C. Contractual Dealings

AuthorRoderick J. Wood
ProfessionFaculty of Law. University of Alberta
Pages501-506

Page 501

1) New Contracts

A privately appointed receiver will typically enter into new contracts as agent of the debtor and therefore will not incur personal liability on the contract unless the receiver has expressly or impliedly assumed this

Page 502

liability.28He or she will not act as agent of the debtor in the absence of a deemed agency provision in the security agreement, in the case of an invalid appointment of a receiver, upon the bankruptcy of the debtor, or if the receiver acts on the instructions of the secured creditor. In these situations, the receiver will be personally liable on any new contracts.29A court-appointed receiver contracts in his or her own right and therefore is personally liable for post-receivership obligations.30How-ever, a court-appointed receiver who incurs such liabilities is entitled to be indemnified out of the assets of receivership in priority to other creditors.31This position has been modified by statute in British Columbia. A receiver is not personally liable on a contract if the receiver discloses in the contract that he or she is acting as a receiver.32

2) Executory Contracts
a) Affirmation

Upon being appointed, a receiver must decide either to perform or to repudiate existing contracts. A privately appointed receiver acts as agent of the debtor and therefore is not liable for any default in performance for pre-appointment or post-appointment breaches, since the liability is that of the debtor and not of the agent. A decision to affirm an existing contract does not render a court-appointed receiver liable for the debtor’s breaches that occurred before the receiver was appointed,33 but a court-appointed receiver is liable for any contractual breaches that occur after affirmation of the contract.34The position is more complicated if the debtor was in breach of the agreement. If the breach merely gives the counterparty a right to recover damages for breach of contract, a privately appointed receiver may elect to perform the contract, and the counterparty has a claim as an unsecured creditor in respect of the contractual damages. If the breach allows the counterparty to treat any future obligations as terminated (thereby relieving both parties of any future performance), the

Page 503

receiver is in no different position than the debtor and cannot compel performance by the counterparty.35An ipso facto clause that terminates or amends an agreement or calls for accelerated payment or forfeiture of the term is fully effective. Unlike the BIA and the CCAA, no legislative provisions have been enacted that limit the use of such clauses in respect of a receivership.36The analysis proceeds along a different path in the case of a court-appointed receiver. The court-appointed receiver is not an agent for the debtor, and so the rights of the receiver vis-à-vis the counterparty do not depend upon whether the counterparty has a right to terminate the contract.37Instead, the matter is controlled through the stay of proceedings that is granted by the court when the receiver is appointed. The template receivership orders prohibit any person from terminating, repudiating, or ceasing to perform any agreement without the consent of the receiver or leave of the court. Suppliers are similarly prevented from terminating contracts for the supply of goods and services but are entitled to recover from the receiver the price of any post-receivership supply at the normal contract rate. A counterparty can invoke the comeback clause in the receivership order and apply to court for an order lifting the stay in respect of the contract so as to permit the party to terminate the agreement.

b) Disclaimer

A receiver may wish to disclaim an existing contract. If this is done, the counterparty will have a claim for damages against the debtor for breach of contract.38However, the counterparty will not have a claim against a receiver for disclaiming the contract.39

Historically, the courts exercised greater control over a receiver’s ability to repudiate contracts in respect of a court-appointed receiver-ship than they did in respect of a privately appointed receivership.40The court-appointed receiver is under an obligation to consider the interests of all interested parties, and courts can control the receiver’s exercise of this power. A court-appointed receiver must act in a fair and equitable manner and consider the interests of all parties. If the court concludes that a disclaimer of a contract would cause unfair prejudice to a

Page 504

counterparty, the court may refuse the receiver permission to disclaim a contract.41Although template receivership orders give court-appointed receivers the power to cease to perform any contract, counterparties may invoke the comeback provision in order to bring the receiver’s decision to disclaim the contract before the court for review.

Courts did not have the same latitude to control the disclaimer of...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT