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Receivership


Receivership

A Receivership will usually involve seizing the debtors assets and either liquidating them, or selling a business as a going concern, in order to repay the secured creditors loan.

A Receiver in Canada must be a Licensed Insolvency Trustee (LIT) and can be appointed in one of two ways:

1. Privately appointed pursuant to a General Security Agreement. In this case the Receiver is acting for the party who appointed them and is taking action to realize on the assets specified in the loan agreement.

2. Court appointed. This would be the case for complex or complicated issues. A Court appointed Receiver is an Officer of the Court and must act on behalf of all creditors. The Court Appointed Receiver has its powers and rights detailed in the Court order that appointed them.

A Receiver is sometimes referred to as a Receiver-Manager if the best course of action to recover on the secured creditor’s loan is to operate an existing business for a short period of time.

Other Types of Roles

On occasion, a Receiver can be engaged to assist in other matters such as:

  • Shareholder disputes
  • Matrimonial disputes
  • Look see engagements
  • Monitoring engagements

This involves taking steps to safeguard and protect assets in a dispute or to determine if a formal Receivership needs to be started.

Duties

A Receiver must notify all creditors of the Receivership and report to the Office of the Superintendent of Bankruptcy (Federal Government) and to the Court, if Court appointed.

In addition, the Receiver must conduct itself in a commercially reasonable manner and in accordance with the provisions of the Bankruptcy and Insolvency Act.

Costs

A Receiver will keep track of time spent on the engagement, much like an accountant or a lawyer, and will recover its costs from the assets that are handled. The remaining funds will be remitted to the secured creditor. If there are insufficient funds to pay off the secured creditor in full, the unsecured creditors will not receive any payment.

It is normal practice for the Receiver to obtain an initial retainer from the secured creditor and an indemnification.

Final Receivership fees and costs are approved by the secured creditor or the Court.

Receivership versus Bankruptcy

The terms of Bankruptcy and Receivership are often used interchangeably but they refer to different engagements. Bankruptcies are most commonly initiated by a debtor whereas a Receivership is started by a secured creditor.

To make things more confusing, a business Bankruptcy and a Receivership can happen at the same time. The same LIT will often handle both engagements. For a further comparison of the two terms, check out our blog post here.

Next Steps

Our office has been offering Trustee services as a Receiver for over twenty years. In particular, Stephen Boale LIT has been involved in numerous cases.

We offer a free initial consultation to discuss what options might be available for your situation. Contact us to set up a phone or in person meeting at your convenience.

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