Appointing an interim receiver to gather information?

National Bank of Canada v. Precision Livestock Diagnostics Ltd., 2025 ABKB 175
Can an interim receiver be appointed where the predominant purpose is information gathering?

Summary: In this case, the court considered whether an interim receiver should be appointed to allow a bank to investigate irregular chequing activities by certain related borrowers. The bank’s focus in bringing the application was to prevent the repetition of the chequing activities and investigate what had already occurred. The court refused the application, finding that the limited powers that can be given to an interim receiver are hold-the-line powers that do not extend to conducting investigations, at least not where it is unclear how the outcome of the investigations could affect the borrowers’ available assets or the bank’s position. Here, it was not apparent what after-shock effects, if any, the bank would face even if it uncovered similar chequing activities in earlier periods, at least in terms of a changed current financial position for the borrowers. The bank also did not explain why an interim receivership was needed for an investigation to occur. It did not argue that the borrowers would destroy documentary, electronic, or other records, or that they were dissipating property. As a result, the court refused to appoint an interim receiver.

In mid-February 2025, National Bank of Canada (“NBC”) apparently identified irregular chequing activity among various defendants and took immediate steps to control further drawdowns from the defendants’ various NBC accounts, by cheque or otherwise, and to recover an apparent overdraft of approximately $43 million stemming from that activity. That overdraft was cleared, in various ways, within 15 days of being identified. No further overdraft or other new debt to NBC, arising from the identified chequing activity or otherwise, and owing directly by any of the defendants, has since been identified.

NBC called its loans, which stood at approximately $17 million, and retained FTI to monitor the group’s financial transactions on NBC’s behalf. NBC subsequently sought the appointment of FTI as interim receiver pursuant to s. 47 of the Bankruptcy and Insolvency Act to, inter alia, investigate the above-noted irregular chequing activity. It argued that, notwithstanding certain risk mitigation measures it had taken, the possibility of further claims existed and the scope of the irregular chequing activity had not yet been determined. NBC did, however, acknowledge that it had, essentially, closed the barn door against further drawdowns occurring without its approval by instituting strict internal monitoring over and debit restrictions on all NBC accounts held by any of the defendants.

The authorities are clear that the appointment of an investigative receiver is necessary to alleviate a risk posed to the plaintiff's right to recovery. The primary objective of investigative receivers is to gather information and "ascertain the true state of affairs" concerning the financial dealings and assets of a debtor, or of a debtor and a related network of individuals or corporations. The investigative receivership must be carefully tailored to what is required to assist in the recovery of the claimant's judgment while at the same time protecting the defendant's interests, and to go no further than necessary to achieve these ends.

NBC’s focus was on preventing the repetition of the chequing activities and investigating those which have already occurred. It did not explain or particularize its “potential exposure or risk”. It was not apparent what after-shock effects, if any, NBC would be facing even if it uncovered similar chequing activities in earlier periods, at least in terms of a changed, or even a risk of a changed, current financial position for the group with NBC. NBC did not explain how a fuller understanding of the breadth and scope of the chequing activities would or could change the defendants’ current financial position with NBC (i.e. how learning more about those activities would or could inform anything that NBC might do now in reaction).

Moreover, NBC did not explain why an interim receivership was needed for such an investigation to occur.  It did not argue that the defendants or any of them will or even may destroy documentary, electronic, or other records. It did not provide evidence or argue that the debtors or any of them were dissipating property or that there was a material risk of that occurring. It did not offer a detailed comparative analysis of “investigation via interim receivership” and “investigation via litigation.” To the extent urgency is a consideration, it did not show what benefits a possibly faster investigation via an interim receivership would yield.

As for its claim that there was a risk that there are significant but as yet unknown claims against the debtors, the Court held that it did not translate to a risk to the debtors’ estates or to NBC’s position as the first-ranking creditor against most of the defendants. The priorities were what they were. Flushing out possible further claims against the defendants, or any of them, was not a convincing reason to install an interim receiver. Even if NBC could learn more about the scope and breadth of the chequing activity, including how other financial institutions may have been involved and, if so, how those other parties are or may have been affected, that did not show why any such information might be necessary to protect or help protect NBC’s current position.

The limited powers that can be given to an interim receiver are hold-the-line powers, which were not required here as there was no material risk shown of dissipation or other deterioration of the defendants’ estates or NBC’s position. Such powers do not extend to conducting investigations, at least not where it is unclear how the outcome of the investigations (i.e. learning everything about the irregular chequing activities) could affect the extent of the defendants’ available assets or NBC’s position on those assets or its position vis-à-vis the debtors or any of them.

The Court concluded that the evidence did not warrant the appointment of an interim receiver under s. 47 BIA.

Judge: Honourable Justice M.J. Lema

Professionals involved:

• David Mann, K.C. and Scott Chimuk of Blue Rock Law for the companies

• Sean Collins, K.C., Pantelis Kyriakakis, Nathan Stewart and Samantha Arbor of McCarthy Tetrault for National Bank of Canada