Receivership

There are a few options for Business experiencing financial difficulties in Canada from Receivership, Corporate Bankruptcy, Division 1 Proposals, to informal restructurings. Often in relation to companies you may hear various terms including:

  • Receivership
  • Receiver/Manager
  • Notice of Intention to Enforce Security
  • Corporate Bankruptcy
  • Division 1 Proposal
  • Winding Up of a Company

But what is a corporate Receivership or Receiver/Manager in Canada?
Receivership in Canada – What is it?
A Receivership is not something a company does for itself. Rather a Receiver is appointed generally by a secured creditor to take possession of the insolvent debtor’s assets for the sole purpose of protecting the interest of the secured creditor in those specific assets. The Receiver will then liquidate these assets with the proceeds going to the secured creditor only. The secured creditor’s right to appoint a Receiver is outlined under a GSA or General Security Agreement, which grants a security interest or secured charge over the property of the debtor, not including real estate.
In British Columbia any Receiver in addition to having an obligation to the appointing secured creditor, will also have a duty under the Personal Property Securities Act of BC which provides that all rights duties or obligation of a Receiver shall be exercised or discharged in good faith and in a commercially reasonable manner. This obligation of a Receiver to have a broader duty of care than to just the secured creditor is also outlined under the Bankruptcy and Insolvency Act
A secured creditor can appoint a Receiver or a Receiver / Manager in either of two ways:

By Private Appointment

Under a General Security Agreement (GSA), secured creditors usually have the right to appoint a Receiver or a Receiver Manager to secure the assets under the GSA when default has occurred. Once proper notice has been issued and the assets secured, they can be disposed of for the benefit of the secured creditor.

By Court Appointment

When appointed by The Court, the powers of the Receiver / Receiver-Manager are outlined under the appointment document. Court appointment is a more costly alternative to private appointment, but can grant greater powers to the Receiver such as the right to vest property.
Whether privately or court appointed, the Receiver has a duty to:

  • Protect and preserve the assets.
  • Take over management of the entity.
  • Act in the best interest of the entity.
  • Attend to PPSA and Bankruptcy and Insolvency Act required filings.

Section 244 notice – Notice of Intention to Enforce Security
Under the Bankruptcy and Insolvency Act a Notice of intention to Enforce Security is requited to be given to the entity if a secured creditors wishes to act on its security such as appointment of a Receiver or a LIT bankruptcy trustee. As a small business owner who receives this notice from a secured creditor knows that the relationship between you and the bank/creditor has come to a critical point.
This notice must be delivered to any debtor with at least 10 days’ notice before any secured creditor can act under their General Security Agreement such as appointing receiver or a trustee. If you have received one of these notices, you may still operate your business and you may have other options such as filing Proposal or indeed assigning into bankruptcy yourself. However, this formal notice indicates that not much time is remaining and immediate action is required.
In Summary – Business Insolvent? – Corporate Bankruptcy, Division 1 Proposal or Personal Bankruptcy – Which of these is the correct choice?
If you are operating a limited company that is no longer profitable, it may be that a business bankruptcy is the only option. Under Canadian law, Corporations are considered separate legal entities and therefore the company itself can file for bankruptcy if necessary.
Bankruptcy is the final solution if the company is not viable. If continuation of the business is viable but it is being strangled by high debt loads, unsustainable leases or contract, the Company can file a Proposal (See Division 1 Proposal), which gives the Company time to restructure and continue to operate. However, if a Proposal is not an option, Bankruptcy may be the best solution.
Generally, corporate bankruptcy is used when there are unsecured assets belonging to the company that need to be divided up amongst the creditors. In other situations, a Winding-Up of the Company is needed under the direction of a Trustee to give comfort that all parties are being treated equally. Colleen Craig, as a federally Licensed Insolvency Trustee (formerly bankruptcy trustee), can walk you through your options if you are considering a Corporate bankruptcy.
Call today for your Free Consultation
Colleen Craig, CPA, CIRP, Licensed Insolvency Trustee, 250-386-887