The Foundations of Receivership Law

• Author: Roderick J. Wood
• Pages: 501-518

501

CH APTE R 17

THE FOUNDATIONS OF

R ECEIVER SHIP L AW

A. A SHORT HISTORY OF RECEIVERSHIP LAW

Receivership law emerged from two different sources. One body of sub-

stantive principle governed court-appointed receivers, while a differ-

ent body of law governed privately appointed receivers. More recently,

federal and provincial government s have passed statutes that regul ate

receiverships. These statutes do not codify receivership law, and so it

remains necessary to delve into the two original bod ies of law. How-

ever, the statutes have signif‌icantly altered the legal landscape. They

set out a common set of rules that applies to both ty pes of receiver-

ships. 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 th an the rules governing court-

appointed receivers. As a consequence, there is a now gre ater similar ity

in the legal rules and pr inciples that govern these t wo types of receiver-

ships.

There have been two recent fundamental sh ifts in the law and practice

relating to receiverships in Can ada. The f‌irst has been the dwindling u se

of the privately appointed receiver. The other has been the emergence of

the national receiver appointed under the BI A. When receiverships f‌irst

began to be widely used in C anada in the 1980s, the privately appoint-

ed receiver was very much the norm and the court appointed receiver

BANKR UPTCY AND INSOLVENCY L AW502

was exceptional.1 This no longer holds true. The 2009 BIA a mendments

permit the court appointment of a receiver who has t he authority to act

throughout Canada (a practice that had star ted through the appoint-

ment of interim receivers under the BIA), and it is now the case that

most receivers are appointed under this provision.

1) The Historical Bifurcation of Receivership Law

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-

appointed receiver would take possession of the propert y, collect the

rents and prof‌its, and apply them against the sec ured obligation. The

courts of equity provided the remedy in ot her contexts as well, such as

disputes over partnership property or in cases where ordinary judg-

ment remedies were inadequate.2 Under this regime, the receiver is ap-

pointed by the court and is accountable to it. The receiver does not act

as agent for either the secured party or the debtor and does not obey

their directions.3

In order to produce a quicker and less expensive procedure, debt-

ors would appoint a receiver at the request of a secured creditor. Later,

it became common for the parties to stipulate that the secured credit-

or 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.4 This led to the

creation of the privately appointed receiver, also referred to as an in-

strument-appointed receiver, a document-appointed receiver, or an out-

of-court-appointed receiver. Whereas the substantive law governing

court-appointed receivers was largely derived from principles of equit y,

the substantive law governing privately appointed receivers was largely

derived from principles of agency and contract law.

As industria lization 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

1 P Farkas, “Why Ar e There So Many Court-Appointed Receiver ships?” (2003) 20

National Insolvenc y Review 37.

2 Since these do not i nvolve insolvency proceedings, not hing further wil l be said

about these other t ypes of court-appointed rece ivers.

3 Bacup Corporation v Smith (1890), 44 Ch D 395; Parsons v Sovereign Bank of

Canada, [1913] AC 130 (PC).

4 The historical de velopment of the privately appointed receive r is described in

Gaskell v Gosl ing, [1896] 1 QB 669 at 691–92, Rigby LJ.