Is it just and convenience to appoint a receiver during this pandemic?
Servus sought the appointment of a receiver over a group of related companies collectively indebted to it for approximately $12 million. The debtors did not dispute the state of default. Rather, they sought a further 30 days of monitoring, during which they believed they could make material headway on paying down their debt to Servus and in arranging refinancing to pay it out entirely. Their position was that, considering the impact of the current pandemic and the partially related turmoil in the Alberta economy, they should be given another month to continue those efforts to clear the debts.
The debtors made various arguments about why no receivership order should be granted. They focused on the “just or convenient” requirement in ss. 13(2) of the Judicature Act, addressing progress made to date in reducing their indebtedness to Servus, the state of various financing “irons in the fire”, the sale of certain properties, and the overall prospect of making major headway against the debt if more time is given to them.
The Court found that by signing the consent receivership order, the debtors acknowledged their indebtedness to Servus, their default status, the triggering of Servus’s enforcement options (which included applying for a receiver), and that the appointment of a receiver was warranted. It was not open to the debtors or the guarantor, at this stage, to offer arguments about why the receivership order is not “just or convenient” in light of this agreement.
Servus lived up to its end of the deal, forbearing from taking enforcement action, first (formally) for four months and then a further (formal) two and a half months, plus informally in the lead-ups to the two forbearance agreements. By the end of those periods, the debtors had not accomplished the one thing that could stave off enforcement action: clearing Servus’s debt in full.
Servus had not agreed to any further forbearance or stay period. The consequence that it could seek the receivership order in such circumstances is precisely what the debtors agreed to. Even acknowledging the significant progress made to date, as well as the likelihood of more such progress over the next month, the debtors had already agreed that, if and when Servus decided against further grace, it could move for the order with no “merits” objection by them. Having effectively conceded their default status and the triggering of Servus’s enforcement options, and having expressly agreed that Servus could seek the entry of the consent receivership order in that circumstance, the debtors blocked themselves from resisting the granting of the orders.
Servus is a secured creditor of the debtors and holds a security interest in of all the present and after-acquired property of the debtors, subject to certain provisions of priority agreements entered into by Servus. The debtors have demonstrated losses for the past 3 years. Given that the debtors’ property includes multiple parcels of land, and that the debtors’ property is located across multiple jurisdictions, a receiver is a cost effective mechanism to organize the sale of the property. A court appointment is necessary to enable the Receiver to carry out its duties more effectively and efficiently given the nature of the Debtors’ property and assets.
The balance of convenience is in favour of Servus. The most recent consolidated financial statements of the Debtors indicates a net loss of $1,137,511 for the month of January 2020. This is indicative of the serious financial distress facing the Debtors. An organized sale by a Receiver is likely to maximize recovery for secured and unsecured creditors rather than secured creditors individually seeking to enforce their securities.
A Receivership Order would place all creditors and stakeholders of the Debtors on a level and transparent playing field under the administration of the Court to ensure the consistent and lawful treatment of all stakeholders. While there is a cost of appointing a Receiver, all indications to date indicated that the appointment of a Receiver would be the most cost effective means of dealing with the estates of the Debtors.
In these circumstances, and emphasizing the debtor’s consent to the proposed receivership order, it was “just and convenient” that it be entered and, accordingly, that the debtors’ application to extend the interim-monitoring period to June 4, 2020 be dismissed.
Counsel: Rick Reeson QC and Patrick Harnett of Miller Thomson LLP for the Plaintiff/Applicant, Jeffrey Oliver and Danielle Maréchal of Cassels Brock & Blackwell LLP for the Defendants/Respondents and Adam Maerov of McMillan LLP for the Respondent/Guarantor 285319 Alberta Ltd.
Judge: the Honourable Mr. Justice M. J. Lema