Can secured creditors holding mortgages claim three months interest post-default?
The Applicants held first mortgage security over six properties of the Respondents, securing a number of loans that had not been repaid when they became due. The Applicants did not elect to commence any private enforcement proceedings such as power of sale proceedings or the appointment of a private receiver. They brought an application seeking the appointment of a receiver pursuant to s. 243(1) of the Bankruptcy and Insolvency Act and s. 101 of the Courts of Justice Act, which was successful. Rosen Goldenberg Inc. was appointed as receiver (the “Receiver”). They also sought an order for the payment of three months interest over and above the ordinary contract interest accrued pursuant to s. 17 of the Mortgages Act. The holders of subsequent mortgages opposed this application.
On June 1, 2018, the Court approved the sale of four of the properties over which the Applicants held first mortgage security, and the sales were completed soon afterwards. On June 22, 2018, the Court approved a distribution of funds to the Applicants from the proceeds of the sale that were in the hands of the Receiver. The amount approved was sufficient to repay all amounts due under the subject mortgages, subject to holding back an amount in respect of the disputed claim of the Applicants to receive an additional three months interest.
The sole issue to be decided was whether the Applicants were entitled to three months interest over and above the contract interest accrued pursuant to s. 17. The Court held that there is no general right granted to secured creditors holding mortgages to claim three months interest post-default.
It noted that s. 17 was designed primarily as a protection for mortgagors seeking relief from a forfeiture by reducing what had historically been an equitable rule requiring a mortgagor to pay six months interest to only three months interest. The history and context of this legislative reform suggests a very limited legislative intent that does not extend to either privately-appointed or court-appointed receivers. The principle underlying the original rule of equity and the milder statutory rule that reformed it was meant to provide an affected secured creditor with time to find a new mortgage to invest in. A distribution of proceeds by a receiver to entitled parties arising from a court-ordered sale of land does not involve any party seeking relief from anything. It falls outside of the range of circumstances contemplated by s. 17.
Moreover, s. 17 confers a right upon a defined, limited set of persons being the “mortgagor or person entitled to make such payment”. The right conferred is the right “at any time, upon payment of three months interest on the principal money so in arrear, to pay the same”. The secured creditor selling the land or his or her appointed agent is not a “mortgagor or person entitled to make such payment”. A receiver—whether creditor-appointed or court-appointed—is not a person “entitled” to pay such arrears either. The court-appointed Receiver is not the agent of the appointing creditor, nor of any subsequent mortgagee. The Receiver had no beneficial interest in the sale proceeds or in the land being sold. The proceeds were held by the Receiver pending further order and were then distributed by court order. In directing the Receiver to pay over proceeds of a sale, the Court made a determination of the secured creditor’s entitlement to receive the funds, not a determination of the Receiver’s entitlement to pay.
There are advantages to court-appointed receiverships when contrasted with private receiverships in terms of the benefits of court supervision generally and in terms of the window given to a broader group of stakeholders upon a process that may vitally impact their interests. The Court noted that it would be regrettable if courts should be dissuaded from allowing receivership applications for fear that an undue benefit might be conferred thereby on a single class of creditor to the detriment of others. No such advantage exists under s. 17 of the Mortgages Act.
The application was denied and costs were ordered accordingly.
Counsel: Lisa Corne of Dickinson Wright LLP for the Applicants, Eric Golden of Blaney McMurtry LLP for the Receiver Rosen Goldenberg Inc. and Caitlin Fell of Brauti Thorning Zibarras LLP for the moving parties Canada Investment Corporation, Canada Capital Corporation Inc., 2399029 Ontario Inc., 2457674 Ontario Inc. and Terry Wilson