When a business defaults on a loan, it impacts everyone involved—most notably lenders and creditors. To mitigate potential losses and resolve loan-related disputes, banks and secured creditors will often apply to court for the appointment of a receiver to ensure the maximum recovery of their loans.
We have extensive experience acting as court-appointed receivers, helping secured creditors recover outstanding amounts under secured loans. The receiver’s powers include the ability to operate the business, liquidate assets or sell the entire business as a going concern. Very often, a purchaser who wishes to acquire a distressed business will want to do so via a receivership, so they get a vesting order from the court to ensure that they acquire the assets free and clear of liabilities.
Receiverships are also a useful tool to resolve complex disputes. In shareholder disputes, the receiver can act as the independent court officer who maintains stewardship of the business, sells the business and unravels complex financial analysis which it reports to the parties and the court.
How receiverships work
A receivership can be initiated in one of two ways—either by way of a “privately-appointed receivership” or a “court-appointed receivership”. The private receivership is more cost-effective but is seldom used as a remedy in more complex situations, where secured creditors appreciate the court’s involvement in the process and purchasers will often insist on this court option to vest clear title. The court appointment option can also provide other benefits, such as a stay of proceedings, which provides immediate relief from creditors and a court approved funding mechanism.
However appointed, the receiver’s role is to take possession of, and sell or liquidate, any relevant assets or the business, with the intention of repaying the outstanding debt. The receiver has responsibilities under the Bankruptcy & Insolvency Act, which include notifying all creditors of the receivership and providing regular status updates to the official receiver and the court.
A business-minded approach
We see receiverships through an entrepreneurial lens—and strive to uncover the best path forward for all involved. This often involves delving a little deeper, understanding the root causes of a business’s financial set-backs, and finding a solution that maximizes the lender’s or creditors’ returns and achieving the optimal business outcome, which may include preserving jobs.
Interim receiver role
Farber has been retained on court appointed interim receiver roles, with powers provided for in a court order. These can range from a strict monitoring and reporting role over a company’s assets and affairs to broader powers contemplating exercising control over a business and its cash management, until such time as further order of the court is granted. As the name suggests, these appointments are normally provided for a limited period.