A. A Short History of Receivership Law
| Author | Roderick J. Wood |
| Profession | Faculty of Law. University of Alberta |
| Pages | 457-467 |
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Receivership law emerged from two different sources. One body of substantive principle governed court-appointed receivers, while a different body of law governed privately appointed receivers. More recently, federal and provincial governments have passed statutes that regulate receiverships. These statutes do not codify receivership law, and so it remains necessary to delve into the two original bodies of law. However, the statutes have significantly altered the legal landscape. They set out a common set of rules that applies to both types of receiverships. Furthermore, the impact of these new statutory rules has been one-sided. The rules governing privately appointed receivers have been modified to a much greater degree than the rules governing court-appointed receivers. As a consequence, there is a now greater similarity in the legal rules and principles that govern these two types of receiverships.
The courts of equity provided a remedy in the form of the appointment of a receiver to protect the interests of a secured creditor. The court-ap-pointed receiver would take possession of the property, collect the rents and profits, and apply them against the secured obligation. The courts of equity provided the remedy in other contexts as well, such as disputes over partnership property or in cases where ordinary judgment remedies
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were inadequate.1Under this regime, the receiver is appointed by the court and is accountable to it. He or she does not act as agent for either the secured party or the debtor and does not obey their directions.2In order to produce a quicker and less expensive procedure, debtors would appoint a receiver at the request of a secured creditor. Later, it became common for the parties to stipulate that the secured creditor would appoint the receiver and that the receiver would act as the debtor’s agent. The secured creditor was viewed as acting as agent for the debtor in making the appointment of the receiver.3This led to the creation of the privately appointed receiver, also referred to as an instrument-appointed receiver, a document-appointed receiver, or an outof-court-appointed receiver. Whereas the substantive law governing court-appointed receivers was largely derived from principles of equity, the substantive law governing privately appointed receivers was largely derived from principles of agency and contract law.
As industrialization progressed, it became common for lenders to take security on the entire undertaking of an operating business. In these circumstances, it was not enough simply to appoint a receiver to collect income and rents generated from land. Increasingly, commercial documents provided for the appointment of a person who had the power of management over the business in addition to the powers of a receiver. In making receivership orders, courts would similarly provide for the appointment of a receiver-manager. This practice has become so dominant that it is rare that a receiver is not also given a power of management, so much so that the term "receiver" usually denotes persons who have the power of a receiver and manager alike.4This usage will be adopted here, but it should be kept in mind that the document or court order must specifically confer on the receiver the power to manage the business in order for the receiver to exercise the powers of a receiver-manager.
The division between privately appointed receivers and court-appointed receivers remains highly relevant. Although both types of receiverships have the same objectives, there are many important differences in the substantive law that governs these two types of receiver-ships. Secured creditors must carefully consider these differences when
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deciding which type of receivership is more appropriate to the circumstances at hand.
The relative use of court-appointed receivers in comparison with privately appointed receivers has fluctuated over time. During the 1980s, court-appointed receiverships were more rare.5Higher costs were associated with court-appointed receivers. As well, some courts expressed a reluctance to appoint a receiver unless the secured creditor could demonstrate that their right to appoint a privately appointed receiver was somehow inadequate in the circumstances of the case.6This reluctance has dissipated, and most courts no longer appear to be overly concerned with limiting the availability of court-appointed receiverships. The higher costs are still a limiting factor, though, and privately appointed receiverships are more likely to be used in relation to small- and medium-sized enterprises.
For many years, the basic division between the court-appointed receiver and the privately appointed receiver prevailed in Canada, and there was very little in the way of legislation that modified this position. Historically, a strong case could be made that receivership law was primarily a remedy of a secured creditor and did not provide a collective insolvency proceeding. This view is no longer tenable in Canada. The legislative regulation of receiverships has given a number of important rights to the debtor and to other interested parties. Although receiver-ship law continues to be heavily geared to the enforcement of a secured creditor’s security interest, it contains a number of elements that one would expect to find in collective insolvency proceedings.
During the 1970s and 1980s, the use of receiverships to protect and enforce the rights of secured creditors became increasingly common. However, the greater reliance on the remedy was accompanied by concerns over its effect on other interested parties. The debtors as well as the other creditors of the debtor were largely left in the dark concerning the activities of the receiver.7They had little ability to obtain any information or an accounting from the privately appointed receiver. There
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was also a concern that the privately appointed receiver had the interests only of the secured creditor at heart, and that the legitimate interests of all other interested persons were liable to be sacrificed. During this period, legislation was passed that gave creditors greater access to information and that made receivers more accountable to other interested parties for their actions.
Unfortunately, the legislative response has been highly fractured. Instead of a single legislative solution, there are several different layers of statutes that enact similar but not identical rules. The first legislative intervention was taken in federal business corporation legislation8 and was followed by a similar approach adopted in many provincial business corporation statutes.9Although the majority of receiverships involved corporate debtors, the legislation did not apply if the debtor was not a corporation governed by the federal or provincial business corporation statutes. In order to remedy this deficiency, personal property security legislation provided for statutory regulation of receiver-ships.10These provisions applied to all kinds of entities, including sole proprietorships and partnerships.11
In the 1992 amendments to the BIA, federal provisions regulating receiverships were added to the BIA for the first time. The provisions are over-inclusive in some respects and under-inclusive in others. They are over-inclusive in that the receivership provisions apply to several types of transactions that do not involve an appointment of a privately appointed or court-appointed receiver. The definition of "receiver" that is employed covers a person who takes possession of all or substantially all of the inventory, accounts receivable, or other property of the debtor.12This encompasses secured creditors who do not appoint a receiver but who simply exercise their enforcement rights against the collateral.13The pro-
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visions are under-inclusive in that they do not apply to all receiverships. The provisions are restricted to receiverships in which the debtor is a bankrupt or insolvent person.14This limitation was presumably included in order to ensure that the provision would not exceed Parliament’s power to enact laws respecting bankruptcy and insolvency.
Although the statutes were passed in order to redress serious problems associated with the appointment by secured creditors of privately appointed receivers, it has given rise to two problems. The first is that it is often difficult to navigate through the fractured and overlapping legislative provisions, since a receivership may attract the operation of several different legislative regimes. The second difficulty is that no Canadian court to date has provided a detailed discussion...
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