Putting a CCAA debtor into receivership

Overview: In this case, the Court considered a request to put a CCAA debtor into receivership. The Court set out the test for the appointment of a receiver and noted that courts will terminate a CCAA proceeding and appoint a receiver where the CCAA proceeding will not result in a restructuring that in turn will yield a beneficial outcome to both the debtor and creditors, and where the creditors have lost faith in the ability of the debtor to run its business. On this basis, the Court granted the receivership application.

The Company owned and operated a land lease community in Selkirk consisting of 389 lots, of which 160 had been serviced and leased to residents who purchased modular homes installed on the lots. It sought, and was granted, protection under the Companies’ Creditors Arrangement Act in January 2024. The Court subsequently approved a sale and investment solicitation process, which did not ultimately generate any Qualified Bid. While the Company continued to market its property for sale, it did not receive any bid that, according to the Monitor, was capable of closing.

KHL Investments USA, Inc., as both the senior secured lender and debtor-in-possession lender of the Company, sought an order appointing The Fuller Landau Group Inc. as receiver of the Company. The indebtedness of the Company to KHL had been in default since July 2023. The Company acknowledged that it was not in a position to seek an extension of the stay of proceedings or a continuation of the CCAA proceedings. The DIP facility was largely drawn down and the DIP lender was not prepared to continue extending funds to continue operations or a restructuring proceeding. Further, as the SISP did not yield a Qualified Bid, KHL was authorized to complete the transaction contemplated by its own credit bid.

In determining whether it is just or convenient to appoint a receiver, the Court must have regard to all of the circumstances, but in particular, the nature of the property and the rights and interests of all parties in relation thereto. These include the rights of the secured creditor pursuant to its security. Where the rights of the secured creditor include, pursuant to the terms of its security, the right to seek the appointment of a receiver, the burden on the applicant is lessened. Among other things, courts will consider:

1. the apprehended or actual waste of the debtor’s assets;

2. the balance of convenience to the parties;

3. the length of time that a receiver may be in place; and

4. the likelihood of maximizing return to the parties.

The security granted to KHL by the Company expressly provided that upon default, KHL is entitled to appoint a receiver. The Monitor did not oppose the transition to a receivership and confirmed its willingness to facilitate same.

Courts have terminated CCAA proceedings and appointed receivers where the CCAA proceeding will not result in a restructuring that in turn will yield a beneficial outcome to both the debtor and creditors, and where the creditors have lost faith in the ability of the debtor to run its business. Having lost faith in the current management of the Company, the overall intent of KHL was to complete a credit bid with the receiver as soon as practicable.

The Court found that the appointment of a receiver would stabilize the community, while providing funding as necessary for receiver certificates with a view to completing the KHL agreement of purchase and sale. Accordingly, the Court granted the receivership order sought.

Judge: Justice Osborne

Counsel: Domenico Magisano and Spencer Jones of Lerners for KHL Investments USA; Jessica Wuthmann and Sharon Kour of Reconstruct for the company; Graham Phoenix of Loopstra Nixon for Northpoint Commercial Finance; Patrick Corney of Miller Thomson for Envirosearch; Haddon Murray of Gowling WLG for Basic Holdings; Kristi Ross and Adrienne Ho of Aird & Berlis for The Fuller Landau Group as Proposed Receiver; Michael Shakra of Bennett Jones for PwC as Monitor