Interim Receivership Request: Take 2

Séquestre de Canadoil Forge Ltd., 2025 QCCS 3066
What is the test for an interim receivership order?

Summary: Last week, we wrote that the Quebec Superior Court had refused RBC’s ex parte bid to appoint an interim receiver over Canadoil Forge and CFC Canadoil. Now, the Court has granted the Bank’s application on the return hearing, appointing FTI Consulting as interim receiver. Justice Luc Morin, who had emphasized the extraordinary nature of interim receiverships and the absence of urgency in the first decision, ultimately concluded that circumstances warranted intervention to safeguard creditor interests. The appointment illustrates how courts will strictly scrutinize ex parte applications but may still order receivership once the debtor’s position has been tested and the evidentiary record expanded.

The Applicants, who had previously sought and been denied the ex parte appointment of an interim receivership in respect of the Debtors, returned to Court 10 days later for a second attempt at appointing an interim receiver pursuant to s. 47 of the Bankruptcy and Insolvency Act. The Applicants, being Royal Bank of Canada and Fiera Private Debt Fund VI LP and Fiera Private Debt Fund VII LP, were the main senior secured lenders of the Debtors.

The Applicants maintained that they had lost confidence in the management of the Debtors as a result of, inter alia, misrepresentations in respect of the borrowing base calculations and other material representations made to obtain financing, and the lack of disclosure of a payment plan entered into in 2024 with Canada Revenue Agency regarding unpaid deductions at source. The Applicants reiterated that the Debtors’ management had been uncooperative with their respective financial advisors, FTI Consulting Inc. and Raymond Chabot Inc.

In denying the Applicants’ initial request for an interim receiver, the Court sought to send a clear message to the Debtors that the allegations against them were serious and warranted immediate attention and structured explanations, failing which the Debtors would be deprived of the final opportunity to conduct a debtor-led restructuring process. While the Court was subsequently satisfied that the message was heard by the Debtors, it was not convinced that their answers to the Applicants’ grievances were sufficient to avoid the appointment of an interim receiver. The Debtors chose to focus on their recriminations against the Bank and Fiera, likely in preparation for a claim for damages against them.

Specifically, the Debtors’ evidence did not address:

• the misrepresentations alleged by the Applicants that led to the financing;

• the next steps to address the serious concerns of the Applicants;

• the proposed path forward for operational/financial restructuring;

• the reason(s) why the indebtedness owing to the CRA was misrepresented to the Applicants.

At the onset of the second hearing, the Court was advised that the directors and officers of the Canadian Debtor had all resigned and would not oppose the appointment of an interim receiver. The Debtors indicated that they had not been able to secure the funds to continue their operations. The Applicants advised that their intention was to quickly move forward with the conversion of the interim receivership into a s. 243 receivership and/or a bankruptcy.

The Court noted that proportionality is well entrenched in the Civil Code of Procedure. Secured creditors must also exercise their enforcement recourses in the most efficient and least damaging way possible. The circumstances of this matter—namely, the lack of opposition to the interim receivership, the directors and officers having resigned and the operations likely to be stayed pending the conduct of a sale and investment solicitation process—did not warrant the appointment of two distinct receivers of the property of the Debtors.

The Court was satisfied that both proposed interim receivers were respected and experienced insolvency practitioners. The Applicants agreed to FTI acting as the sole interim receiver. Accordingly, the Court granted the interim receivership applications of the Applicants.

Judge: The Honourable Luc Morin, S.C.J. 

Professionals involved:

• Miguel Bourbonnais and François Alexandre Toupin of McCarthy Tétrault for the Royal Bank of Canada

• Nicholas Scheib of Scheib Legal for the debtors

• Gabriel Lavery Lepage of Blakes for the Fiera Entities

• Kloé Sévigny and Mathieu Lamontagne of the Ministère de la Justice du Canada