The Foundations of Receivership Law

• Author: Roderick J. Wood
• Profession: Faculty of Law University of Alberta
• Pages: 457-472

457

CHAPTER 17

THE FOUNDATIONS OF

RECEIVERSHIP LAW

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 recent ly,

federal and provincial govern ments have passed statutes t hat regulate

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

remains necessary to delve into the two orig inal bodies of law. How-

ever, 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-sid-

ed. The rules governing privately appointed receivers have been modi-

f‌ied to a much greater degree than the rules governing court-appointed

receivers. As a consequence, there is a now greater simi larity in the

legal rules and principles t hat govern these two ty pes of receiverships.

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 i nterests of a secured creditor. The court-ap-

pointed receiver would take possession of the property, collect the rents

and prof‌its, and apply them aga inst the secured obl igation. The courts of

equity provided the remedy in other contexts as wel l, such as disputes

over partn ership proper ty or in case s where or dina ry judg ment re medie s

BANKR UPTCY A ND INSOLVENCY L AW458

were inadequate.1 Under this regime, the receiver is appointed by the

court and i s accountable to it. He or she does not act as agent for either

the secured part y or the debtor and does not obey their directions.2

In 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 t he secured credit-

or would appoint the receiver and that the receiver would act as the

debtor’s agent. The secured creditor was v iewed as acting as agent for

the debtor in making the appointment of the receiver.3 This led to the

creation of the privately appointed receiver, also referred to a s 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 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

docume nts provide d for the appoin tment of a per son who had t he power

of management over the business in addition to the powers of a receiver.

In m aking r eceiver ship ord ers, cou rts wou ld simi larly p rovide f or the ap -

pointment 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.4 This usage will be adopted here,

but it s hould be ke pt in min d that t he docume nt or cour t order mus t spe-

cif‌ically 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 type s of

receiverships have the same objectives, there are many important dif-

ferences in the substantive law that governs these two types of receiver-

ships. Secured creditors must carefully consider these differences when

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

about these other t ypes of court-appointed rec eivers.

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

Canada, [1913] A.C. 130 (P.C.).

3 The historica l development of the privatly appointed rec eiver is described in

Gaskell v. Gosling, [1896] 1 Q.B. 669 at 691–92, Rigby L.J.

4 Provinci al PPSA def‌ines “receiver” as includ ing a receiver-manager. See, for ex-

ample, Personal Propert y Security Act, R.S.A. 200 0, c. P-7, s. 1(1)(nn) “receiver.”