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Brandon Blog Post

RECEIVERS AND RECEIVERSHIPS: CAN A FINANCIALLY TROUBLED CANADIAN LAW FIRM BE PLACED IN AN EMBARRASSING RECEIVERSHIP?

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receivers and receiverships

Receivers and receiverships: Introduction

Imagine a prestigious Canadian law firm, typically the epitome of stability and justice, suddenly hit by a financial storm. The once robust balance sheets now shake, and partners are left to navigate a legal and financial labyrinth they never expected. This Brandon’s Blog takes you on a journey through the intersection of law and finance, revealing the truth behind what happens when even the legal giants fall on hard times.

Financial turbulence is a universal challenge affecting any business, including law firms. In the context of Canadian law firms, the concept of receivers and receiverships is unique, and the Court of King’s Bench of Alberta grappled with this issue in a recent case. Join us as we explore the legal strategies, regulations, and complexities of a financially challenged Canadian law firm placed in receivership.

Definition of receivers and receiverships

What Is Receivership?

Receivers and receiverships are a legal process that includes the retention of a 3rd party, referred to as a receiver, to take control of a company’s assets, finances and operations in an effort to resolve the underlying economic problems. Receivership is a lawful remedy used when a company, sole proprietorship, partnership or person, even including a law office, encounters impossible monetary issues. Receivers and receiverships can be used either to restructure a business by separating the good assets from the horrific financial problems or for a straight liquidation.

Receivership is a legal system where a secured creditor either independently designates or petitions the court to appoint a 3rd party, described as a receiver, to manage the properties and affairs of a business or person. Receivers and receiverships become a multifaceted process imbued with complexity. This option regularly serves as an avenue for the reconfiguration of a faltering business or the resolution of financial disagreements among diverse parties.

Navigating receivership involves a formidable blend of legal acumen and also the capability to make wise financial judgments. It is incumbent upon companies and people alike to realize the far-reaching ramifications of receivers and receiverships as well as the prospective scenarios that might ensue from its invocation. Among these considerations lies the essential issue of its repercussions on stakeholders, including employees, unsecured creditors, as well as lenders.

Within Canadian territory, the mantle of a receiver can solely be born by an appropriately qualified licensed insolvency trustee to manage this intricate legal process.

When Is Receivership Considered?

Receivership ends up being a factor to consider when a business experiences severe financial distress, such as mounting financial debts, operational inadequacies, or the inability to satisfy financial commitments. It works as a last resource to salvage what continues to be of the firm’s assets.

an image of a financiallt\y troubled company that is havnig to go into either receivership or bankruptcy
receivers and receiverships

Canada’s legal landscape is complicated, with federal and provincial laws and guidelines controlling the process of receivership. Let us explore this further.

Federal Laws

In Canada, the procedure of receivership is regulated mostly by federal government regulation, the Bankruptcy and Insolvency Act. The receiver must act lawfully. In a court appointment, the receiver must act in the very best interests of all parties involved. In this type of appointment, receivers as well as receiverships go through oversight by the court. The procedure of receivership can be complicated as well as calls for well-informed legal and financial recommendations to guarantee an effective outcome.

Provincial Regulations

Provinces in Canada also have their own laws which intersect with receivers and receiverships. Examples of provincial regulations that could affect receivers and receiverships are:

  • the actual statute under which a court supervises receivers and receiverships;
  • food and beverage service;
  • landlord and tenant.issues;
  • real property laws;
  • employment laws; and
  • environmental regulations.

Receivers and receiverships: Signs of financial troubles in Canadian law firms

Early signs of law firm financial distress may manifest discreetly initially; however, they possess the potential to swiftly burgeon into more significant predicaments if they remain unaddressed. These initial cues often comprise a diminution in earnings or profits, the gradual accumulation of aged or unrecoverable accounts receivable, protracted deferrals in settling obligations with suppliers, elevated turnover ratios among the workforce, and a conspicuous dearth of financial commitment to technological advancements or educational initiatives.

Furthermore, additional red flags might encompass extravagant expenditures on non-essential items, an absence of transparency in financial disclosures, and an excessive reliance upon a select few pivotal clientele for the lion’s share of the generated income. It is of paramount importance for legal practitioners to diligently oversee their fiscal well-being and to adopt assertive measures for rectification as soon as such issues come to the fore. These remedial actions may encompass the implementation of cost-saving measures, the pursuit of novel revenue streams, and judicious investments in pivotal facets of their enterprise to maintain a competitive edge within the industry.

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receivers and receiverships

Receivers and receiverships: Initiating receivership proceedings

Secured creditors and their loans

In the intricate tapestry of the Canadian receivership process, secured creditors assume a pivotal role, being the foremost lenders vested with a security interest in the debtor company assets. This security interest, the secured loan being a legal tether of paramount significance, empowers them to wield their influence with precision, invoking either the private appointment of a receiver or the judicial machinery to issue an order for a court-appointed receiver.

In the realm of receivers and receiverships, this designated receiver takes upon themselves the onerous task of seizing the reins and stewarding the debtor company’s possessions.

Empowered by their position, secured creditors hold sway over the inception of the receivership process, their voices resonating in the selection of the receiver, a decision of paramount consequence. This influence is not merely titular; it is wielded to safeguard their interests and optimize the potential for recovery.

There are two types of receivers and receiverships:

Privately-appointed receiver

In privately appointed receiverships, the receiver bears the weighty mantle of responsibility, owing a fiduciary duty to the secured lender, a commitment to act in their utmost interest. Secured creditors, in turn, possess the authority to interpose their veto, casting judgment upon select decisions proposed by the receiver.

Court-appointed receiverships

However, when the path leads to court-appointed receivership, a different dynamic emerges, for here, the receiver is an independent arbiter, an officer of the court, rendering decisions with impartiality. No doubt secured creditors will attempt to wield their influence, but the court-appointed receiver must be seen to be even-handed.

In the grand scheme of the Canadian receivership process, secured creditors emerge as the linchpin upon which rests the beginning of efficient oversight and resolution of a debtor’s financial quagmire.

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receivers and receiverships

Receivers and receiverships case study: A recent instance of a Canadian law firm receivership process

The recent decision of the Court of King’s Bench of Alberta is in the case of Law Society of Alberta v Higgerty, 2023 ABKB 499. This case involves an application to put a law firm into receivership. Notwithstanding that it is not one of the larger firms, it is, in my view, having been involved in both the receiverships and bankruptcies of law firms, a complete analysis of all the important considerations that insolvency practitioners and non-insolvency lawyers must be aware of in either advising or dealing with an insolvent law firm.

Law firm receivers and receiverships: Background

The Law Society of Alberta (“LSA”) and Mr. Richard E. Harrison are the applicants on this matter (collectively, the “Applicants”). The Applicants seek an order appointing a receiver or a receiver and manager over certain undertakings, personal property, real property and assets of the law practices of Patrick B. Higgerty and Patrick B. Higgerty Professional Corporation (collectively, “Higgerty Law”).

The receivership order sought by the Applicants is unique because of the circumstances underlying this application (the “Application”). The tension in this Application concerns: (i) the desire of a secured lender to enforce its rights and entitlements under the security it holds over the assets held by Higgerty Law; and (ii) the desire of the LSA to ensure the parties are acting in the public interest and to protect solicitor-client privilege that is a component of the files of Higgerty Law.

Easy Legal Finance Inc (“ELFCo”) is a secured lender to Higgerty Law. It seeks the right to enforce its security which is part of the loan agreement. It proposes a process that it alleges will ensure confidentiality and solicitor-client privilege are maintained for stakeholders, and not strip ELFCo of substantially all of its contractual, legal and beneficial rights.

Law firm receivers and receiverships: Facts

During its years of operation, Higgerty Law focused on personal injury law and class action litigation. Compensation for those files was often based on contingency fee agreements, payable when the matter concluded. On March 10, 2023, Higgerty Law was placed under custodianship pursuant to an Order of this Court (the “Custodianship Order”). Mr. Harrison was named the custodian (the “Custodian”).

On the date the Custodianship Order was issued, Higgerty Law had a substantial number of creditors. ELFCo asserted it held security over all present and after-acquired personal property of Higgerty Law. ELFCo claims that its security gives it priority over the proceeds of the class action lawsuits.

Higgerty Law has a debt of around $1.4 million to ELFCo. The interest rate charged on the ELFCo Loan is a whopping 18% per year! Last April, ELFCo served a demand for payment and a notice to enforce security under section 244(1) of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) (“BIA”).

The President of ELFCo swore in an affidavit that he believed there was no reasonable prospect of Higgerty Law repaying the ELFCo Loan.

Law firm receivers and receiverships: What the Court needed to address

Initially, several issues were to be addressed in the Application, including: (i) whether a receiver and manager should be appointed; (ii) whether the interest payable on the ELFCo Loan should be stayed; and (iii) the scope of the ELFCo Loan security. The parties agreed to restrict the hearing to the issue of whether a receiver and manager should be appointed. The other issues were deferred to a subsequent hearing.

ELFCo challenges the proposal to appoint a receiver and manager. It asserts there is no business of Higgerty Law to manage and no material estate to administer. ELFCo also asserted that a receiver and manager in these circumstances would be limited to the negotiation of the transfer of a limited number of legal files to new lawyers. It submits that this is not an appropriate mandate for a receiver and manager and that it would not be commercially reasonable in view of the needless cost and redundancy a receivership would create.

As an alternative, ELFCo made an application for approval of a basic process to enforce its security. It asserts that this alternative process would ensure that confidentiality and solicitor-client privilege are maintained for stakeholders. Further, ELFCo asserted that this alternative process would not strip it of substantially all its rights and entitlements under its security, which would occur under the Custodian’s proposal. The one thing that the ELFCo proposal failed to recognize is that under section 244(4) of the BIA, only a licensed insolvency trustee can act as a receiver.

The unique circumstances of this case presented a challenge for the Court because there are various stakeholders with different rights that must be balanced, including:

  • the rights of the Higgerty Law clients to have their solicitor-client privileged communications protected;
  • the entitlement of a secured creditor to enforce its legal and beneficial rights;
  • the rights of Higgerty Law clients whose funds appear to have been misappropriated;
  • the rights of Higgerty Law clients to access their file material; and
  • the rights of unsecured creditors, including clients of Higgerty Law.

A wide array of factors should be taken into consideration when considering receivers and receiverships

The Court considered a list of important factors in considering a receivership appointment:

  1. whether irreparable harm might be caused if no order were made, although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed, particularly where the appointment of a receiver is authorized by the security documentation;
  2. the risk to the security holder, taking into consideration the size of the debtor’s equity in the assets and the need for protection or safeguarding of the assets while litigation takes place;
  3. the nature of the property;
  4. the apprehended or actual waste of the debtor’s assets;
  5. the preservation and protection of the property pending judicial resolution;
  6. the balance of convenience to the parties;
  7. the fact that the creditor has the right to appoint a receiver under the documentation provided for the loan;
  8. the enforcement of rights under a security instrument where the security-holder encounters or expects to encounter difficulty with the debtor and others;
  9. the principle that the appointment of a receiver is extraordinary relief, which should be granted cautiously and sparingly;
  10. the consideration of whether a court appointment is necessary to enable the receiver to carry out its duties more efficiently;
  11. the effect of the order upon the parties;
  12. the conduct of the parties;
  13. the length of time that a receiver may be in place;
  14. the cost to the parties;
  15. the likelihood of maximizing return to the parties;
  16. the goal of facilitating the duties of the receiver.

Ultimately, the Court has to decide if, under provincial law, on the balance of the evidence, is it just and convenient to appoint a receiver.

Receivers and receiverships: The evidence and the Court’s analysis

The evidence, in this case, is that:

  • there are trust account improprieties in the range of $419,000; and
  • there is no reasonable prospect of the Applicants or Higgerty Law repaying the ELFCo Loan or continuing to make loan payments.

By virtue of being members of the LSA, custodians can maintain solicitor-client privilege over files and information within their custody. Both the LSA and the Custodian are stakeholders in ensuring the maintenance of solicitor-client privileged information.

There is an important distinction between secured creditors, who are interested in protecting themselves and usually do so through a receiver that they appoint, and a custodian who is typically interested in protecting the clients of the financially troubled law firm and their respective rights and entitlements, including their respective rights to solicitor-client privilege.

From the perspective of the secured creditors, the results which flow from the appointment of a custodian are no happier. A custodian is obliged by the to protect the interests of clients of the firm, including confidentiality, and is consequently unable to collect accounts receivable either efficiently or economically. The task of the custodian is significantly dissimilar from that of the receiver in that the primary objective of the custodian is the protection of clients’ interests. Receivers, by contrast, act in accordance with the interests of creditors. Any benefit enjoyed by creditors which results from the appointment of the custodian is merely incidental to the primary function of the custodian, which is the protection of the clients.

Solicitor-client privilege is a fundamental underpinning of the legal profession in Canada. It is near absolute and merits protection.

Solicitor-client privilege cannot be breached by the interests and entitlement of a secured creditor. Any risks in that regard must be carefully considered. To illustrate this point, the Supreme Court of Canada has held that Anton Piller orders must ensure the protection of the solicitor-client communications of the party being searched. There is no right to disclosure of such communications in discovery because they are protected by privilege.

The Judge determined that the higher duty in the circumstances of this case is to protect the public interest, which includes the protection of privilege associated with the files of Higgerty Law. Given the inherent concerns associated with the issues touching on the “Property” as that term is defined in the Draft Receiver Order, it is inevitable that matters concerning the solicitor-client privilege over the Higgerty Law files will be engaged. As a regulator, the LSA has an obligation to ensure the parties are acting in the public interest and to protect privilege over the Higgerty Law files.

The Judge’s view was that protecting solicitor-client privilege is an essential element of this custodianship. The unique circumstances of this case presented a challenge for the Court because there are various stakeholders with different rights that must be balanced, including:

  1. the rights of the Higgerty Law clients to have their solicitor-client privileged communications protected;
  2. the entitlement of a secured creditor to enforce its legal and beneficial rights;
  3. the rights of Higgerty Law clients whose funds appear to have been misappropriated;
  4. the rights of Higgerty Law clients to access their file material; and
  5. the rights of unsecured creditors, including clients of Higgerty Law.

Receivers and receiverships: The Court’s decision

Based on the Judge’s review of the evidence and analysis of the law, the Judge found that it was just or convenient to appoint a receiver and manager of Higgerty Law. The unique circumstance, in this case, calls for a receiver and manager to be appointed in order to best ensure the protection of the solicitor-client privilege associated with the files of Higgerty Law.

The Judge also directed that the Draft Receiver Order obligate the receiver and manager to come back to the Court for an order whenever a Higgerty Law file is proposed to be transferred to a third party. The Draft Receiver Order must stipulate the notice that is to be given to the stakeholders whenever there is a proposed file transfer.

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receivers and receiverships

Receivers and receiverships: Impact of receivership on law firm clients

Client confidences

Maintaining client confidence is a paramount concern during receivership. The receiver must uphold ethical standards and protect sensitive information.

Receivership does not absolve a law firm from its ongoing legal obligations, including representing existing clients and fulfilling contractual commitments.

Advantages

Receivership can offer advantages such as a structured approach to resolving financial issues and protecting creditor interests.

Disadvantages

However, it also comes with disadvantages, including the potential loss of control for the firm’s owners and uncertainty for employees.

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receivers and receiverships

Alternatives to receivership for law firms: Restructuring options available to a law firm

Restructuring

When confronted with financial difficulties, a Canadian law practice has a range of alternatives to think about prior to being put in receivership. Bankruptcy, restructuring either by merging with another firm or financial help in the form of additional partner capital contributions could be potential options that must be explored. Restructuring permits firms to rearrange their operations and debt structure to bring back financial security.

Bankruptcy

Receivership or bankruptcy, on the other hand, ought to be taken into consideration when the company’s financial situation is irreparable. It is necessary for an insolvent law practice to carefully evaluate and take into consideration these choices in order to determine the very best strategy to resolve their financial difficulties.

Receivers and receiverships: Frequently asked questions

1. What triggers the need for receivership in a law firm?

Receivership may be triggered in a law firm when the organization is no longer able to meet its financial obligations. This can be due to several factors, including a significant decrease in client demand, mismanagement of funds, or overwhelming debt. The need for receivership can also arise from legal action, such as a lawsuit against the firm.

When the organization is unable to pay its debts, receivership becomes necessary to protect the interests of clients, creditors and stakeholders. In such cases, a court-appointed receiver takes control of the firm’s assets and operations to manage the liquidation process and ensure the equitable distribution of funds from the sale of assets.

2. Can a law firm continue to operate during receivership?

Being in receivership can be a roller coaster ride for a law practice! The future of the firm lies in the hands of the receiver and their assessment of the scenario. If the receiver believes that the law office has the prospective to create revenue by continuing business operations, then the firm might be allowed to continue operating in some fashion in continuing legal services and moving the clients’ legal proceedings forward, while a realization strategy is being developed. But, if the receiver thinks that the firm cannot operate profitably and therefore it’s better for the firm’s assets should be sold, the receiver will seek court approval for that strategy.

3. How does receivership impact the firm’s clients?

The influence of receivership on a law firm’s clients can be significant. Clients may experience hold-ups in obtaining legal services, provided the sanctity of solicitor-client privilege. Furthermore, clients may be worried about the stability and dependability of the firm during the receivership process, which can impact their self-confidence in the firm’s capability to continue to supply essential legal solutions. It is important for both the receiver as well as the law firm in receivership to interact transparently with the clients during the receivership to maintain their confidence as well as minimize the impact of the process.

4. What alternatives exist to receivership for struggling law firms?

When confronted with financial difficulties, a Canadian law practice has a range of alternatives to think about prior to being put in receivership. Bankruptcy, restructuring either by merging with another firm or financial help in the form of additional partner capital contributions could be potential options that must be explored. Restructuring permits firms to rearrange their operations and debt structure to bring back financial security.

5. Are there differences in receivership laws across Canadian provinces?

As indicated above, receivership is governed first by the BIA, a federal statute. Although there may be differences in provincial law in the areas described above that have an effect on receivership proceedings, the base laws governing receivers and receiverships are the same across all provinces.

Receivers and Receiverships: Conclusion

In conclusion, receivers and receiverships are a complex but vital legal process that can be initiated when a Canadian law firm faces insurmountable financial challenges. It involves the appointment of a receiver to manage the firm’s assets and affairs, with the ultimate goal of protecting stakeholder interests. While receivership is a significant step, it is essential to understand its pros and cons and explore alternative solutions before proceeding.

Individuals and business owners must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses with debt problems that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind.

The Ira Smith Team understands these financial health concerns. More significantly, we know the requirements of the business owner or the individual who has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Trustee & Receiver Inc. Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

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receivers and receiverships

Categories
Brandon Blog Post

FROM GRIPPING TAKEOVER TO DISCHARGE: HOW LONG DO RECEIVERSHIPS LAST?

how long do receiverships last
how long do receiverships last

How long do receiverships last in Canada? Introduction

In my September 2021 Brandon’s Blog, THE CANADIAN RECEIVERSHIP EASY BEGINNERS GUIDE, I provided an easy-to-understand guide to understand the receivership process. To summarize, I described that in Canada, a receivership is a legal remedy available to secured creditors to recover outstanding amounts under a secured loan if a company defaults on its loan payments. It may also be used in shareholder disputes to complete a project, liquidate assets, or sell a business.

A court may appoint a receiver to take possession of assets, oversee liquidation proceedings, and distribute the proceeds according to the applicable legal priorities as outlined in Canada’s Bankruptcy and Insolvency Act (BIA). Or, a secured creditor may issue a letter of appointment to the same effect.

It is essential to recognize that receivership and bankruptcy are distinct legal proceedings. Bankruptcy is a formal proceeding, regulated by the BIA, to provide debtors with debt relief when they are financially incapable of paying their unsecured creditors. Conversely, a receivership is a process available to secured creditors to recuperate outstanding debt arising from a secured loan or to address shareholder disputes.

The purpose of this Brandon’s Blog is to answer the question I am often asked: “how long do receiverships last in Canada?”.

how long do receiverships last
how long do receiverships last

How long do receiverships last in Canada? Understanding what receivership is

There are two types of receiverships in Canada: court-appointed receiverships and private receiverships. Court-appointed receivers are appointed by a court to oversee the management and disposition of a debtor’s assets. Private receivers are appointed by secured creditors as part of a loan agreement and the security agreement between the debtor company and the creditor.to manage and sell a business debtor’s assets outside of the court system.

The receiver, regardless if it is a court-appointed receiver or privately appointed receiver, takes control of a company’s assets and business operations to repay outstanding debts to creditors. The receiver’s primary duty is to maximize the value of the assets and distribute the proceeds to the creditors according to their priority ranking. The receiver has the power to sell, manage, or liquidate the assets and may also negotiate with creditors to restructure the company’s debt.

Some key players in a receivership process are:

  • Borrower: The owner of the property who defaults on their loan obligations or faces financial distress.
  • Lender: The secured lender, normally a financial institution, who initiates the receivership action to protect their interest in the property and recover their debt.
  • Receiver: The neutral third party who is a licensed insolvency trustee (formerly called bankruptcy trustees) and is appointed either privately or by the court to take charge of the property and manage it toward a sale or resolution.
  • Court: The judicial authority that grants or denies the receivership request, sets the terms and conditions for the receiver’s appointment and oversees the receivership process.
  • Law firm: The lawyers who are acting for the lender, the borrower and the court-appointed receiver.

The powers and duties of a receiver can vary depending on the nature of the assets or the court order appointing them. Generally, it includes taking control of the assets, managing them in a financially responsible manner, and reporting to the court and parties involved in the dispute.

The duration of receiverships in Canada can vary depending on the specific circumstances of the case, but it typically lasts for a few months to over a year.

how long do receiverships last
how long do receiverships last

How long do receiverships last in Canada?

Several factors will affect the duration of receivership in Canada, including:

  • the complexity of the case;
  • the number and nature of the assets involved;
  • the cooperation of the parties involved; and
  • the efficiency of the court system.

Other factors may include the availability of qualified professionals to manage and sell the assets, the level of creditor involvement and negotiation, and the overall economic and market conditions at the time. Ultimately, the length of receivership will depend on the specific circumstances of each case.

Court supervision is the oversight provided by a court in a court-appointed receivership. The purpose of court supervision is to appoint the receiver, to allow for the receiver to obtain the approval of the court to decisions and actions the court-appointed receiver wishes to take, to ensure that the receiver acts in the best interest of all parties involved and follows the court’s orders and to allow a forum for any aggrieved party to bring their dispute to the court for adjudication.

Termination of a receivership occurs when the court is satisfied that the receiver has fulfilled their duties and objectives or when the receiver’s appointment is no longer necessary. The court terminates a receivership by court order after approving the receiver’s final report and accounts.

how long do receiverships last
how long do receiverships last

How long do receiverships last in Canada? Frequently asked questions (FAQs)

Navigating receiverships can be a tricky and complex situation. Asking questions like “how long do receiverships last in Canada?” is essential to any company dealing with financial hardship. Here I will cover some of the common FAQs associated with receiverships in Canada, and provide an in-depth look at the timeline of these proceedings. It is essential to have a thorough comprehension of receiverships to successfully manage this situation.

What are the differences between bankruptcy vs. receivership?

Receivership is a process to secure the rights of secured creditors, allowing for the control and eventual sale of the assets of a distressed company. Bankruptcy, on the other hand, is a legal process which allows a company in financial difficulty to reorganize its affairs or liquidate its assets under the guidance of an insolvency trustee – providing a safety net to unsecured creditors.

What happens during a receivership process in Canada?

As part of the receivership process in Canada, a receiver is appointed to handle a company’s assets and activities, facilitating the sale of these to settle the company’s debt to creditors.

How does a receiver sell a business or assets?

To sell a business or assets, a receiver has many options available. A receiver can:

  • advertise the assets for sale by running a tender bid sales process;
  • a tender bid sales process could be stand-alone or could be combined with a stalking horse sales process;
  • the assets could be liquidated through a public auction using the services of an auctioneer;
  • the receiver could hand all the assets over to a liquidator in order to sell the assets in an online auction;
  • in certain circumstances, the receiver may wish to hire a professional business broker experienced in that particular industry or assets the receiver took possession of; or
  • for retail store assets, the receiver may sell the entire package of assets and will then run a retail sale to the public.

Regardless of the process chosen, the receiver’s aim is to market and sell the assets or business and obtain the best price for the assets or business under the circumstances.

How does a creditor apply for receivership in Canada?

Secured lenders can apply for receivership in Canada by filing an application to the court under a federal or provincial statute or enforcing their security rights by appointing a receiver privately through a security instrument by way of an appointment letter. A receivership is a remedy that allows a secured creditor to take control of and sell the debtor’s property and assets to collect their secured debt through a private or court appointment process.

Can a receivership be stopped or avoided?

Receivership can sometimes be stopped or avoided through negotiation with the secured creditor(s), restructuring or refinancing of debts, or by finding alternative sources of funding. However, whether or not it can be stopped or avoided depends on the specific circumstances of each case. The cessation of receivership will not be easy unless the secured creditor is being paid out.

how long do receiverships last
how long do receiverships last

How does a creditor enforce a secured loan in Canada?

In Canada, a creditor can enforce a secured loan by appointing a receiver under a private contract or through the court process. Upon appointment, the receiver will seize and sell the secured assets or the assets set out in the court order to recover the amount owed.

However, before being able to appoint the Receiver, there have to be one or more events of default as described in the loan agreement. Then, the lender must be reasonable in allowing the company borrower to cure the default. If the company in default does not remedy the default(s) and the lender has lost confidence, the lender can then make a written demand on the company to repay the entire loan, plus interest and costs and also serve the necessary statutory form on the defaulting borrower.

The lender must give the borrower a reasonable period of time to repay the secured lender’s debt. Reasonable time will vary depending on the unique circumstances of the situation. In Canada, the minimum amount of time that has to be given is 10 days, unless the borrower acknowledges in writing that they can never repay the debt and is waiving the notice period.

Legal options available to recover outstanding loan payments may include sending demand letters, filing a lawsuit, obtaining a judgment and using collection methods such as wage garnishment or asset seizure.

How long does the bankruptcy process take in Canada?

The timeline of a corporate bankruptcy process depends on the uniqueness and complexity of each individual situation. There is no typical timeline, but, it could be a year or more from the start of the bankruptcy until the licensed insolvency trustee is discharged.

How do I liquidate assets in Canada?

When seeking to divest yourself of some assets you have a plethora of choices – in the case of an asset like real estate, you can list it on the public market. Alternatively, you can try to find the right buyer on your own. Or, if you’d like some professional assistance, enlist the help of a savvy broker or financial adviser.

What are the consequences of not paying off secured loans in Canada?

In Canada, if you don’t pay back a secured loan, the lender may reclaim the collateral you put up, personal property like a car or real property such as a house. Don’t let your possessions be taken away! Be sure to make all loan payments in a timely manner.

how long do receiverships last
how long do receiverships last

How long do receiverships last in Canada? Conclusion

So I hope that you now have a good appreciation for receiverships in Canada including the answer to the question “how long do receiverships last in Canada?”. If your company or business is under financial pressure and your secured creditor is about to demand full repayment of all loans, you need immediate professional advice.

Revenue and cash flow shortages are critical issues facing entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind. Coming out of the pandemic, we are also now worried about the economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

how long do receiverships last
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Brandon Blog Post

THE CANADIAN RECEIVERSHIP EASY BEGINNERS GUIDE

receivership

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.

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.

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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.

Call a Trustee Now!