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- Irwin Law: Bankruptcy and Insolvency Law (First Edition)
- Part Three - Receivership Law
- Chapter 18 - Commencement, Administration, and Supervision of the Receivership
G. Financing the Receivership
Author | Roderick J. Wood |
Profession | Faculty of Law. University of Alberta |
Pages | 486-487 |
Page 486
A receiver may think it expedient to borrow funds in order to pay employees, landlords, and suppliers and to meet other periodic expenses. Many security agreements contain a provision that permits the receiver, with the consent of the secured creditor, to borrow money in order to carry on the business of the debtor or to maintain the collateral. As this is merely a contractual provision between the secured creditor and the debtor, it cannot give these borrowings any priority over senior ranking interests in the collateral. In many instances, the secured creditor who appoints the privately appointed receiver will provide the financing, and these amounts become part of the obligation secured by the collateral.
A court-appointed receiver does not have the power to borrow unless authorized to do so by the court. The template receivership orders contain a standard provision that allows the receiver to borrow up to a stated maximum amount. A receiver who borrows funds pursuant to this power will issue a receiver’s certificate that evidences the amounts that are borrowed. The amounts borrowed pursuant to receiver’s certificates rank pari passu.
The template receivership orders provide for the creation of a first charge on all of the assets of the debtor that secures any expenditure or
Page 487
liability that is lawfully incurred by the receiver, including the receiver’s fees and legal costs. The charge is in priority to all security interests, trusts, liens, charges, and encumbrances, statutory or otherwise. Courts have held that a receiver can claim this priority only if notice has been given to the secured creditor.62Priority can be asserted over secured creditors in the absence of notice if the secured creditors gave their approval to the appointment of the receiver, or if the receiver expended money for the necessary preservation or improvement of the property.
A specific statutory rule governs the recovery of the fees and disbursements of a receiver appointed under the BIA.63A court is permitted to make any order that it considers appropriate, including one that gives a receiver a charge ranking ahead of that of a secured creditor. A court is not permitted to grant a priority...
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Request your trial- Part Three - Receivership law
- Chapter 18 - Commencement, administration, and supervision of the receivership
- A. Preliminary Requirements
- B. Appointment of an Interim Receiver
- C. Method of Appointment
- D. Grounds for Appointment
- E. Stay of Proceedings
- F. Court Supervision of the Receivership
- G. Financing the Receivership
- H. Priorities
- I. Sale of the Assets
- J. Distribution of the Proceeds
- K. Termination of the Receivership
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