Commencement, Administration, and Supervision of the Receivership

AuthorRoderick J. Wood
There are two different methods of commencing receivership proceed-
ings. The f‌irst is through the appointment of a privately appointed
receiver. This form of receivership is not possible unless the part ies
have contractually agreed to t he exercise of this power by the secured
creditor. The second is through the appointment of a court-appointed
receiver. A secured creditor may also convert a private receivership into
a court-appointed receivership through a court application made after
a receiver is privately appointed. The rules and principles that govern
the commencement, administration, and supervision of receivership
proceedings differ dependi ng upon whether a privately appointed re-
ceiver or a court-appointed receiver is involved. In addition, there are
certain prelim inary steps that must be satisf‌ied before either type of
receivership proceeding can be invoked.
1) The Requirement of a Valid Security Interest
The validity and priority of the secured creditor’s security interest is of
critical import ance to receivership proceedings. There are two reasons
why this is the ca se. First, the ability of the receiver to give clear title to
a buyer depends upon the priority of the secured creditor. If the secured
creditor does not have priority to the as set, the enforcement sale will
not give the buyer clear title. An enforcement sale by a secured creditor
cuts off only security i nterests of subordinate secured cred itors.1 The
buyer will therefore take the propert y subject to the interest of those
parties th at are entitled to priority over the secured creditor. Although
a court can make a vesti ng order that conveys the property to a pur-
chaser free and clea r of any encumbrances against the propert y, the
prior and subsequent encumbrancers must be given notice.2 A court
will not grant the vest ing order unless the claims of higher-ranking
claimants a re fully protected.
Second, the receiver’s ability to manage the busi ness and to enforce
the security intere st will be seriously compromised if t hird parties are
able to claim priority to some or all of the assets. Because a receiver’s
possession and control of the debtor’s assets c an be displaced by the
superior right of a higher-ranking secured creditor, the appointment of
a receiver by a junior-ranking creditor is generally a r isky undertaking.3
Receivership proceedings wil l not generally be feasible where the
security interest covers only some of the business assets. The receiver
will lack the en forcement remedies available to secured creditors in
respect of the asset s that are not given as collateral under the security
interest. For this reason, courts have refused to make an order appoint-
ing a receiver unless the secured creditor’s security interest covers all
the busine ss asset s.4
2) The Requirement of Notice
a) The Reasonable Notice Doctrine
Prior to 1992, a secured creditor’s right to appoint a receiver to take
possession and control of the debtor’s assets upon default under a se-
curity agreement was not rest ricted by legislation. Secured creditors
would demand payment and withi n a matter of hours appoint a receiver
to take over control of the business. Can adian courts began to develop
the reasonable notice doctrine in order to curtail potential abuses of
this power. The security interest given to the secured creditor often
secured a demand loan. The courts held that a secured creditor was
not entitled to make a demand for payment and then immediately ap-
point a receiver. The secured creditor was required to give the debtor
1 See, for example, Persona l Property Security Act, RSA 2 000, c P-7, s 60(12) [Alta
2 Roynat Ltd v Can awa Holdings Ltd (1978), 28 CBR (NS) 285 (Sask CA).
3 See R Cuming, C Walsh, & R Wood, Persona l Property Security Law, 2d ed (To -
ronto: Irwin L aw, 2012) at 675–76.
4 First Investors Corp v 237208 Alberta Ltd (1982), 20 Sask R 335 (QB).

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