Can a receiver take possession of property over which a lien is claimed?

Overview: In this case, the court considered an argument that a receiver couldn’t take possession of truck trailers leased to a debtor due to a party’s possessory lien under the Repair and Storage Liens Act (“RSLA”). The court ruled that the clear language of the receivership order—itself the product of a clear statutory scheme—trumped the interpretation of the RSLA urged by the party. This was consistent with, and indeed the foundation of, the orderly and centrally-controlled process for realizing on assets and distributing proceeds to creditors. To allow the claim would be a step down the road to a fragmented and chaotic process in which creditors are fending for themselves. This would be anathema to the controlled process engendered by Parliament.

The Respondent, Trans Emerge Transport (the "Debtor”), carried on business as a transporter of goods, specializing in heavy haul and refrigerated services across North America. The Applicant, Royal Bank of Canada (“RBC”), leased certain truck trailers (the “Trailers”) to the Debtor. The sole shareholder of the Debtor, Haminder Binapal, and 10000711945 Ontario Inc. (“100 Ontario”), entered into a letter of intent for the purchase of shares of the Debtor. The share purchase was ultimately not completed.

The Debtor alleged that 100 Ontario began operating the Debtor’s business and, in so doing, relocated, inter alia, the Trailers to 100 Ontario’s business premises. The Receiver learned in early February of 2024 that certain equipment leased by the Debtor, including the Trailers, was in the possession of 2352628 Ontario Inc. (“Hub”), which was an affiliate of 100 Ontario, and that Hub was claiming repair and storage liens over that equipment under the RSLA. Hub had registered an interest against the Trailers under the Personal Property Security Act (the “PPSA”) in January of 2024.

Counsel for the Receiver wrote to Hub’s lawyer, demanding that Hub deliver the Trailers to the Receiver pursuant to the Receivership Order and advising that any valid lien claims by Hub would not be disqualified by virtue of Hub returning the Trailers. Hub’s lawyer took the position that the storage charges claimed by Hub in relation to the Trailers would have to be paid before Hub would release the Trailers. In response, the Receiver sought an order confirming that it was entitled to immediate possession of the Trailers.

The issue before the Court was whether to require Hub to deliver to the Receiver possession of the Trailers (and any other property of the Debtor in the possession of Hub). The Receiver relied on the (standard) language of the Receivership Order, which conferred authority on the Receiver to take possession and control of the Debtor’s property and property used in the Debtor’s business (as well as control of the business itself). Hub argued that pursuant to the evident scheme and language of the RSLA, Hub’s possessory lien under the RSLA had priority over the interest of all other persons in the equipment. The argument noted that “interest” under s. 6 of the RSLA must include not only right to payment but also possession.

The Court noted that a court-appointed receiver is authorized and empowered to liquidate all of the assets of the debtor under the supervision of the court, to the exclusion of all others including secured creditors, whereas the stay in a bankruptcy specifically preserves the rights of secured creditors to exercise their remedies. The whole point of a court-appointed receiver is that one person is appointed to deal with all of the assets of an insolvent debtor, realize upon them, and then distribute the proceeds of that realization to the creditors’ claims. All creditors, secured and unsecured, are stayed from exercising their remedies against the insolvent person’s assets in favour of a single, court-supervised liquidation process by the receiver. Whether a secured creditor’s rights arise under the Mortgages Act, the PPSA, the Construction Lien Act, the RSLA, at common law, or otherwise, that creditor is bound by the provisions of the Appointment Order.

The Court found that the clear language of the Receivership Order—itself the product of a clear statutory scheme—trumped the interpretation of the RSLA urged by Hub. This was consistent with, and indeed the foundation of, the orderly and centrally controlled (in the hands of a receiver) process for realizing on assets and distributing proceeds to creditors. To allow Hub’s claim would be a step down the road to a fragmented and chaotic process in which creditors are fending for themselves. This would be anathema to the controlled process engendered by Parliament.

Hub’s second argument rested on commercial reasonableness, and the notion that Hub’s principal had connections throughout the transportation industry, and was likely able to realize the best return for the Trailers without involving third parties and incurring fees. While it would be open to the Receiver to take advantage of Hub’s principal’s expertise, if it was inclined to do so, and/or to market and sell the Trailers from Hub’s premises, it did not need to do so. Where there are concerns about the legitimacy of the lien claims, and where the Receive perceives an advantage in taking possession and control of the Trailers itself, it is empowered to do so, and the court should not generally be second-guessing the decisions of the expert that the court itself has appointed and empowered.

The Court granted the relief sought by the Receiver, and ordered that the Receiver was entitled to immediate possession of the Trailers and any other property of the Debtor in the possession of Hub.

Judge: Justice Black

Counsel: Sanjeev Mitra of Aird & Berlis for RBC; Timothy Hogan of Harrison Pensa for msi Spergel Inc. as Receiver; Mark Klaiman of Spetter Zeitz Klaiman for 2352628 Ontario Inc. o/a Hub Truck Centre; Patrick Di Monte of Di Monte & Di Monte for the Debtor, Trans Emerge Transport Inc.; Elaine Gray of Dentons for Daimler Truck Financial Services Canada Corporation; Amrita Mann of Simmons da Silva for 10000711945 Ontario Inc.; Wendy Greenspoon-Soer of Garfinkle Biderman for PNC Vendor Finance Corporation Canada; Brian Diamond of Youngman Law for TIP Fleet Services Canada Ltd.