Chapter 128

128.01 128.01 Jurisdiction. The circuit courts shall have supervision of proceedings under this chapter and may make all necessary orders and judgments therefor; and all assignments for the benefit of creditors shall be subject to this chapter.

128.01 History History: 1977 c. 449.

128.01 Annotation This chapter does not encroach upon the field occupied by the federal Bankruptcy Act merely because the chapter provides for a distribution, either voluntary or not, of assets of an insolvent corporation among its creditors. Gelatt v. DeDakis, 77 Wis. 2d 578, 254 N.W.2d 171 (1977).

128.01 Annotation Chapter 128: Wisconsin’s Bankruptcy Alternative. Murrell. Wis. Law. May 2008.

128.01 Annotation Chapter 128: A Change Will Do Us Good. Furay. Wis. Law. June 2019.

128.02 128.02 Assignment; mistakes; amendments.

128.02(1) (1) Voluntary assignments for the benefit of creditors may be made to an assignee who is a resident of this state, who shall, before taking possession of the property assigned and before taking upon himself or herself any trust conferred by the assignment, file the assignment and deliver to the clerk of the circuit court of the county in which such assignor resides or has his or her principal place of business at the time of the assignment, a bond as required by s. 128.09.

128.02(2) (2) No assignment shall be void because of any defect, informality or mistake in the assignment or in the bond, inventory or list of creditors accompanying the assignment. The court may direct the amendment of the assignment or of any other document to effect the intention of the assignor or assignee, or to obtain a distribution of the assignor’s assets as provided in this chapter, and any such amendment shall relate back to the time of the execution of the document. No mistake in filing a copy instead of an original or any like mistake or inadvertent failure to comply with this chapter shall void the assignment.

128.02(3) (3) 

128.02(3)(a) (a) No creditor shall, in case a debtor has attempted to make an assignment for the benefit of creditors, or in case of the insolvency of any debtor, by attachment, garnishment or otherwise, obtain priority over other creditors upon the assignment being adjudged void, or in consequence of any sale, lien or security being adjudged void.

128.02(3)(b) (b) In all cases described in par. (a), the property of the debtor shall be administered for the ratable benefit of all of the debtor’s creditors under the direction of the court by the assignee or by a receiver.

128.02 History History: 1993 a. 492; 1997 a. 253.

128.03 128.03 Liens by legal proceedings; assignment. When a lien has been obtained by legal proceedings against the property of a debtor the debtor may, within 30 days thereafter, make an assignment of all of the debtor’s nonexempt property for the benefit of all of the debtor’s creditors, whereupon the lien shall be dissolved and the property shall be turned over to the assignee.

128.03 History History: 1993 a. 492; 1997 a. 253.

128.05 128.05 Assignee’s consent, recording copy of assignment.

128.05(1) (1) The assignee shall endorse in writing the assignee’s acceptance of the assignment, and shall file the assignment with the clerk of circuit court in the county where the debtor has his or her residence or principal place of business. The court shall, upon the filing of the assignment, order the assignee to administer the debtor’s estate pursuant to this chapter, and the assignee shall be vested with the powers of a receiver.

128.05(2) (2) A certified copy of an assignment filed under sub. (1) may be recorded in the office of the register of deeds of any county wherein lands are conveyed by the assignment in the same manner and with the same effect as other conveyances.

128.05 History History: 1993 a. 492; 1997 a. 253.

128.05 Annotation An assignee is a trustee for both the debtor and creditors but must look primarily to the interests of creditors. Voluntary Assignment of Linton v. Schmidt, 88 Wis. 2d 183, 277 N.W.2d 136 (1979).

128.06 128.06 Assignee required to comply, when.

128.06(1) (1) The assignee under a voluntary assignment not previously filed under the provisions of this chapter shall upon petition of any creditor without proof of the insolvency of the assignor be required to file the assignment and comply with the provisions of this chapter.

128.07 128.07 Preferred creditors.

128.07(1) (1) Definitions. In this section:

128.07(1)(a) (a) A person shall be considered to have given a preference if, being insolvent, the person has made a transfer of any of his or her property, or has procured or permitted a judgment to be entered against him or her in favor of any other person, and the effect of the transfer or the enforcement of the judgment will be to enable any creditor to obtain a greater percentage of his or her debt than any other creditor of the same class.

128.07(1)(b) (b) “Recipient” means a person who receives a preference, or benefits from a preference, or that person’s agent.

128.07(1)(c) (c)

128.07(1)(c)1. 1. “Transfer” means any of the following, whether made absolutely or conditionally, voluntarily or involuntarily, by or without judicial proceedings, as a conveyance, sale, assignment, payment, pledge, mortgage, lien, encumbrance, gift, security or otherwise:

128.07(1)(c)1.a. a. The sale or other disposal of or parting with property, an interest in property or the possession of property.

128.07(1)(c)1.b. b. The fixing of a lien upon property or upon an interest in property.

128.07(1)(c)2. 2. The retention of a security title to property delivered to a debtor shall be considered a transfer permitted by the debtor.

128.07(2) (2) If the debtor has given a preference within 4 months before the filing of a petition, or an assignment, after the filing of the petition and before the appointment of a receiver, or after the filing of an assignment and before the qualification of the assignee, and the recipient has reasonable cause to believe that the enforcement of the judgment or transfer would effect a preference, the judgment shall be voidable by the receiver or assignee, and the receiver or assignee may recover the property or its value from the recipient.

128.07(4) (4) A transfer of property other than real property shall be considered to have been made or permitted at the time when it became so far perfected that no subsequent lien upon the property obtainable by legal or equitable proceedings on a simple contract could become superior to the rights of the transferee. A transfer of real property shall be considered to have been made or permitted when it became so far perfected that no subsequent bona fide purchase from the debtor could create rights in the property superior to the rights of the transferee. If any transfer of real property is not so perfected against a bona fide purchase, or if any transfer of other property is not so perfected against such liens by legal or equitable proceedings prior to the filing of a petition initiating a proceeding in insolvency, it shall be considered to have been made immediately before the filing of the petition.

128.07 History History: 1993 a. 492; 1997 a. 253.

128.07 Annotation A preference is voidable under sub. (2) if an ordinarily prudent business person would, under the circumstances, have reasonable cause to believe both that the transferor is insolvent and that the effect of the transfer would be to enable the recipient to obtain a greater percentage of its debt than any other creditor of the same class. Freund v. Nasonville Dairy, Inc., 2019 WI App 55, 389 Wis. 2d 35, 934 N.W.2d 913, 18-1215.

128.07 Annotation Circumstantial factors may support a finding under sub. (2) that a creditor had reasonable cause to believe a transfer would effect a preference. Facts relevant to such a determination can include: 1) the relation of the parties; 2) their intimacy or lack of it; 3) the usual or unusual nature of the transfer; 4) the opportunities of the creditor for knowledge; 5) the participation of the creditor, if any, in the debtor’s business; and 6) the credibility and forthrightness of the witnesses as to the disclosure of relevant facts within their knowledge. Freund v. Nasonville Dairy, Inc., 2019 WI App 55, 389 Wis. 2d 35, 934 N.W.2d 913, 18-1215.

128.07 Annotation Because the preference provisions of this section do not conflict with the federal bankruptcy code, they are not preempted by it. Ready Fixtures Co. v. Stevens Cabinets, 488 F. Supp. 2d 787 (2007).

128.08 128.08 Receiver; custodian.

128.08(1) (1) The court within the proper county may sequestrate the property of a debtor and appoint a receiver therefor:

128.08(1)(a) (a) When an execution against a judgment debtor is returned unsatisfied in whole or in part.

128.08(1)(b) (b) When a corporation has been dissolved or is insolvent or is in imminent danger of insolvency or has forfeited its corporate rights.

128.08(2) (2) Upon application duly made, the court shall appoint as receiver the person nominated by the petitioning creditor or creditors, subject to s. 128.10.

128.08 Annotation A defendant who was notified of the proceeding to appoint a receiver and participated in the proceedings cannot, after the lapse of one year, object to irregularities. Home Bank v. Becker, 48 Wis. 2d 1, 179 N.W.2d 855 (1970).

128.08 Annotation Due process procedures required for determination of receivership are not required for selection of a receiver. Anchor Coatings, Inc. v. De Gelleke Co., 71 Wis. 2d 333, 237 N.W.2d 725 (1976).

128.08 Annotation The power recognized by sub. (1) is inherent in the courts. Northridge Bank v. Community Eye Care Center, Inc., 91 Wis. 2d 298, 282 N.W.2d 632 (Ct. App. 1979).

128.09 128.09 Bond. In order to qualify, the receiver or assignee shall give to and file with the clerk of the court a bond sufficient to cover all property likely to come into the receiver’s or assignee’s hands, conditioned in the usual manner with surety to be approved by the judge having supervision of the proceedings.

128.09 History History: 1993 a. 492.

128.10 128.10 Meetings of creditors; removal or death of receiver.

128.10(1) (1) The court may provide for hearings and meetings of creditors to elect a receiver or to pass upon matters submitted to creditors by a majority vote in number and amount of claims.

128.10(2) (2) The court may, upon notice and hearing, remove any receiver or assignee who is shown to be incompetent or to have become disqualified, or to have wasted or misapplied any of the trust estate; and shall remove any assignee or receiver upon the application of a majority of the creditors who shall represent a majority in number and amount of claims against said estate, and order a settlement of the receiver’s or assignee’s account and the surrender of all the estate to a successor, and shall appoint the person named in such petition or some suitable person as the receiver’s or assignee’s successor, who shall qualify in the manner provided by this chapter; and in place of any receiver or assignee who shall die or be removed, may appoint another who shall give bond and administer said estate pursuant to the provisions of this chapter.

128.10 History History: 1993 a. 492.

128.11 128.11 Provisional remedies. In all actions authorized by this chapter, appropriate provisional remedies may be had and final relief administered to the equal distribution of all assets recovered among the creditors of the debtor, and the court may make such orders for the payment of costs and expenses as may be just. An action or proceeding authorized by this chapter for the benefit of all creditors may be taken by a creditor although the creditor’s demand is not due at the commencement thereof.

128.11 History History: 1993 a. 492; 1997 a. 253.

128.12 128.12 Dismissal; intervention.

128.12(1) (1) After the designation of a receiver or custodian by the court, proceedings under this chapter shall not be dismissed for want of prosecution or by consent of parties until after notice to creditors, and the court shall, before entertaining an application for dismissal, require the debtor to file a list, under oath, of all of the debtor’s creditors, with their addresses, and shall cause notice to be sent to all such creditors of the pendency of the application and shall fix a date for such hearing so as to allow parties in interest an opportunity to be heard.

128.12(2) (2) When proceedings have been commenced under this chapter and are not diligently prosecuted or are so delayed as to cause possible injury to other creditors, any creditor may intervene for the purpose of obtaining a continuance of the administration or dismissal of the proceedings.

128.12 History History: 1993 a. 492.

128.13 128.13 Inventory of assets and list of creditors. With the filing of an assignment or within 10 days after the appointment of a receiver, the debtor shall file with the clerk of circuit court a correct inventory of the debtor’s assets and a list of the debtor’s creditors, stating the place of residence of each and the amount due each. The inventory and list shall be verified by the debtor’s oath. No mistake in the inventory or list shall affect the rights of any creditor.

128.13 History History: 1993 a. 492; 1997 a. 253.

128.14 128.14 Notice; injunction; time of filing claims.

128.14(1) (1) The court shall require creditors to file their verified claims within 3 months from the date of the filing of an assignment or the appointment of a receiver and may enjoin proceedings by any other creditor against the insolvent. The receiver or assignee shall be required to give notice promptly to the department of revenue and to all creditors of the pendency of the proceeding, the injunction against other actions and the time within which creditors are required to file claims. The notice shall be mailed to the department of revenue and to each creditor at the creditor’s last-known address and shall be published in the county as a class 3 notice under ch. 985.

128.14(2) (2) Creditors not filing claims within the time limited may be precluded from participation in any dividend which may be declared.

128.14 History History: 1993 a. 492.

128.15 128.15 Objections to claims; appeal; secured claims.

128.15(1) (1) 

128.15(1)(a) (a) At the expiration of the period of time limited for the filing of claims, the receiver or assignee shall file all of the following with the clerk of circuit court:

128.15(1)(a)1. 1. Proof of publication of the notice required under s. 128.14 (1).

128.15(1)(a)2. 2. A list of the creditors to whom the notice was given that includes the debts owed to the creditors, verified by an affidavit.

128.15(1)(a)3. 3. A list of claims filed stating the name and residence of and amount claimed by each creditor who has filed a claim.

128.15(1)(b) (b) At any time after the expiration of the period of time limited for the filing of claims, the receiver or assignee or, upon the receiver’s or assignee’s refusal or failure to act, any creditor may file written objections to any claim specifying the grounds for the objection. The party filing the objection shall serve a copy of the objection upon the claimant as ordered by the court. Depositions may thereafter be taken as in civil actions. The court, on the application of either party, shall enter an order fixing a time when the objections shall be heard, which shall be served upon the adverse party as prescribed in the order. Upon the final hearing the court shall make such order as shall be just and may compel the payment of costs.

128.15(2) (2) Claims of secured creditors may be allowed to enable such creditors to participate in the proceedings but shall be allowed for such sums only as shall be proved to be due, over and above the value of the securities, and dividends shall be paid only upon the excess of the claim over the value of the security at the time of the commencement of the proceedings.

128.15 History History: 1983 a. 219; 1997 a. 253.

128.15 Note Judicial Council Note, 1983: The last sentence of sub. (1), providing an appeal deadline of 30 days after entry of order, is repealed for greater uniformity. An appeal must be initiated within the time specified in s. 808.04 (1), stats. [Bill 151-S]

128.15 Annotation Under this section, a secured creditor may become a party by general appearance or by filing a claim for a deficiency on a secured claim and thus be allowed to participate. The creditor’s security cannot be taken away without consent, and the court adjudicating a proceeding under this chapter can do no more than value the security for the purpose of allowing the unsecured part of the claim. Wisconsin Brick & Block Corp. v. Vogel, 54 Wis. 2d 321, 195 N.W.2d 664 (1972).

128.15 Annotation The trial court erred in subordinating a shareholder’s claim on the grounds that the shareholder’s advance to the corporation was a capital contribution rather than a debt when the court did not evaluate the sufficiency of the corporation’s stated capital and relied entirely on the corporation’s inability to obtain commercial financing. Gelatt v. DeDakis, 77 Wis. 2d 578, 254 N.W.2d 171 (1977).

128.15 Annotation Under Wisconsin Brick & Block, 54 Wis. 2d 321 (1972), a secured creditor’s participation in the receivership proceeding is necessary to establish consent. That case does not suggest that the secured creditor’s participation is sufficient, by itself, to establish consent nor does it suggest that the creditor’s participation in the proceedings trumps the secured creditor’s express objection to the sale of its collateral. BNP Paribas v. Olsen’s Mill, Inc., 2011 WI 61, 335 Wis. 2d 427, 799 N.W.2d 792, 09-1007.

128.16 128.16 Discovery.

128.16(1) (1) The court may compel the debtor to discover any property alleged to belong or to have belonged to him or her, the disposition of the property and the consideration and all the circumstances of the disposition. Every officer, agent or stockholder of a corporation, every manager or member of a limited liability company and every person to whom it shall be alleged that any transfer of property has been made, or in whose possession or control the property is alleged to be, may be compelled to testify in relation to the property and to the transfer or possession of the property; but the witness shall not be liable to criminal prosecution or proceeding for or on account of his or her testimony.

128.16(2) (2) The immunity provided under sub. (1) is subject to the restrictions under s. 972.085.

128.16 History History: 1989 a. 122; 1993 a. 112; 1997 a. 253.

128.16 Annotation A debtor who is compelled to answer an interrogatory may be granted immunity without a request from the district attorney. A refusal to answer the interrogatory without an order under this section was sufficient invocation of the privilege against self-incrimination. State v. Worgull, 128 Wis. 2d 1, 381 N.W.2d 547 (1986).

128.17 128.17 Order of distribution.

128.17(1) (1) The order of distribution out of the debtor’s estate shall be as follows:

128.17(1)(a) (a) The actual and necessary costs of preserving the estate subsequent to the commencement of the proceedings.

128.17(1)(b) (b) Costs of administration including a reasonable attorney’s fee for the representation of the debtor.

128.17(1)(d) (d) Wages, including pension, welfare and vacation benefits, due to workmen, clerks, traveling or city salespersons or servants, which have been earned within 3 months before the date of the commencement of the proceedings, not to exceed $600 to each claimant.

128.17(1)(e) (e) Taxes, assessments and debts due the United States, this state or any county, district or municipality.

128.17(1)(f) (f) Other debts entitled to priority.

128.17(1)(g) (g) Debts due to creditors generally, in proportion to the amount of their claims, as allowed.

128.17(1)(h) (h) After payment of the foregoing, the surplus, if any, shall be returned to the debtor.