When can a receiver’s charge be elevated above a secured creditor’s charge?
The Receivership Order granted on September 13, 2019, provided for the creation of a Receiver’s Charge, to secure the fees of the Receiver and its counsel, as well as a Receiver’s Borrowing Charge, of up to $3 million, or an amount as otherwise authorized by the Court. The priority of both charges ranked subordinate to other valid and enforceable security interests, including security in s. 14.06(7), s. 81.4(4) and s. 81.6(2) of the Bankruptcy and Insolvency Act.
The Receiver sought an order to, inter alia, elevate the priority of the Receiver’s Charge and Receiver’s Borrowing Charge over the priority accorded to the first secured creditor, Welichem. The issue was whether the circumstances in this case were sufficient to constitute a clear and specific exception to the general rule that a secured creditor should not be subject to liability for the Receiver’s fees and disbursements.
The Receiver argued that its Charges should have first priority because all the work it has done and continues to do to stabilize the mine and ready it for a sale process is a benefit to Welichem. It also relied on the policy argument that receivers need to have reliability and predictability in knowing that their costs will be covered, so that they will be encouraged to act in these kinds of situations. Welichem objected to the elevation of the Receiver’s Charges.
A court-appointed receiver’s fees and disbursements are paid from the assets in the receivership. One of the assumptions behind the appointment of a receiver is that in the context of an insolvency, collective action is preferable to unilateral action. The receiver maximizes the returns for the benefit of all creditors and streamlines the process of liquidation. The receiver’s duty is to act on behalf of all of the interested parties to ensure the assets are dealt with in an efficient and equitable manner. This duty to act on behalf of all must be taken into account in a consideration of payment of the receiver’s fees.
- If a receiver has been appointed at the request or with the consent or approval of the holders of security, the receiver will be given priority over the security holders;
- If a receiver has been appointed to preserve and realize assets for the benefit of all interested parties, including secured creditors, the receiver will be given priority over the secured creditors for charges and expenses properly incurred; or
- If a receiver has expended money for the necessary preservation or improvement of the property the receiver may be given priority for those expenditures over secured creditors.
Elevation of the Receiver’s Charges over the property of the Debtor was justified because the Receiver’s work was necessary on an urgent and continuing basis. There was a significant risk of serious consequences if the Receiver were unable to carry on their work. The Receiver entered a situation that was chaotic, neglected and close to catastrophic. Through its work, it is bringing the mine to a more stable place. The Receiver was entitled to have some certainty and predictability in knowing its costs will be covered. All creditors will benefit, including Welichem, as a result of the stabilized mine and the increased value.
Welichem’s objection that it did not benefit from the Receiver’s work at the mine assumed that its interests were separate from those of the mine. This assumption did not take into account the work of the Receiver to maintain the transportation access routes to and from the mine site, to repair the neglected equipment, and to maintain a significant presence on site with contracted workers. This work is for the mine but also benefits Welichem.
The Court concluded that the priority of the Receiver’s Charges shall be elevated over the YZC Property and the Essential Items.
Counsel: John Porter of Thornton Grout Finnigan LLP and Laurie Henderson of the Department of Justice for the Petitioner, Kibben Jackson of Fasken Martineau DuMoulin LLP for Jinduicheng Canada Resources Corporation Limited, Lance Williams of Cassels Brock & Blackwell LLP for Welichem Research General Partnership and John Sandrelli and Cindy Cheuk of Dentons Canada LLP for PricewaterhouseCoopers Inc.
Judge: Madam Justice S.M. Duncan