe: diligence, but yeah, it's, I've seen a lot of stuff and it's both with just partners that are not related but go into a common ownership [00:13:00] of a business or a property.
And people that are related and it's just, they don't, nobody plans for what happens when we don't get along anymore. And in law school, I was reading, reading these casebooks in my contracts class. And it seemed like every dispute was between people that either knew each other at church or were best friends or family.
And so it was always, it's somebody that you get along with, you're getting along. Why wouldn't you go into business together? Like hopefully it's going to work out, but it doesn't always work out. And so you need a partnership agreement that is going to have something where you have a tiebreaker instead of just a 50, 50 deadlock we've been getting into a lot of cases with relatives or with just business partners where their organization structure is set up to where a 50, 50 deadlock occurs and then we're needed to step in and get a resolution.
peterwilson: As an [00:14:00] entrepreneur, it's hard think that way sometimes, because as an entrepreneur, you have to be an optimist. You have to look at the bright side, like what could go right. That's just who we are. Like if we were super pragmatists, we probably wouldn't be thinking about going into business in the first place.
Where do you see the receivership field growing in the state of Washington, is it continuing to grow, is it even, or is it just dependent on what's happening in the economy?
jakeflothe: It depends largely on what's happening in the economy. And then just, I'd say anecdotally and I think probably with, again, related to COVID, but the the receivership filings throughout the state have increased, whereas bankruptcy filings were on the decline. So I think that people are seeing it, as a very viable alternative to bankruptcy.
Yeah. And so we're probably going to continue to see more receiverships as the years go on.
peterwilson: What percent [00:15:00] are investor lender. Motivated versus owner related.
jakeflothe: Ooh, I, that's a good question. I don't know if we can I think there's such an overlap between the motivation that I couldn't give you a very clear answer on that. And by the overlap, it might be initiated by the owner,
peterwilson: Huh.
jakeflothe: but that could be because they've been getting pressured from their lender,
peterwilson: I see.
jakeflothe: Or
peterwilson: Yeah.
jakeflothe: whether it's just talking to them and getting like notices or if the the lender actually initiated a lawsuit and then the owner decides to let go of the rope, so to speak, and file the assignment for benefit of creditors.
So I think there's a lot of overlap on those things. Sometimes we do see it in, I'd say those are outlier. It's an outlier where a, an owner would initiate the process without the outside influence.
Because one of the, one of the prerequisites for doing an assignment for the benefit of creditors.
So the [00:16:00] voluntary is insolvency. So that's. inability to pay their debts as they become due.
And sometimes it does happen where you have an elderly proprietor that passes away
some, the estate inherits the business or the assets and then they just initiate it. But most often it's because of outside pressure.
peterwilson: We've talked about, liquidation of assets, and you also mentioned at the beginning of the conversation, a situation where a business would just get in some fashion and then continue on. Are there any that you can share about that situation?
jakeflothe: Yeah, there one, one does come to mind and not to get into too many details about it, but it was a cannabis. As a producer processor company, and it went into receivership because there was a weird partner dispute and one of the, one of the partners that was mismanaging it owed a whole lot of money [00:17:00] to the guy that ultimately took over the operation and he's business savvy, knows what he's doing in that industry.
And was able to turn it around after several years in receivership. We got that one closed out and he continues to operate it with great success.
peterwilson: That's great. That's I like to hear those stories. That's
jakeflothe: like, those were some really good guys to be working with. They knew what they were doing and were extremely professional. Which back in my prior days of private practice was an outlier within that industry.
peterwilson: As we wrap up today, Jake, is there anything that you wanted to share? Any any learning things or anything, any advice you'd have for somebody that may want to pursue the field that you're in?
jakeflothe: Just look into it, talk to people find people that are involved in the industry, whether it's bankruptcies or receiverships and talk to them, I've. Been pleasantly surprised. One of the things that I [00:18:00] have really liked is the I guess now you call it the insolvency bar, previously referred to it as the bankruptcy bar.
And that's just the lawyers that do that kind of work. They tend to be a little bit more relaxed and not have an ego that you would typically expect, from a TV lawyer. But they're just open and helpful and like pretty much generally good people. And so if anybody that's interested in this kind of work you're going to be able to find a lot of people to talk to and get various takes on different aspects of the law and the business side of things.
peterwilson: I know that you all are appointed right by, the state or the judicial system. But if anybody was interested in learning more about what you all do, I suppose they could go to your website at RTC receivers. Dot com learn some more about you and what y'all [00:19:00] do. Do you ever just have conversations with folks that want to learn more about what it is y'all do?
jakeflothe: Yeah, and if you go to, if you go to our website, you'll also find my contact information. So my email and my phone number. And if you haven't, anybody has any questions, they can feel free to reach out by phone or email. I'd be happy to talk to them.
peterwilson: Great. Yeah. We'll have links your website. In the show notes for this. So we can so if you're interested, you can find that information. I'll put the phone number in there too. And they can just ask for Jake Flothie, F L O T H E. I really appreciate your time today, glad we had this opportunity to chat.
jakeflothe: Yeah. Thank you, Peter.