Interim receivership take 3: Replacing the court officer?

Re Canadoil Forge Ltd.
What is the test for replacing a court officer?

Summary: A couple of weeks ago, we wrote about how the Quebec Superior Court granted an application appointing FTI as interim receiver after initially refusing RBC and Fiera’s ex parte bid. Now, the Court has rejected Fiera’s request to appoint Raymond Chabot as receiver on the expiry of the interim receivership at the end of September, finding the move unnecessary and duplicative. FTI was appointed as interim receiver at the joint urging of Fiera and RBC after the Court earlier refused to allow each lender to appoint its own agent, stressing proportionality and cost-efficiency. The Court noted that FTI’s work to stabilize the assets, including those subject to Fiera’s security, had been “swift and stellar”, that it was poised to serve as bankruptcy trustee, and that the appointment of Raymond Chabot in addition to or in lieu of FTI would likely lead to duplication of work and fees. Further, there was no evidence that a receivership would enhance asset recovery or facilitate a transaction. As Fiera bore the burden of demonstrating necessity and failed to do so, its application was dismissed.

Fiera returned to Court to seek the appointment of Raymond Chabot Inc. as receiver pursuant to s. 243 of the Bankruptcy and Insolvency Act over a limited pool of assets subject to Fiera’s security (i.e. two real properties). The intent, as indicated in Fiera’s application, was for the Debtor to subsequently be placed into bankruptcy by FTI Consulting Inc., who was previously appointed as Interim Receiver of the Debtor’s property and assets at the request of Royal Bank of Canada and Fiera. Essentially, Fiera and RBC agreed to swap FTI for Raymond Chabot to act as court officer going forward.

FTI was originally appointed as Interim Receiver with the support of both Fiera and RBC after the Court expressed concerns about the fact that both parties were seeking the appointment of their respective agents to act as Interim Receiver. The Court held that the appointment of a single court officer would be sufficient under the circumstances, noting the need to consider proportionality and cost-efficiency.

The Interim Receivership Order ran its full course and expired on September 29, 2025. The Court noted that Fiera’s second attempt to include another set of professionals to an “already crowded dancefloor” left the Court with the impression that the joint recommendation of Fiera and RBC to have FTI act as Interim Receiver on August 29, 2025 was meant as a quid pro quo for Raymond Chabot to subsequently act as Receiver when the time came.

Turning to Fiera’s current application to appoint a s. 243 receiver, the Court noted that the analysis ought to be holistic and take into account all circumstances of a particular file. In applying this holistic approach, the Court found that the appointment of Raymond Chabot as receiver was not just and appropriate.

First, Fiera’s application did not address why FTI—who was previously the Interim Receiver and was intended to subsequently act as trustee in bankruptcy of the Debtor—would not be in a position to sufficiently address Fiera’s concerns so as to dispense with the need to appoint another court officer. The Court noted that FTI’s work to stabilize the assets, including those subject to Fiera’s security, was “swift and stellar”. FTI had clearly acquired deep knowledge of the Debtor’s operations and assets and was uniquely positioned to continue its work and assist the Court with the next steps of the Debtor’s insolvency proceedings. The Court saw no reason why FTI should not continue to act as the court officer in respect of the Debtor’s insolvency proceedings.

Nothing in the record suggested that Fiera could expect enforcement issues with respect to its collateral. The Debtor’s directors and officers previously resigned and FTI had full control and oversight of the Debtor’s assets. Further, there was no evidence to suggest that Fiera’s collateral was at any risk of deterioration or dissipation, as the Interim Receivership Order provided FTI with the appropriate powers to secure the Debtor’s premises and assets. In any event, the collateral consisted of real properties, which were not easily subject to deterioration or dissipation.

There was no evidence that the receivership would enhance asset recovery or facilitate a transaction. The contemplated sale and investment solicitation process would likely yield the same return and lead to a similar procedural path seeking a vesting order to approve an eventual transaction, regardless of whether the process was conducted by a trustee, a receiver, or a real estate agent.

Finally, the Court was not convinced that the appointment of Raymond Chabot in addition to or in lieu of FTI would not lead to duplication of work and fees. Relying on two reputable firms to liquidate the assets of a company whose management had effectively abandoned was viewed by the Court as straining logic. Operations had ceased at the plant of the Debtor and all of its employees were laid off. The proceeding was a full-blown liquidation with no restructuring prospects.

Fiera bore the burden of convincing the Court that the appointment of Raymond Chabot was necessary, and the Court found that it failed to do so. The Court dismissed Fiera’s application.

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