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THE CANADIAN RECEIVERSHIP EASY BEGINNERS GUIDE

receivership

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Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you wish to listen to an audio version of this Brandon Blog, please scroll to the very bottom of the page and click play on the podcast.

What is Receivership?

Last week I wrote an easy beginner’s guide on bankruptcy. This Brandon Blog is for anybody interested in finding out what type of insolvency process receivership is and how it differs from some other insolvency processes. I will explain the receivership process, provide an overview of what happens in a receivership, explaining what is sought to achieve, and the consequences of receivership.

Receiverships occur when a secured lender enforces its security to recover loans that have been defaulted on by a borrower. Secured creditors appoint an insolvency trustee to serve as receiver or receiver-manager depending on the terms of their security documents when the corporate debtor defaults.

Receivers and secured lenders can enter into a private contract appointing a receiver. Alternatively, the secured lender may seek an order from the court appointing a receiver. I’ll talk more about that shortly.

What Does Going into Receivership Mean?

If the corporate debtor defaults on a secured loan, the creditor may be entitled to appoint a receiver to collect their money. In Canada, “Section 244” notices are specific forms of notification that secured creditors must send to defaulting companies.

The notice specifies the assets covered by the security, the amount owed by the company in default, and that the secured creditor has the right to enforce the security after 10 days. The debtor company in default can consent to the appointment of the receiver before the expiration of the 10 day notice period.

A Section 244 notice is prescribed under the Bankruptcy and Insolvency Act (Canada) (BIA), and it is usually the last notice a creditor receives before the receiver takes possession of the debtor’s assets, properties, and undertakings.

Receivers then liquidate the assets of a business in order to pay secured creditors.

receivership

How Receivership Works

Parliament amended the BIA insolvency legislation in 1992 by enacting Part XI. BIA sections 243 through 252 to deal with secured creditors and receivers. Prior to that time, there was no federal statute insolvency legislation dealing with receivership matters. These provisions provide information about the court that hears bankruptcy and insolvency cases control over receivership matters that involve all or substantially all of the inventory, the accounts receivable, or the other property of a debtor. There are also restrictions imposed on the duties of secured creditors and receivers. It also stipulates that only a licensed insolvency trustee can act as a receiver. Part XI applies to both privately-appointed and court-appointed receivers.

These sections do not confer any powers available to a trustee of a bankrupt estate on secured creditors or receivers. Only those powers conferred upon the receiver in the appointment letter are granted to private receivers, and those are the powers specified in the security instrument. However, the receiver may also exercise certain statutory powers. If certain powers are required to administer the estate but are omitted under the security instrument, a receiver cannot act. Receivers are generally appointed by the secured creditor pursuant to security that at least states:

  • the collateral secured under the security; and
  • the receiver has the right to dispose of the collateral, including operating the insolvent debtor‘s business.

In a court-appointed receivership, the powers of the receiver come from the receivership appointment court order appointing the court-appointed receiver.

Receivership: Notice and Statement of the Receiver

From the 1992 amendments to the BIA, a receiver is required to provide notice to all known creditors of an insolvent debtor in receivership. Previously, creditors were not required to be notified.

When the receiver has become the receiver of an insolvent debtor‘s property, the receiver must provide notice of receivership as soon as reasonably possible but within 10 days of its appointment. Notice of the receivership must be sent to all creditors, the Office of the Superintendent of Bankruptcy and the insolvent debtor.

If the debtor is also bankrupt, rather than sending the notice to all creditors, the receiver sends the notice to the bankruptcy trustee. Since the creditors are already represented in corporate bankruptcy by the Trustee, the bankruptcy process will deal with them.

A receivership notice states, among other things, that the receiver has been appointed, whether it is a private appointment or a court appointment, and what the receiver’s plan of action is. Additionally, it contains a list of all known creditors.

As part of the receivership process, the receiver must provide interim reports every six months as well as a final report when the receivership is concluded. A copy of the receiver’s final receipts and disbursements statement must also be included in the final notice.receivership

What’s The Difference Between a Court-Appointed Receiver and a Privately Appointed Receiver?

A court-appointed receiver vs. a privately appointed receiver is something people always want to know the answer to. I will explain the difference to you. It is pretty simple. Based on what I have already written, you have probably guessed it by now.

In a Court-appointed receivership, when the Court appoints a receiver, it does so through an Order on the application of the secured creditor. As between a secured creditor and a debtor, a privately appointed receiver is a receiver who is appointed by the secured creditor as provided in the Security Agreement. The Court-appointed receiver’s administration is supervised by the Court.

How is Receivership Different from Bankruptcy? Bankruptcy / receivership

Bankruptcy vs. receivership is also something people want to know. Many times, people confuse the two and use the terms receivership and bankruptcy, mistakenly, interchangeably. Often, receiverships and bankruptcy are confused, but the differences between the two are fairly straightforward. Whether it is a private appointment or a Court-appointed receivership, it is still different.

There are several main differences between bankruptcy and receivership. A receivership is a remedy available to secured creditors, as stated above. In order to enforce the secured creditor’s security rights against a defaulting debtor, a receiver is appointed.

Bankruptcy is a separate legal process. Trustees do not represent secured creditors in bankruptcy. Instead, they represent unsecured creditors. Corporate bankruptcy can occur simultaneously with a receivership of the same corporate debtor. The process of a corporate bankruptcy would be the subject of another Brandon Blog. To find other Brandon Blogs about corporate bankruptcy, use the search function at the top of this page.receivership

What’s the Difference Between Receivership and Liquidation?

By now you know what the definition of receivership is. So I won’t repeat it because I do not want to sound like a broken record (younger people may not catch that reference!)!

Liquidation is not governed by the federal BIA. Rather, it is done under the provincial Business Corporations Act or Wind-Up Act. A liquidation is for a solvent company where the shareholders, Officers and Directors decide to cease business operations by running off any existing contracts and selling off the assets. The cash obtained is then used first to pay off the creditors. Any funds leftover is then distributed to the shareholders.

Just like a receiver, a liquidator can be appointed either privately by resolution of the Directors or by Court order. Liquidation is not a receivership or bankruptcy.

Employee Rights in Bankruptcy Protection and Bankruptcy⁄Receivership

A device was created by the BIA for employees of a company that went bankrupt or into receivership. It does not apply to employees of a company trying to rightsize itself through reorganization; either a BIA Proposal or a Plan of Arrangement under the CCAA. The Wage Earner Protection Program Act (WEPPA) protects wages or benefits, including termination and severance pay, accumulated in the 6 months prior to a business going bankrupt or going into receivership.

The WEPPA ended up being enacted due to the federal government’s concern that when a company went bankrupt and employees were not paid their wages, there was rarely an opportunity for them to recoup any of their income. There are limits or caps on what employees can receive.

In the period in which amounts are past due to you, you will not qualify for WEPPA if:

  • you are a Director or Officer of the business;
  • or you have worked as a manager for the company
  • you are part of the management responsible for negotiating or refusing to pay amounts owed.

You may qualify if:

  • the previous employer has gone bankrupt or into receivership.
  • The firm owes you wages, salaries, vacation pay, or unreimbursed costs throughout the six months prior to the date of bankruptcy or receivership.

When an employer enters bankruptcy or receivership, the WEPPA provides funds to employees owed money. Those employees who qualify are paid as soon as possible. An employee’s qualifying earnings are equal to seven times their maximum regular insurance earnings under the Employment Insurance Act. According to Service Canada, the maximum amount of $56,300 a year is the limit for insurable earnings as of January 1, 2021. Thus, in 2021 the maximum amount a former employee can claim under WEPPA is $7,578.83.

Trustees and receivers are required to inform employees about the WEPPA program and provide information about amounts due. In the event of bankruptcy or receivership, trustees, as well as receivers, have 45 days to submit to Service Canada the Trustee Information Forms showing the amounts owed to each employee.

In other words, WEPPA‘s payment for former employees is something, but it may not be enough to fully compensate each. As a result of the amount paid by Service Canada, which administers the employment insurance system, $2,000 per employee is a super-priority against the company’s current assets. All remaining amounts paid to each employee, up to the maximum, are unsecured claims.receivership

Receivership summary

I hope you found this receivership Brandon Blog informative and that the differences between receivership, bankruptcy, restructuring and liquidation legal proceedings are now clearer. Because it all has to do with corporate insolvency, the provincial Bankruptcy Courts also deal with receivership matters to adjudicate under the applicable insolvency law.

With too high debt levels and not enough wealth, you are insolvent. You can choose from several insolvency processes to get the debt relief that you need and deserve. It may not be necessary for you to file for bankruptcy.

If you or your business are dealing with substantial debt challenges, you need debt help, and you assume bankruptcy is the only option, call me.

If you’re thinking about bankruptcy, you’re probably in a situation where you’re overwhelmed, frightened, and feel like you’re alone. That’s natural and it is not your fault.

It’s good that you’ve come to this site, where you’ll find answers to your questions, sort through your options, and discover that you can get help. You’re not alone, and the professionals at Ira Smith Trustee & Receiver Inc. are committed to helping you find a debt solution that’s best for you.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

You are under a lot of pressure. Our team knows how you feel. You and your financial and emotional problems will be the focus of a new approach designed specifically for you. With our help, you will be able to blow away the dark cloud over your head. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

Because of this, we can develop a new method for paying down your debt that will be built specifically for you. It will be as unique as the economic problems and discomfort you are experiencing. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

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COURT APPOINTED RECEIVERSHIPS: THE EASIEST WAY TO AVOID COSTLY MISTAKES

court appointed receiverships
court appointed receiverships

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy.

If you would prefer to listen to the audio version of this court appointed receiverships Brandon’s Blog, please scroll to the bottom and click play on the podcast.

Court appointed receiverships introduction

I have written several blogs before on receivership, be they court appointed receiverships or private appointments. The purpose of this blog is to discuss a recent court decision involving a big mistake made by a court-appointed receiver and why the court would not let them fix their error. That mistake cost them big time!

Some previous court appointed receiverships blogging

In reviewing the court case, three previous blogs of mine on court appointed receiverships came to mind:

The first one dealt with certain procedural matters in court appointed receiverships when the receiver sells real estate.

The second blog dealt with factors a court-appointed receiver must disclose to the court in seeking court approval for a sale of assets.

The third one was about what happens when a court-appointed receiver applies to the court for some relief without knowing all the details of the story they are telling the court! That is very embarrassing for receivers in court appointed receiverships!

The recent case I will shortly speak about reminded me of these three previous blogs. You will see the connection very soon, I promise.

What happens when a company goes into receivership?

When the company enters into receivership, senior management and the Directors shed most of their authority for decision making. The Directors’ general company obligations of preserving corporate records remain, yet any type of decision-making regarding the running of the business or its assets have vanished.

That is now the role of the receiver. This is true for a privately appointed receiver but it is especially so in court-appointed receiverships. That is because the court is now supervising all the company’s affairs and assets through its court officer, the receiver.

Responsibilities concerning the business in a practical sense stop upon the receiver being appointed. Their recommendations and help are only needed if requested by the receiver. They definitely will not be paid for any kind of initiative unless the receiver concurs in writing to make funds available for them in return for their services.

What are the duties of a receiver?

The receiver’s first task is to take possession of and control all of the assets, properties and undertaking covered by the secured creditor’s security in a private receivership. In court appointed receiverships, the receiver’s powers and actions come from the authority given to it by way of the court order appointing the receiver.

The receiver needs to make a decision whether it can get a greater amount for the assets if it runs the business. Conversely, the receiver may choose that the danger of operating the business is not worth it in terms of any type of upside value that may be gained from running the business.

The receiver after that creates a strategy for the running or the shuttering of the business as well as for the eventual sale of the assets. The kind of receivership appointment and the nature of the business operations and assets will dictate what approach the receiver will take. In the meantime, the receiver must protect and conserve all the assets, including making sure there is sufficient insurance coverage in place.

In a private appointment, the receiver requires to obtain the authorization of the secured creditor who appointed the receiver prior to implementing its plan and taking actions concerning the running of the business and the sale of the assets. In court appointed receiverships, the receiver requires the approval of the court.

The Court appointment case

This court case dealt with some very unique issues. The receiver was originally appointed by the court under the Courts of Justice Act (Ontario) and the Bankruptcy and Insolvency Act (Canada). The receiver was making a motion for advice and directions about it wanting approval for its fees and disbursements since the last approval order. It also wanted approval to make an interim distribution.

That seems pretty routine. It was the receiver’s fifth report to the court. The motion was opposed by the company whose assets were seized in the receivership. There was only one problem that caused that party to oppose the receiver’s motion. However, it was a humungous problem this receiver caused itself.

The problem is that the receiver obtained approvals from the court based on the information contained in its fourth report to the court and now the receiver was asking for something different!

Court appointed receiverships: A brief history of this court-appointed receivership

The major secured creditor who made a secured loan against a real estate project under both mortgage security and a general security agreement began court proceedings by making an application to the Ontario Superior Court of Justice Commercial List for the court appointment of a receiver. On June 22, 2017, Justice Conway released an Order appointing the receiver in this matter (the Receiver).

The Order followed the model receivership order format and had the usual provisions. Specifically, it mentioned in paragraph 18 that “the Receiver’s Charge shall form a first charge in priority to all security interests, trusts, liens, charges and encumbrances, statutory or otherwise, in favour of any Person….”.

The Receiver performed its duties and filed reports with the court on a timely basis and received the necessary approvals along the way. So far so good with the first three court reports.

The fourth report was OK too

In November 2019 the Receiver brought a motion for Justice Dietrich to approve its Fourth Report and also its Supplementary Fourth Report. The same stakeholder currently opposing the Receiver’s motion for advice and directions also challenged certain of the Receiver’s recommendations contained in its Fourth Report.

It turns out that from the Receiver’s efforts and sale of the real property, there was not only enough money to pay out all the secured creditors, but there were funds left over. This is a very unusual situation. So the Receiver came to court. One of the approvals it was seeking was its proposal to pay the claims of the unsecured creditors. This company opposed that relief claiming the unsecured creditors were statute-barred. The reason the company opposed this is simple. Whatever the unsecured creditors are not entitled to would presumably be available to flow to the shareholders of the company.

Justice Dietrich looked for further written materials on this issue from the parties which were received on March 16 and 31, 2020. Justice Dietrich considered all the material and released her endorsement on this issue on June 19, 2020.

court appointed receiverships
court appointed receiverships

Court appointed receiverships: Justice Dietrich’s decision

Justice Dietrich’s Order approved the Receiver’s Fourth Report and Supplementary Fourth Report (the Fourth Approval Order) as well as payment to the Receiver of its fees of $373,960.75 plus HST plus an accrual of $25,000 plus HST to finish the management of the receivership. The Order additionally authorized the Receiver’s legal fees of $85,218.23 plus HST and an accrual of $15,000 plus HST for concluding the administration of the receivership.

The Fourth Approval Order approved making payment to the unsecured creditors in the amount of $190,800.71. Those payouts were made without delay by the Receiver even prior to the appeal time for appealing the Fourth Approval Order expired. The remaining funds were to be paid out to the company who opposed the motion, or as the company may direct.

The Receiver made all the payments except for one. The funds to be paid to the company involved in the receivership, which was more than $1 million, had not been paid out to the company as of the date the Receiver came to court with its Fifth Report.

Court appointed receiverships: OOPS – We need a fifth report to court

The Fourth Approval Order was settled with the consent of all stakeholders. That order was obtained on the basis that there was not much work left to do and it would be covered off by the approved fee accruals. The Receiver and its lawyer were to finish its work and then file a certificate with the court to advise the work was finished. The Fourth Approval Order also said that when the Receiver files the certificate with the court, that is the trigger that discharges the Receiver and ends the receivership. This is all standard stuff.

There now is only one huge problem. Subsequent to the Fourth Approval Order being issued and entered, the Receiver requested more money for its fee and its legal fees, well above what it told the court already. The further amount it was seeking was pretty close to an extra $100,000.

The Receiver then delivered a Fifth Report laying out the added costs asked for and also documenting an added HST Refund and accumulated interest. The Receiver acknowledged that it made an error. The Receiver also acknowledged that it could have brought this to everyone’s attention before the Fourth Approval Order was settled, issued and entered and the appeal period already has expired.

Personally, I call that more than an error. That is a huge problem. It is a major blow to the firms’ revenue and cash flow. If not resolved in the Receiver’s favour, it will most certainly cause much angst among the partners in the licensed insolvency trustee firm.

Court appointed receiverships: The Fifth Report To Court hearing and what the two parties said

The Receiver’s position was fairly simple. They really didn’t have much they could say at this stage, other than, OOPS! The Receiver submitted that the Receivership Order appointing the Receiver is clear. Unless the Court orders otherwise, the Receiver will obtain its reasonable fees and costs and those of its legal counsel. Those fees and costs are secured by a first ranking charge against the assets being administered in the receivership.

All other amounts come after this first charge. The Receiver went on to say that the Appointment Order and the Fourth Approval Order were therefore in conflict and the Appointment Order must prevail.

The company in opposing the Receiver’s motion had some pretty simple facts on its side. The court agreed with these facts. The court stated that:

  • The Receiver only brought this motion on in response to the company’s attempt to set down a date for its motion to compel the Receiver to make the $1 million-plus payment to it as directed by the Fourth Approval Order.
  • The company agreed to the settling of the Fourth Approval Order based on the Receiver’s submissions to the court that what it put in its Fourth Reports was everything and there was. There was nothing else getting in the way of making all the payments approved in the Fourth Approval Order.
  • The Fourth Approval Order was intended to be final and for that reason
    incorporates the provisions of the Appointment Order. That is, it is open to the court to find that the Receiver has no capacity to request more fees since the clear objective of the Fourth Approval Order is to wrap up all issues including the discontinuation of the receivership.

The Receiver conceded that the details pertaining to the extra fees was known at the time the Fourth Approval Order was being settled and also after that. However, the Receiver took no particular actions to request them prior to the Order being settled and entered. The only action taken by the Receiver was this Motion for Directions supplied in reply to the company’s motion request to get paid what was already approved by the court.

The Commercial List court understood that the Receiver has undoubtedly made an error. The question the court needed to answer was who should pay for it – the Receiver or the company? The court decided that it should not be the company who settled the Fourth Approval Order understanding what its terms were, including, there was nothing standing in the way of it getting its money as already approved by the court.

The easiest way to avoid costly mistakes

Court appointed receiverhips, by their very nature, are complex administrations. Being a receiver or a receiver manager is a tough role. A court-appointed receiver must be fair and neutral to all parties as an officer of the court. Everyone is scrutinizing the decisions being made. Once a court-appointed receiver serves its motion materials, everyone goes through the receiver’s report with a fine-tooth comb. And rightly so.

It is not a good place to be when you make any kind of error in a public document. It is embarrassing and it makes everyone else wonder what other mistakes have you made? It is especially tough when your mistake short changes your firm out of the money that it has earned. These are awful circumstances.

By now you probably realize that you don’t have to be a licensed insolvency trustee to know the easiest way to avoid costly mistakes. Check, double-check and triple-check everything before you sign and release the report. As my carpenter friend says, “measure twice and cut once”.

Court appointed receiverships summary

I hope you have enjoyed this court appointed receiverships Brandon’s Blog. A sick insolvent company’s business might be saved by a debt restructuring.

Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

You are worried because you are facing significant financial challenges. It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. The way we take the load off of your shoulders and devise a debt settlement plan, we know that we can help you.

We know that people facing financial problems need a realistic lifeline. There is no “one solution fits all” approach with the Ira Smith Team.

That is why we can develop a restructuring process as unique as the financial problems and pain you are facing. If any of this sounds familiar to you and you are serious about finding a solution, contact the Ira Smith Trustee & Receiver Inc. team today.

Call us now for a free consultation.

We will get you or your company back on the road to healthy stress-free operations and recover from the pain points in your life, Starting Over, Starting Now.

The Ira Smith Trustee Team is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting. We hope that you and your family are safe and healthy

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LICENSED INSOLVENCY TRUSTEE RECEIVER APPOINTED BY COURT ERRORS TO AVOID

Licensed insolvency trustee: Introduction

I want to chat with you today about the independence of the licensed insolvency trustee (LIT or trustee) (formerly called a bankruptcy trustee) acting as a court-appointed receiver. I have seen many times when a secured creditor needs to resort to a court appointment, and not privately appoint the receiver, yet feel they still can control every aspect of the court-appointed receiver’s actions and conduct.

The decision of the Court of Appeal of Alberta released on February 4, 2019, in Jaycap Financial Ltd v Snowdon Block Inc, 2019 ABCA 47 (Jaycap), highlights the issue.

Licensed insolvency trustee: Back to basics

To better understand the Jaycap decision, I want to talk about a few basic points. In a private receivership, the receiver’s primary duties are to act:

  1. On behalf of and have a duty of care primarily to the secured creditor who appointed the receiver.
  2. In a commercially reasonable way.
  3. Lawfully.

In a court appointment, the court-appointed receiver:

  1. Acts on behalf of the Court as a Court officer.
  2. Be and be seen to be independent of all stakeholders.
  3. Owes a duty of care to all stakeholders.
  4. Must act in a commercially reasonable and lawful way.

Various practices have evolved over time to indicate the independence of the court-appointed receiver. They aren’t necessarily rules or laws. However, they are indicators that the Court looks to in determining if its court-appointed receiver is seen to be independent and is actually independent of specific stakeholders, normally, secured creditors.

Examples of these indicators are:

  1. The court-appointed receiver has its own legal counsel and does not rely upon legal counsel for one of the secured creditors.
  2. The court’s receiver has obtained sufficient independent appraisals of the assets and has not taken the word of or earlier appraisals commissioned by a secured creditor.
  3. A sales process being recommended by the court-appointed receiver is fair to all parties and does not favour one or more stakeholders over others.
  4. The analysis performed by a court-appointed receiver in making its recommendations to the court is seen to be free from undue influence.
  5. The court-appointed receiver has not shared its appraisal or other information which could influence the outcome of the receivership administration with any of the stakeholders.
  6. The court-appointed receiver has not treated some stakeholders differently than others.
  7. Any information shared by the court-appointed receiver or meetings held to share information has been done with all secured creditors, not just a senior secured creditor or the secured creditor who made the court application to appoint the receiver.

Licensed insolvency trustee: The Jaycap situation

The receiver was appointed by the court as receiver and manager of Snowdon Block Inc. (Snowdon) in February 2016. The only material possession of Snowdon was land and building in Calgary. In July 2016 the receiver started a sales procedure to ask for deals for the property. In October 2016 the Receiver ultimately received 2 offers for the real estate. The receiver accepted a conditional offer from a third party.

After months of extensions, the potential buyer was incapable to remove its conditions and the sale did not continue.

Jaycap was the primary lender of Snowdon and was funding the
receivership. Jaycap became interested in capping the increasing costs and safeguarding its financial investment. The receiver advised Jaycap that a credit bid would be a possible option to get title to the real estate and bring the receivership to an end.

On July 5, 2017, Jaycap emailed the Receiver that it would credit bid its “current costs” as a specific amount. Jaycap scheduled a numbered company it managed to be the buyer. For simplicity, I will refer to Jaycap’s nominee company as the buyer.

Licensed insolvency trustee: The first Jaycap credit bid

An agreement of purchase and sale (APS) was prepared and entered into by Jaycap and the Receiver on August 2, 2017. The total debt was defined to be the amount included in the July 5, 2017 e-mail and that amount was likewise the acquisition cost.

On August 21, 2017, the Receiver obtained the approval and vesting order authorizing the APS. The guarantors of the Jaycap debt did not oppose this application as there would be no shortfall that they would be responsible for.

It is somewhat unclear as to the reasons for what happened next. The receiver states in its 3rd report that on August 28, 2017, legal counsel for Jaycap indicated that there was an error in the purchase price. The report after that states that the receiver’s legal counsel advised it that a common mistake occurred about the purchase price as set out in the APS. They further advised that court authorization was needed to fix this mistake.

The transaction subject to the APS was not completed at the end of August 2017.

Licensed insolvency trustee: The second Jaycap credit bid

On September 6, 2017, the receiver and Jaycap entered into a new agreement (the 2nd APS), which decreased the purchase price. On September 8, 2017, the receiver filed an application to abandon the first approval and vesting order and sought approval of the 2nd APS.

The guarantors were served with the new application. One of the guarantors, a Mr. Richardson, sent out a series of letters to the receiver’s legal counsel asking for information as well as papers to support that a mistake had actually occurred. The receiver’s lawyer answered some, however not all, of these demands.

The application was to be heard on September 19, 2017. It was adjourned to October 26, 2017. The chambers judge reserved to think about the submissions and to evaluate Mr. Richardson’s materials which had not made it into the court documents prior to the hearing.

She released her decision a week later approving the 2nd APS and providing the necessary vesting order. She discovered that she was not prevented from abandoning the first order and providing another.

The chambers judge considered the merits of the 2nd APS and whether it fulfilled the requirements established in Royal Bank of Canada v Soundair Corp (Soundair). She was satisfied the 2nd APS was sensible in the circumstances, whether the receiver had made sufficient efforts to get the best price and was not acting improvidently. She kept in mind the lack of offers, the lack of ability to complete an earlier conditional deal, the earlier order approving the sale, and the changed acquisition price, which was still higher than the property’s appraised value.

Licensed insolvency trustee: The guarantor’s appeal

Under the 1st APS, there was no shortfall and the guarantors had no liability. Under the 2nd APS, there was a shortfall in excess of $1 million that the guarantors would be responsible for.

The guarantors appealed the approval of the 2nd APS specifying that the court erred in finding there was a mutual mistake. Further, given the lack of information provided to Mr. Richardson to his reasonable request for information, the guarantors say that the receiver’s conduct casts doubt on the honesty of the process. They say that the Receiver did not discharge its independent obligation and was following guidelines and instructions from Jaycap, that had a change of mind about the transaction and wanted to decrease the price.

Their position was that the 2nd approval and vesting order needs to be vacated, the 1st APS ought to be reinstated, and the guarantors should be alleviated of their responsibility under the guarantee.

Licensed insolvency trustee: The Appeal Court’s analysis

The Court of Appeal of Alberta agreed with the guarantors that the evidence did not support a mutual mistake was made. They found that it was a mistake for the chambers court to conclude that the test was satisfied.

While the guarantors were successful on this ground, this does not finish the matter. The appeal cannot be successful unless the guarantors establish a reviewable error in the chambers court’s Soundair evaluation.

The guarantors raised two concerns sustaining their allegation that the integrity of the process was jeopardized. First, the receiver fell short in not disclosing all relevant records about what transpired after August 2, 2017. Second, the receiver did not seem to be acting independently of Jaycap.

The Appeal Court agreed that the receiver’s proof about what transpired after August 2, 2017, was not sufficient, also taking into consideration the evidence from the confidential supplement to the third report. The receiver’s lawyer’s conclusion that there was a mutual mistake was inappropriate. That was for the court to decide.

As far as the conduct of the receiver, the Appeal Court had this to say. While insolvency proceedings undergo special procedural rules and are not surprisingly time delicate in nature, these considerations do not relieve the receiver from its basic responsibilities to the stakeholders and the court. Also, it does not excuse the Receiver from supplying proof to fulfill its requirement to provide sufficient evidence to the requisite standard for each application that it brings.

The Appeal Court went on to say that:

  1. A court-appointed receiver is an officer of the Court appointed to
    discharge certain duties listed in the appointment order.
  2. When a court-appointed receiver is appointed, the receiver-manager is given exclusive control over the assets of the company and in this regard, the board of directors is displaced.
  3. The significance of a receiver’s power is to clear up liabilities and sell off assets.
  4. It is well developed that a court-appointed receiver owes a duty of care not just to the Court, but likewise to all parties who may have an interest in the debtor’s assets. This includes competing secured creditors, guarantors, unsecured creditors, contingent creditors, and shareholders.
  5. A receiver has the duty to work out such reasonable treatment, supervision, and control of the debtor’s property as a regular person would give to his or her very own.
  6. A receiver’s duty is to perform the receiver’s powers truthfully and in good faith.
  7. A receiver’s responsibility is that of a fiduciary to all interested stakeholders involved with the borrower’s assets, properties.

The Appeal Court was harsh in its criticism of both the receiver and Jaycap. The court found that the absence of details about what occurred and the method the receiver and Jaycap used to skirt around the issues in its application materials definitely did not assist in showing the receiver’s independence.

The optics of the circumstances most likely added to the guarantors’ uncertainty that what had taken place warranted even more inquiries and that the Receiver was following Jaycap’s instructions to hide from the guarantors the real state of affairs.

Jaycap and the receiver were jointly represented by the same legal counsel before the Alberta Court of Appeal, which was unhelpful and was in the court’s view, highly unusual. Jaycap could not address questions the Receiver would be anticipated to know. Throughout the hearing, the panel discovered that the guarantors’ arguments were convincing.

Licensed insolvency trustee: The Appeal Court’s decision

What was missing was transparency. The process should be transparent. It should enable the court and interested parties to make an informed decision as to whether the sale can be considered fair and reasonable in the circumstances. Given the significant questions left unanswered by the Receiver, the Appeal Court had serious concerns about the efficacy, fairness, and integrity of the process the Receiver followed between August 2, 2017, and the hearing of the application to approve the 2nd APS. As a result, the Alberta Court of Appeal disagreed with the chambers judge that the Receiver met the requirements of Soundair.

The appeal was allowed, and an order was made returning the matter to the lower court for a rehearing before a different judge.

Licensed insolvency trustee: Summary

This decision clearly states what a court expects from a court-appointed receiver.

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If so, contact the Ira Smith Team today. We have decades and generations of helping people and companies in need of financial restructuring and counselling. As a licensed insolvency trustee, we are the only professionals licensed and supervised by the Federal government to provide debt settlement and financial restructuring services.

We offer a free consultation to help you solve your problems. We understand your pain that debt causes. We can also end it right away from your life. This will allow you to begin a fresh start, Starting Over Starting Now. Call the Ira Smith Team today so that we can begin helping you and get you back into a healthy, stress-free life.licensed insolvency trustee receiver appointed by court

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RECEIVERSHIP BANKRUPTCY DIFFERENCE CANADA: WHAT A TRUSTEE SAYS ABOUT IT

Introduction

The purpose of this blog is to discuss the corporate receivership bankruptcy difference Canada. Every general security agreement defines exactly how the secured lender will certainly deal with obtaining his/her cash when it comes to default. One means to do this is by selecting a receiver.

A receiver or receiver/manager is an individual/company licensed by the Federal Government to act as a licensed insolvency trustee. The receiver can be appointed either by an instrument in writing or by a court order. A receivership administration falls under the Bankruptcy and Insolvency Act (Canada) (BIA), where the receiver takes possession and control over the assets to of the insolvent business.

The receiver or receiver/manager will certainly seize the properties covered under the lender’s security or covered by the court order. The receiver will also develop a plan to market the assets for sale. After paying any type of priority claims as well as the receivership administration costs, the net funds are paid to the first secured creditor.

receivership bankruptcy difference canada

Can you have both at the very same time?

Sometimes there is both a bankruptcy plus a receivership. Receivership is a treatment for secured creditors, such as financial institutions. Bankruptcy is a treatment for unsecured creditors.

Receivership bankruptcy difference Canada: Bankruptcy

A business could be placed right into bankruptcy by any one of the following methods:

  1. a creditor could apply for a bankruptcy order putting the business right into bankruptcy through the courts;
  2. the directors could assign the corporation right into bankruptcy;
  3. a restructuring proposal could be voted down at the meeting of creditors; or
  4. a restructuring proposal could be annulled by the trustee or creditor for non-compliance.

There are many reasons that a corporation could go into bankruptcy. These consist of the following:

  1. The firm has defaulted under its premises lease, the landlord distrains against the firm’s possessions. A bankruptcy or a notice to make a proposal filed before the property owner finishes the sale of assets defeats the lease distraint.
  2. The firm has unsecured assets (i.e., possessions without a lender’s security registered against it) that are available to be realized upon. Also, the firm cannot carry on business any longer.
  3. If a restructuring proposal is submitted, but the company could not get adequate funding to continue its business and complete the proposal.
  4. To reorganize the statutory priorities.
  5. To officially bring the business to an end as well as give a complete report to the creditors so they will not believe the principals engaged in any kind of misbehaviour.

Receivership bankruptcy difference Canada: Corporate Bankruptcy

In a company bankruptcy, the licensed insolvency trustee seizes all the business’s properties plus deals with all the creditors. The directors and management of the company accept the authority of the trustee; if requested by the trustee, they can as well as aid the trustee in his/her tasks. This eliminates them from all the stress of dealing with the creditors as well as running the cash-starved business.

Receivership bankruptcy difference Canada: Making the Application to Put a Debtor Into Bankruptcy

If a creditor is incapable of recovering the amount owed to it with any one of the readily available techniques which can be done, they may look to a bankruptcy application. This is especially so having actually acquired a judgment for the quantum owing which has not been satisfied. The BIA allows for the licensed insolvency trustee, once appointed, to take possession in an organized way, the assets of an insolvent debtor, to realize upon those assets and to then distribute the funds according to the scheme of priority in the BIA.

The BIA allows for the benefit of both bankrupts and their creditors. While the Act is not planned for usage as a device for the collection of private financial obligations, this may be the case in specific situations.

Receivership bankruptcy difference Canada: When is a Creditor Allowed making a Bankruptcy Application?

An unsecured creditor could apply for a bankruptcy order where:

  1. the lender is owed $1,000 or even more on an unsecured basis, and
  2. there has actually been an act of bankruptcy by the borrower within the 6 months that come before the filing of the application. Keep in mind that a secured lender can value its security at less than the overall amount owing to develop a partly unsecured debt.

The BIA states that acts of bankruptcy consist of the following:

  1. if in Canada or elsewhere he makes an assignment of his property to a trustee for the benefit of his creditors generally, whether it is an assignment authorized by this Act or not;
  2. if in Canada or elsewhere the debtor makes a fraudulent gift, delivery or transfer of the debtor’s property or of any part of it;
  3. if in Canada or elsewhere the debtor makes any transfer of the debtor’s property or any part of it, or creates any charge on it, that would under this Act be void or, in the Province of Quebec, null as a fraudulent preference;
  4. if, with intent to defeat or delay his creditors, he departs out of Canada, or, being out of Canada, remains out of Canada, or departs from his dwelling house or otherwise absents himself;
  5. if the debtor permits any execution or other process issued against the debtor under which any of the debtor’s property is seized, levied on or taken in execution to remain unsatisfied until within five days after the time fixed by the executing officer for the sale of the property or for fifteen days after the seizure, levy or taking in execution, or if any of the debtor’s property has been sold by the executing officer, or if the execution or other process has been held by the executing officer for a period of fifteen days after written demand for payment without seizure, levy or taking in execution or satisfaction by payment, or if it is returned endorsed to the effect that the executing officer can find no property on which to levy or to seize or take, but if interpleader or opposition proceedings have been instituted with respect to the property seized, the time elapsing between the date at which the proceedings were instituted and the date at which the proceedings are finally disposed of, settled or abandoned shall not be taken into account in calculating the period of fifteen days;
  6. if he exhibits to any meeting of his creditors any statement of his assets and liabilities that shows that he is insolvent, or presents or causes to be presented to any such meeting a written admission of his inability to pay his debts;
  7. if he assigns, removes, secretes or disposes of or attempts or is about to assign, remove, secrete or dispose of any of his property with the intent to defraud, defeat or delay his creditors or any of them;
  8. if he gives notice to any of his creditors that he has suspended or that he is about to suspend the payment of his debts;
  9. if he defaults in any proposal made under this Act; and if he ceases to meet his liabilities generally as they become due.
  10. if he ceases to meet his liabilities generally as they become due.

Keep in mind that in most of the situations above, the creditor does not need to show that the borrower cannot pay various other creditors. In the last situation, the creditor should show that more than just its own debt is not being paid. Unique situations would differentiate matters though.

Unique scenarios can consist of allegations of fraud, near-fraud or those other transactions which fall under the types that would seem to be attackable by a trustee. At least on a prima facie basis.

It should, nonetheless, be remembered that stringent evidence of both your unsecured debt and an act of bankruptcy is required to have an individual or business judged bankrupt.

 

Receivership bankruptcy difference Canada: Under What Circumstances Should a Creditor Make An Application For A Bankruptcy Order?

Making an application for a bankruptcy order to put a debtor into bankruptcy is no little job. Prior to choosing this option, consider the following:

  1. the presence and amounts of claims that could take priority over your unsecured creditor status;
  2. the dollar measure of unsecured debt ranking on the same level with your financial debt (i.e., each unsecured creditor is paid according to the calculated share based on the measure of his/her debt);
  3. the existence of questionable transactions or transfers undervalue within the three-month to five-year evaluation period before the declaration of bankruptcy;
  4. your very own history of repayments from the debtor/borrower in addition to the normal payment patterns in the 3 months before the date of bankruptcy; as well as
  5. the legitimacy of any kind of security you might hold.

Receivership bankruptcy difference Canada: The Bankruptcy Application Can Be Very Useful

Think about:

  1. has the debtor actually moved the residential property to a related party for inadequate or no consideration;
  2. where the debtor does not want to lose a specific part of its property (e.g. a private yacht, unique cars and truck or shares in a firm) or does not want its transactions and events to be inspected by a trustee and/or creditors;
  3. the debtor (being an individual) expects an inheritance;
  4. where the debtor (being an individual) needs to be an officer, director and/or shareholder of several businesses;
  5. the debtor (being an individual) might have his/her expert certification or licence from which he/she derives income compromised or lost as an outcome of being ruled a bankrupt;
  6. when the bankruptcy of the debtor would cause him/her to lose the ability to generally conduct business, such as required to use a trust account or employment requires the need to be bonded; or
  7. being a bankrupt would cause the company or individual to lose the advantage of a specific useful agreement, lease, or company.

Receivership bankruptcy difference Canada: How Does a Creditor Make The Application For A Bankruptcy Order?

The creditor desiring to file the application will certainly need a lawyer to prepare the needed documents to make the bankruptcy application. The lawyer will serve the motion material and attend for the bankruptcy order. For an uncontested motion, the lawyer appears before the Bankruptcy Registrar who is a Master of the Court. If opposed, the matter can only be heard by a Judge.

The creditor has to additionally make arrangements with a licensed insolvency trustee to act will need to guarantee the trustee’s fee and costs incurred by the trustee where there are not enough proceeds from the sale of assets. A lot of times it is likewise needed to give the trustee a cash retainer.

When the Bankruptcy Order is made, the licensed insolvency trustee starts the bankruptcy administration. All actions against the insolvent are stayed.

Receivership bankruptcy difference Canada: What If You’re Company Has Too Much Debt?

Is your company insolvent? Are you looking for solutions? The Ira Smith Team is here to offer alternatives to restructuring and turnaround services however, if required, we also act as a licensed insolvency trustee in bankruptcy matters. We offer help in Vaughan as well as throughout the GTA.

Are you an individual or company who feels your situation is hopeless? Ira Smith Trustee & Receiver Inc. can prepare and put in place the plan MADE JUST FOR YOU. The plan will free you from the burden of your financial challenges. With our help, you will go on to live a productive, stress-free, financially sound life.

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