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Receiverships

Understanding Your Rights as a Secured Creditor

Does a company owe you money and do you hold a perfected security interest against same?


A Receivership is a remedy available to creditors who hold a perfected security interest against a company to recover amounts outstanding under a secured loan in the event that payments are in default. A Receiver may also be appointed in a shareholder dispute. The Receiver can carry on operations, complete projects, liquidate assets or sell a business.


Only a Licensed Insolvency Trustee (“LIT”) can act as a Receiver. The process typically begins with the appointment of a Receiver either pursuant to a security instrument (private appointment) or by way of a Court Order (Court appointment).


Privately appointed Receivers typically acts as an Agent for the secured lender and will take action against property subject to the secured lender’s interest with their consent. Court Appointed Receivers are officers of the Court and act on behalf of all creditors regardless of who initiated the proceeding. The powers and rights of a Court Appointed Receiver are outlined in the Court Order appointing them.


Generally, a Receiver has a duty to take possession of and sell the assets subject to the secured creditor’s interest. The Receiver distributes the net proceeds after deducting any fees and costs to the creditors based on priority. In the event that there may be value in continuing the operations and perhaps sell the business as a going concern, a secured creditor may consider the appointment of a Receiver-Manager.


Understanding When It’s Necessary to Appoint an Interim Receiver

The appointment of an Interim Receiver is a remedy available under the Bankruptcy and Insolvency Act (“BIA”) for the purpose of protecting assets of a company that is undergoing a formal insolvency process.


Only a Licensed Insolvency Trustee (“LIT”) is permitted to act as an Interim Receiver. An application to Court must be made and it is typically done following the filing of:

  • An application of a Bankruptcy Order but prior to the granting of same;
  • A Notice of Intention to file a proposal pursuant to the BIA;
  • A proposal pursuant to the BIA;
  • A Notice of Intention to enforce security by a secured creditor.


In order to appoint an Interim Receiver, the petitioning creditor must provide evidence to the Court that the debtor’s assets are in jeopardy and the appointment is necessary for the protection and preservation of the estate.


An Interim Receiver is an Officer of the Court and typically acts as a ‘watch dog’ on behalf of the creditors. The duties, powers and role of the Interim Receiver are set out in the Court Order appointing them and may include taking possession of assets, controlling receipts/disbursements and/or taking conservatory measures and summarily disposing of property that is perishable or likely to depreciate rapidly in value.


It is important to note that the Interim Receiver does not have any ability to manage or carry on the debtor’s day-to-day operations. The Interim Receiver is only appointed on a temporary basis and will end on the earlier of the following:

  • Appointment of a Receiver;
  • Court approval of a Proposal pursuant to the BIA;
  • Bankruptcy; 30-days after the date of the Interim Receiver’s appointment (unless otherwise specified by the Court).

To learn more about receiverships, speak to the professionals at Crowe MacKay & Company.

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