CANADA Law and Practice Contributed by: Clifton Prophet, David F W Cohen, Virginie Gauthier, Thomas Gertner and Kate Yurkovich, Gowling WLG
Receivership A court order appointing a receiver typically: • stays proceedings against the receiver and debtor; • provides the receiver with control over the property and assets of the debtor; • authorises the receiver to carry on the debtor’s business and to borrow money on the security of the assets; • ultimately authorises the receiver to sell the debt - or’s property and assets with court approval; and • authorises the receiver to commence and defend litigation in the debtor’s name. The appointment of a receiver does not operate to remove or terminate the debtor’s directors or manage - ment. However, the terms of the appointment order provide that the receiver’s powers granted under the terms of the appointment order are exclusive to the receiver, and accordingly supplant the powers of the debtor and its management. Unlike privately appointed receivers, whose duty is primarily to the appointing secured creditor (subject to a general duty to act in a commercially reasonable manner), a court-appointed receiver is an officer of the court and has a duty to protect the interests of all the debtor’s creditors. Once the receiver is appointed, the receiver’s duties include: • giving notice of its appointment to all creditors; • issuing reports on a regular basis outlining the status of the receivership; and • preparing a final report and statement of receipts and disbursements when the appointment is com - pleted or terminated. 5.3 The End of the Liquidation Procedure(s) Bankruptcy In order to participate in any distribution of the bank - rupt’s estate, a creditor must file a proof of claim with the trustee in the manner and form prescribed under the BIA. Where such a claim is allowed, said credi - tor will, in accordance with the priority regime set out under the BIA, be eligible to potentially share in the recovery from any realisation on the property of the
consented to an earlier enforcement at the time of the delivery of the 244 Notice), a secured creditor may apply for the appointment of a receiver. The jurisdiction for the court appointment of a receiver is found in the applicable provincial judicature acts, the rules for court proceedings, under Section 243 of the BIA, and under certain specific statutes (eg, securities legislation). The court appointment of a receiver typically com - mences by a secured creditor bringing an action or application against the debtor. The receiver is then appointed in a summary proceeding within that action or application. Restructuring Proceedings Both CCAA and proposal proceedings under the BIA can be used to effect a sale of all or part of a debtor’s business. For a discussion of sales through these restructuring proceedings see 4.2 Statutory Restruc- turing, Rehabilitation and Reorganisation Procedure and 4.3 The End of the Restructuring, Rehabilitation and Reorganisation Procedure . 5.2 Course of the Liquidation Procedure Bankruptcy Once the bankruptcy is effective, all the debtor’s prop - erty and assets vest in the trustee (subject to the rights of secured creditors) and the debtor ceases to have any control over its affairs. In a corporate bankruptcy, the trustee replaces the management of the corpo - ration and assumes full control over all the debtor’s assets and property. On bankruptcy, the trustee pro - ceeds to administer the estate for the benefit of the bankrupt’s unsecured creditors. Secured creditors retain their right to enforce on their security, provided they do so in a commercially reasonable manner. If a debtor is adjudged a bankrupt or assigns itself into bankruptcy, the sale of assets will be run by the bank - ruptcy trustee for the benefit of the unsecured credi - tors. A bankruptcy trustee can only sell the assets of the debtor not encumbered by security unless the secured creditor consents to the trustee’s sale or the secured creditor seeks the appointment of the trustee also as a court-appointed receiver of the bankrupt debtor.
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