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Court Appointment of Receiver not Automatic

The security granted to lenders and other creditors almost always provides for the appointment of a receiver: an agent of the creditor with the power to take over the property and business charged by the security, often with the purpose of arranging a sale.

Such receivers may be appointed privately by the creditor directly, or by court order. In the latter case, the Court takes into account the fact that the security granted by the debtor gave the creditor the right to appoint a receiver. Where the creditor can show that they are otherwise entitled to privately appoint a receiver, such court appointments are almost always successful.

In the recent case of Visser v Godspeed Aviation Ltd., the BC Supreme Court denied an application for such an appointment. The secured creditor Visser had already appointed a receiver privately and sought a court appointment because of the debtor company’s actions to frustrate the receiver’s activities. (This is a common rationale for the court appointment of an already privately-appointed receiver.)

Critically, the dealings between the parties were more complicated than a simple lender-borrower relationship, the creditor in this case having sold to the debtor the very assets in dispute, and the debtor raised bona fide issues about the position of the creditor and its right to appoint a receiver. A separate action had been started by the debtor against the creditor, raising these issues.

The Court declined to appoint a receiver, finding that the subject assets were well-secured and that the issues between the parties warranted a proper airing.

Key takeaway

Parties facing the appointment of a receiver should not assume that such appointment is inevitable simply because some security agreement or other document provides for such appointment. By the same token, parties holding the right of such appointment should not assume that the court will automatically endorse such an appointment in every case. Experienced advice is critical in advancing and defending parties’ interests in such circumstances.

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