Social stakeholders in a receivership application

Vancouver Coastal Health Authority v Seymour Health Centre Inc., 2023 BCSC 1158
Will the court consider social stakeholders in a receivership application?

Overview: In this case, broader community interests were an important consideration for the judge in determining whether to grant the receivership application. This is significant because, while it is common to consider social stakeholders in CCAA proceedings, it is not so common in receivership proceedings, where the court will primarily focus on the debtor, applicant creditor and other creditors.

Vancouver Coastal Health Authority applied for the appointment of a receiver-manager over the assets of the respondent, Seymour Health Centre Inc., in connection with $6.8 million that it advanced to Seymour Health. Seymour Health acknowledged that VCH advanced the monies and that, on the face of the documentation, the amounts were due and payable. However, Seymour Health had recently commenced an action against VCH and others seeking millions of dollars in damages arising from previous dealings concerning Seymour Health’s operations, which it claimed would entirely offset the amounts claimed by VCH.

In addition to the immediate interests of VCH and Seymour Health, broader and significant community interests were engaged. Seymour Health’s clinics provided health services to between 70,000–100,000 people in Vancouver—representing about 15% of that population. In 2022, there were about 265,000 patient interactions at the clinics.

The governing authorities have invariably endorsed the Court’s consideration of many different factors in deciding whether the appointment of a receiver is justified, which must be viewed holistically and include:

1. whether irreparable harm might be caused if no order were made, although it is not essential for a creditor to establish irreparable harm if a receiver is not appointed, particularly where the appointment of a receiver is authorized by the security documentation;

2. the risk to the security holder taking into consideration the size of the debtor's equity in the assets and the need for protection or safeguarding of the assets while litigation takes place;

3. the nature of the property;

4. the preservation and protection of the property pending judicial resolution; 

5. the balance of convenience to the parties;

6. the fact that the creditor has the right to appoint a receiver under the documentation provided for the loan; and

7.  the effect of the order upon the parties.

The interests and motivations of both VCH and Seymour Health were clear. VCH argued that it sought the appointment of a receiver-manager over Seymour Health’s property to enforce and protect its security interest, given the defaults under the Loan Agreement and GSA. Seymour Health argued that the $6.8 million owing to VCH was insignificant compared to VCH’s overall budget. The Court noted that while that was unquestionably true, all of those funds came from taxpayers who expect that those funds will be used in a fiscally responsible manner. That would include the collection of amounts loaned by VCH.

The one—and significant—area of consensus between the parties was their concern for the BC citizens who relied on Seymour Health to provide necessary and urgent health care. Courts must often be cognizant of the various interests at stake in the reorganization, which can extend beyond those of the debtor and creditors to include employees, directors, shareholders, and even other parties doing business with the insolvent company. In addition, courts must recognize that, on occasion, the broader public interest will be engaged by aspects of the reorganization and may be a factor against which the decision of whether to allow a particular action will be weighed. The broader community interests engaged in this case were an appropriate additional consideration in terms of the health care needs of thousands of British Columbians.

Seymour Health argued that patient and physician outcomes would be worsened if an insolvency professional took over. However, the Court had no doubt that the professionals at Ernst & Young Inc. would obtain whatever assistance they needed to perform their duties as a receiver-manager. The Court noted that this situation was not unlike any other receivership where the insolvency professional is unfamiliar with the specific business involved. To some degree, this concern, if valid at all, was attenuated by the fact that E&Y was already familiar with Seymour Health’s operations and finances by reason of having conducted a “look see” engagement for VCH in August 2022.

Finally, Seymour Health argued that VCH’s own clinics were not well‑run, and the “hybrid” model at the North Shore Clinic with VCH’s unionized staff had not resulted in the success of the other clinics that were operated solely by Seymour Health. Seymour Health pointed to various examples of stresses and strains in BC’s health care system and claimed that significant physician attrition would occur if a receiver took over the Clinics. The Court, however, held that it did not need to address this issue for the purpose of reaching a decision as to the appointment of the receiver as any changes in the operation of the Clinics arising from the receivership were entirely speculative.

The primary purpose of any receivership is to stabilize the situation for the benefit of all stakeholders. These stakeholders would include the physicians and other staff. The stabilization is accomplished, in part, by imposing a stay of proceeding against a debtor and its property. A stay of proceeding avoids creditors taking unilateral action against the debtor and its assets to the detriment of the overall estate. It also allows for an orderly continuation of operations toward maximizing the value of the estate for all stakeholders to ensure a fair distribution, if a sale ultimately results and proceeds are realized. Any costs incurred by the estate on account of the receivership—even if substantial—were simply inevitable in circumstances where the involvement of an insolvency professional was required to address urgent concerns.

Accordingly, the appointment of a receiver-manager was just and convenient, and the order appointing E&Y as receiver-manager was granted.

Judge: Justice Fitzpatrick

Counsel: Peter Reardon and Kayla Strong of Nathanson, Schachter & Thompson LLP for the Petitioner

Hein Poulus and Kyle Thompson of Poulus Ensom Smith LLP for the Respondent;

Peter Roberts of Lawson Lundell LLP for Business Development Bank

Jeffrey Bradshaw and Lydia Huang of DLA Piper LLP for Ernst & Young Inc.