When will the court decline to convert a private receivership to a court-appointed receivership?
On April 20, 2020, the plaintiff issued notices of intention to enforce its security under s. 244(1) of the Bankruptcy and Insolvency Act (the “BIA“) as against the defendants. On May 13, 2020, a notice of seizure and bailiff’s warrant were posted on the premises operated by the defendants. On May 20, 2020, the plaintiff retained the receiver to act as a receiver pursuant to the terms of the General Security Agreement (“GSA“), and to enforce the GSA by seizing and securing the defendants’ various assets.
In May 2020, the defendants took several steps without the knowledge, approval or authority of the receiver, including attempting to cancel the airline’s insurance policies, shutting off power to the fueling station, and giving access to the fueling station to PetroValue Products Canada Inc. In June 2020, the plaintiff commenced this action and sought an order appointing a receiver of the assets, undertakings and property of the Defendants.
The plaintiff relied on Rule 10-1 of the Supreme Court Civil Rules, s. 243(1) of the BIA and s. 39 of the Law and Equity Act. This statutory framework essentially allows the appointment of a receiver by the court where it is just and convenient to do so. There are a number of factors that figure in the determination of whether it is appropriate to appoint a receiver, including:
- the nature of the property;
- the balance of convenience to the parties;
- the enforcement of rights under a security instrument where the security-holder encounters or expects to encounter difficulty with the debtor and others;
- the consideration of whether a court appointment is necessary to enable the receiver to carry out its’ duties more efficiently;
- the conduct of the parties; and
- the goal of facilitating the duties of the receiver.
The plaintiff argued that the defendants were refusing to acknowledge the legitimacy of the receiver’s private appointment and were actively defying it. It submitted that the appointment of the receiver was necessary for several reasons, including:
- the Debtors had refused to acknowledge the legitimacy of the receiver’s private appointment and were actively defying it;
- the Debtors had withheld log books and maintenance records and the aircraft (i.e. security) were worthless without the log books and maintenance records; and
- the Debtors have negotiated with third parties as if there was no receivership in place.
The defendants argued that the appointment of the receiver was unlawful as, having elected to seize and sell the assets under the notice of seizure and bailiff’s warrant, the plaintiff was estopped from taking possession, seizing and selling pursuant to a subsequent share purchase agreement. The defendants also claimed that granting the order sought by the plaintiff would impact the status quo and lend the court’s assistance to the plaintiff and potentially prejudice the defendants. They pointed out that all of the assets were in hangars within the control of the plaintiff. The planes could not be flown and, therefore, the status quo was preserved and there was no prejudice to the plaintiff.
The Court found that the GSA specifically permitted the plaintiff to exercise all rights at law or under the GSA without having to select one to the exclusion of others. The Court considered the plaintiff’s argument that he was entitled to realize on his security and that the Court’s assistance was required to secure payment. The Court concluded that there was no risk to the security or the potential for irreparable harm. While there had been some interference with the receiver, it does not rise to the level of requiring the court to intervene. The balance of convenience suggested that allowing the application would overwhelmingly prejudice the defendants. The plaintiff had not discharged the onus required for the court appointment of a receiver and, as a result, the plaintiff’s application was dismissed.
Counsel: T. Evans for the Plaintiff and W. Ryan for the Defendants
Before: Master Muir