What is the test for the appointment of an investigative receiver?
PricewaterhouseCoopers Inc. (the “Applicant”), the Court-appointed Receiver and Manager of Bridging Finance Inc. (“Bridging”), sought an order appointing Richter Inc. (“Richter”) as receiver and manager of all of the current and future assets, undertakings and properties of each of Northern Citadel Capital Inc., (“Northern Citadel”), One8One Davenport Inc. (“One8One”) and 181 Davenport Retail Inc. (“181 Retail” and, together with Northern Citadel and One8One, the “Respondents”). The application arises from an outstanding loan from Bridging that was used for the development of a condominium project at 181 Davenport Road in Toronto (the “Davenport Project”). The Applicant also sought sweeping investigative powers for its proposed receiver, noting that, absent these powers, its “ability to recover on the loan is at risk”.
Northern Citadel and One8One did not oppose the application. However, they took the position that the form of relief in relation to the appointment of the Receiver was overly broad and unjustified. 181 Retail opposed the application, arguing that it had nothing to do with the Davenport Project. The Respondents also argued that, although the Applicant claimed that certain investigative powers were needed to discern the true state of affairs of the Respondents, the Applicant fell short of demonstrating that the investigative powers it sought were necessary or appropriate.
The Applicant argued that it was both just and convenient to appoint a receiver in the circumstances for, inter alia, the following reasons:
- the Applicant did not have full disclosure regarding the financial situation of the Respondents;
- the Applicant had significant concerns regarding the events and transactions involving the Respondents, certain related entities, and the former principals of Bridging; and
- based on the limited reporting delivered to the Applicant, it did not appear that the Respondents had assets of any meaningful value.
The Court agreed that, in the circumstances, it was both just and convenient to appoint the receiver.
The Court also considered the Applicant’s request for an investigative receiver to investigate the affairs of the debtors and to review transactions, even those concerning related non-parties. The themes considered on a request to appoint an investigative receiver were set out by the Court of Appeal for Ontario in Akagi v. Synergy Group (2000) Inc., 2015 ONCA 368:
- The appointment of an investigative receiver is necessary to alleviate the risk posed to the plaintiff’s right of recovery;
- The primary objective of investigative receivers is to determine the true state of affairs of the debtor and related entities;
- Generally, the investigative receiver does not control or operate the debtor’s business; and
- The investigative receivership must be carefully tailored to assist the creditor’s recovery while protecting the debtor’s interest and go no further than necessary.
The Applicant argued that, to date, its attempts to obtain complete information from the Respondents in relation to the loan had been unsuccessful and in order to fully identify how the proceeds of the loan were used, the Receiver required the ability to investigate and compel production of documents relevant to the loan.
The Court found that the investigatory powers were not necessary at this time. The business operations conducted by the Respondents were such that there was no immediate danger of dissipation of assets. The Receiver could make the necessary inquiries of the Respondents and, if the requested information was not produced in a timely and appropriate manner, the Receiver could return to court to request enhanced powers.
The Court appointed Richter as receiver of all of the Respondents, but declined to grant the investigative receiver mandate.
Judge: Chief Justice G.B. Morawetz
Counsel: Grant Moffat and Adam Driedger of TGF for PwC; Ewa Krajewska, David Postel and Angela Lee of Henein Hutchison Robitaille for the Respondents; John Macdonald and Adam Sherman for Richter Inc., proposed Receiver; and Sean Pierce of Adair Goldblatt Bieber for Non-Party, Khashayar Khavari
By Matilda Lici