C. The Fundamental Principles of Receivership Law

• Author: Roderick J. Wood
• Profession: Faculty of Law. University of Alberta
• Pages: 469-472

Contenidos

• 1) Title to the Debtor’s Assets Does Not Vest in the Receiver.
• 2) Control over Management is Transferred to the Receiver.
• 3) Power to Dispose of the Assets.
• 4) Distribution of the Proceeds.
• 5) The Court’s Supervisory Role.
• 6) The Creditors’ Right to Information.

Page 469

1) Title to the Debtor’s Assets Does Not Vest in the Receiver

The appointment of a receiver does not have any effect on the debtor’s ownership of its assets. Unlike a bankruptcy, there is no automatic vesting of the debtor’s assets in the receiver. The receiver therefore has no right to bring an action in his or her own name in respect of a debt owed to the debtor. The action is properly brought by the receiver in the name of the debtor, since the cause of action does not vest in the receiver.⁴⁴

2) Control over Management is Transferred to the Receiver

Upon the appointment of a receiver, the former managers of the business cease to have powers of management over the business. The receiver obtains control over the business and exercises the power of management in respect of the activities of the business. This conferral of managerial power occurs by virtue of the court order in the case of a court-appointed receiver and by virtue of a contractual provision in the security agreement in the case of a privately appointed receiver. The appointment of a receiver does not terminate the appointment of the corporate directors. The directors remain in office, but they cannot exercise their powers until such time as the receiver is discharged.⁴⁵

Page 470

It is not uncommon to have concurrent receivership proceedings and bankruptcy proceedings. This is usually arranged in order for the secured creditor to obtain a more favourable priority status as against other competing interests.⁴⁶This practice may have unintended consequences. The invocation of bankruptcy results in the vesting of the assets in the trustee. A contractual provision in a security agreement that deems a privately appointed receiver to be the agent of the debtor loses its effect upon this event.⁴⁷This means that a receiver no longer acts as agent of the debtor in carrying on business. Instead, the receiver becomes personally liable on new contracts. Although court-appointed receivers ordinarily incur liability in a personal capacity, this results in a significant change in status in relation to privately appointed receivers.

3) Power to Dispose of the Assets

A receiver has two different types of powers. The first is the receiver’s power of management and control over the business, which is discussed above. The second is the receiver’s right to enforce the security interest...