RECEIVER APPOINTED BY COURT: 16 KEY INGREDIENTS TO ENSURE COURT APPROVAL OF A RECEIVER

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A receiver appointed by court: What is a receiver in Canada?

In the event that a company has financial difficulties, a Receiver may be appointed to take over its assets and manage them until its assets can be sold. The receivers are third parties appointed to supervise the liquidation process and remit the proceeds in accordance with legal priorities. A judge appoints a court-appointed receiver, and a secured creditor appoints a privately appointed receiver under a simple appointment letter. In Canada, for a court-appointed receivership, a receiver appointed by court must be a licensed insolvency trustee (formerly known as a bankruptcy trustee).

In this Brandon Blog, I focus on the factors to be considered by the Court when determining an application for a receiver appointed by court.

The receiver appointed by court: What happens when a receiver is appointed?

The licensed trustee acting as receiver’s first duty is to take possession and control of the assets covered by the secured creditor’s security, or of all the assets identified in the court order in a court appointment. The receiver can decide if it can sell the assets for a higher price if it operates the business.

Senior management and the Board of Directors lose most of their decision-making authority when the company goes into receivership. Their advice and assistance are only needed if requested by the receiver.

The source of authority for the receiver appointed by court is appointed in Ontario under two statutes:

• Section 101 of the provincial Ontario Courts of Justice Act; and
• Section 243(1) of the federal Bankruptcy and Insolvency Act (Canada).

The receiver appointed privately has a duty of care to only the appointing secured creditor. Court-appointed receivers are responsible to all creditors.

Receiver appointed by court: When can a court appoint a receiver?

Under Section 101 of the Courts of Justice Act (Ontario), the court considers whether the appointment “is just or convenient” under the circumstances. When deciding the origin of authority on whether or not to appoint a receiver as the court-appointed officer, the court must consider a variety of factors. Among them leading to the authority for decision making when there is an application for authorization for the appointment of a receiver are:

1. in spite of not having to prove it, will there be irreparable harm if the court does not appoint a receiver?;
2. the risk to a secured creditor and the equity the company owns in the assets, while litigation continues;
3. types of assets that would be subject to possession with respect to the receiver’ acts in its appointment;
4. it is necessary to balance the interests of the parties and to consider their rights;the preservation and protection of the property through the receivership proceeding pending judicial determination;
5. under its security, the creditor has the right to appoint a receiver;
6. when a creditor expects that the debtor will resist the enforcement of its security agreement;
7. it is an extreme measure which should be authorized sparingly, but less so if the applicant is a secured creditor who has that right under its security document;
8. in order to allow the receiver to perform its duties more effectively, a court appointment is necessary;
9. effects of the receivership order on the various parties;
10. actions taken by the parties and the litigation against properties;
11. duration of the Court-Approved receivership;
12. the costs incurred by each party;
13. it is likely that the receiver appointed by the court will maximize the return to the parties when the assets are sold under a receivership asset purchase agreement with the purchaser of assets;
14. facilitating the receiver’s duties and activities for its asset plan by a court order; and
15. a secured creditor’s good faith, the commercial reasonableness of the proposed Court-Appointed receivership and any equity questions.

A decision will usually turn on whether it is necessary to incur the expense and formalities of naming the third party to exercise neutral, transparent, and accountable stewardship of the debtor’s assets, while interested parties argue about the merits of the dispute and the receiver, attempts to maximize the recovery under an asset purchase agreement.

The court will usually intervene if the parties’ dispute puts the business assets at risk or where realizing the debtor’s assets or indemnifying a private receiver could impair the secured creditor’s recovery options. Often, simple default on the secured debt will be sufficient to attract a receivership where the risk to the business is implicit in the nature of the business or the dispute between the creditor(s) and the debtor(s). However, as with all equitable remedies, context is everything and each case turns on its own facts.

A receiver appointed by court summary

I hope you found this receiver appointed by court Brandon Blog informative. Although nothing is guaranteed, managing your debt in a way that will allow you or your company in a way to be able to afford it, will lead to your financial success. It will also give you the best shot at having a financially stress-free life.

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As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.