
BCSC pumps the breaks on presumptions for contractually-agreed receiverships
By Brenden Drews – Supervised by Professor Maharaj
Some commercial entities may be surprised to learn that a recent British Columbia Supreme Court (BCSC) decision has held that a contractual term providing for the appointment of a receiver in the event of insolvency does not mean the lender is presumptively entitled to a receivership order.
In Prospera Credit Union v Portliving Farms (3624 Parkview) Investments Inc., the petitioner held a first mortgage on various properties, run as a motel business by the debtor. (1) As a result of the debtor defaulting, the petitioner initiated foreclosure proceedings. However, being concerned that the properties were not being maintained properly and may be wasting, the petitioner applied for an order to appoint a managing receiver. (2) It was stipulated in the loan agreement that a receiver may be appointed in the event of default by the debtor. (3)
Horsman J., presiding over the case, was tasked with deciding whether it was just or convenient under s. 39(1) of the Law and Equity Act (4) to appoint a receiver in the circumstances. (5)
At issue was whether the Court should deviate from a line of older authorities stating that “a lender is presumptively entitled to a receivership order where the contract between the parties provides for the appointment of a receiver in the event of default”. (6) Several recent decisions from the BCSC have ruled that while the court may consider the parties’ contractual agreement to appoint a receiver, even placing considerable weight on it, “the court must still consider all relevant circumstances and view the matter holistically”. (7)
Horsman J. followed the modern line of cases, and attempted to balance the rights and interests of the parties. (8) She declined to apply a presumption in favour of appointment simply because of the parties’ contractual arrangement. (9) However, in the final analysis, she did order the appointment of a managing receiver, in part due to the contractual term, but also because the lender had already obtained Orders Nisi for Foreclosure, the debtor failed to respond to repeated requests for financial information, and there was a real risk of wasting of assets and financial mismanagement. (10)
Prospera confirms a shift in BC jurisprudence in the analysis of receiver provisions in a contract, settling some of the uncertainty in that jurisdiction. It may also be of interest in other provinces with comparable statutory provisions, such as s.55(1) of Manitoba’s Court of Queen’s Bench Act, (11) that likewise provide that receivership orders may be made where it is “just or convenient to do so”.
To date, it does not seem that Manitoba Courts have considered whether a presumption ought to arise when a contract provides for the appointment of a receiver as a remedy in certain circumstances. That said, Mainella J.A. in 7451190 Manitoba Ltd v CWB Maxium Financial Inc et al articulated the following proposition:
… In this case, while the company says the issues it raises are of significance to the action itself, the fact of the matter is that the loan agreements gave the applicant the contractual right to appoint a private receiver once default occurred, which the company admits was deliberate and for reasons other than insolvency. The extraordinary nature of a receivership order being granted becomes of less concern in a situation, such as here, where the creditor has a contractual right to the remedy of a private receiver upon default and the occurrence of a default is unchallenged (see Bank of Nova Scotia v Freure Village on Clair Creek, 1996 CanLII 8258 (ON SC), 1996 CarswellOnt 2328 at para 13 (Ct J (Gen Div))). (12)
(emphasis added)
Moreover, in White Oak Commercial Finance, LLC v Nygård Holdings (USA) Limited et al., Edmond J. found the fact that the applicant had the right to appoint a receiver under a credit agreement was a factor, amongst others, that made it just and convenient to appoint a receiver in the circumstances. (13) These two decisions indicate that Manitoba Courts have not adopted the presumption reflected in older BC authorities arising out of a contractual right to the appointment, and have instead treated the existence of such a contractual right as simply an important factor in the Court’s analysis under s. 55(1) of the Manitoba statute.
Overall, Prospera appears to indicate a convergence between the approach taken in British Columbia and Manitoba with respect to the appointment of receivers pursuant to a contractual provision. But it is also a timely reminder to counsel and contracting parties that approaches to such questions may differ even where governing statutory provisions may appear much the same, that they should carefully consider the security of their position vis-à-vis their business counterpart in the event of any potential insolvency, and that they ought to ensure that rights and remedies are properly preserved regardless of the jurisdiction in which they arise.
(1) Prospera Credit Union v Portliving Farms (3624 Parkview) Investments Inc., 2021 BCSC 2449 at para 2 [Prospera]
2 Ibid at paras 1 & 3.
3 Ibid at paras 1 & 6.
4 Law and Equity Act, RSBC 1996 c 253, s 39. Author’s note: this section provides that a receiver may be appointed by interlocutory order where it “appears to the court to be just or convenient that the order should be made.”
5 Prospera, supra note 1 at para 22.
6 Ibid at para 23.
7 Ibid at para 24. See also Textron Financial Canada Limited v Chetwynd Motels Ltd., 2010 BCSC 477 at paras 55-75; and Bank of Montreal v Gian’s Business Centre Inc., 2016 BCSC 2348 at paras 23-24.
8 Prospera, supra note 1 at para 25.
9 Ibid.
10 Ibid at paras 31-41.
11 The Court of Queen’s Bench Act, CCSM c C280.
12 7451190 Manitoba Ltd v CWB Maxium Financial Inc et al, 2019 MBCA 95 at para 26.
13 White Oak Commercial Finance, LLC v Nygård Holdings (USA) Limited et al., 2020 MBQB 58 at para 16.
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