Appointing an interim receiver over a logistics company?

Canadian Western Bank v. Canadian Motor Freight Ltd. et al.
What is the test for the appointment of an interim receiver?

Summary: In this case, the Court considered whether an interim receiver should be appointed over a logistics company and related real estate holding company. The Court found that the appointment of an interim receiver was necessary for the protection of the secured creditor’s interests in that, among other things, there was a lack of current or reliable information on the debtors, which was impeding visibility into their business and financial affairs. The debtors had also been non-responsive to the creditor’s requests for information.

The Applicant sought to appoint an interim receiver of the properties, assets and undertakings of the Respondents, CMF and 256, (collectively, the "Debtors") pursuant to section 47(1) of the Bankruptcy and Insolvency Act and section 101 of the Courts of Justice Act.

CMF was the operating company, providing logistics services to a diverse client base, and 256 was the registered owner of property known municipally as 400 Brunel Road, Mississauga, Ontario (the "Property"). The Applicant advanced Credit Facilities to both CMF and 256 that were cross-guaranteed. The Credit Facilities were secured by general security agreements from each of the Debtors and a Mortgage over the Property. Upon default, the Applicant had the contractual right under its security to demand immediate repayment and to appoint a receiver.

The Debtors had numerous secured creditors, many of whom had filed financing statements against CMF. These creditors asserted a security interest in certain equipment and assets, which may lead to competing claims regarding CMF's equipment and other assets. Further, the Property was subject to multiple registered charges and outstanding tax arrears for 2023 and 2024.

The Debtors each defaulted under their respective Commitment Letters and GSAs by, among other things, failing to make payment when due of principal, interest, or other amounts payable to the Applicant. As a result of the payment defaults, the Applicant demanded payment by the Debtors of the indebtedness in excess of $21 million, and sent notices of intention to enforce security pursuant to section 244 of the BIA. It then sought the appointment of an interim receiver.

The Court's discretion to appoint an interim receiver is set out in section 47(1) of the BIA. The appointment of an interim receiver is an interlocutory remedy relied upon by secured creditors to preserve the status quo until a receivership application can be heard. The applying creditor must establish that the appointment of the interim receiver is necessary for the protection of the debtor's estate or the protection of the interests of one or more creditors.

The Applicant was a secured creditor of the Debtors, had demanded repayment of the indebtedness owing to it, and, accordingly, was entitled to bring an application under section 47 of the BIA. With some agreed upon amendments to the proposed order, the Debtors consented to the appointment of an interim receiver. They agreed that this was a convenient way for the Applicant to obtain the information and disclosure it sought and that it was entitled to while the Debtors remained in possession and control of their property so that they could continue to operate.

The appointment of an interim receiver was necessary for the protection of the interests of the Applicant as a secured creditor in that:

1. the Debtors were seriously in default under the terms of the Commitment Letters and the Security;

2. there was a lack of current or reliable information on the Debtors impeding visibility into the Debtors' business and financial affairs;

3. the Debtors had been non-responsive and have failed to provide any information requested by the Applicant; and

4. the terms of the GSAs permitted the appointment of a receiver upon default.

During the interim receivership, the proposed interim receiver expected to gather information and report to the Court at the next appearance. The Court noted that if a full receivership order is sought in the future, the Applicant would be required to satisfy the Court that the test for such appointment was met.

Judge: Justice Kimmel

Counsel: Harvey Chaiton and David Im of Chaitons for the Applicant, CWB; Natasha MacParland of Davies for EY as interim receiver; Kristine Holder of Nanda & Associates for the Debtors; Melinda Vine of Harrison Pensa for RBC