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COURT APPOINTED RECEIVERSHIPS: THE EASIEST WAY TO AVOID COSTLY MISTAKES - YouTube
Channel: Ira Smith
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court appointed receivership's
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introduction
[3]
i have written several blogs before on
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receivership be they court-appointed
[7]
receiverships or private appointments
[9]
the purpose of this blog is to discuss a
[11]
recent court decision involving a big
[13]
mistake made by a court-appointed
[15]
receiver and why the court would not let
[16]
them fix their error
[18]
that mistake cost them big time some
[20]
previous court appointed receiverships
[22]
blocking
[23]
in reviewing the court case three
[26]
previous blogs of mine on court
[27]
appointed receiverships came to mind
[30]
courts of justice act court of appeal
[32]
for ontario creates new rule
[35]
licensed insolvency trustee receiver
[37]
appointed by court errors to avoid
[39]
top court appointed receiver secret
[42]
details matter
[43]
the first one dealt with certain
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procedural matters in court appointed
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receiverships when the receiver sells
[48]
real estate
[50]
the second blog dealt with factors a
[52]
court-appointed receiver must disclose
[53]
to the court in seeking court approval
[55]
for a sale of assets
[56]
the third one was about what happens
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when a court-appointed receiver applies
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to the court for some relief without
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knowing all the details of the story
[63]
they are telling the court
[65]
that is very embarrassing for receivers
[66]
in court appointed receiverships
[69]
the recent case i will shortly speak
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about reminded me of these three
[72]
previous blogs
[74]
you will see the connection very soon i
[76]
promise
[77]
what happens when a company goes into
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receivership
[80]
when the company enters into
[82]
receivership senior management and the
[84]
directors shed most of their authority
[86]
for decision making the director's
[88]
general company obligations of
[89]
preserving corporate records remain
[91]
yet any type of decision-making
[93]
regarding the running of the business or
[95]
its assets have vanished
[97]
that is now the role of the receiver
[99]
this is true for a privately appointed
[100]
receiver but it is especially so in
[102]
court appointed receiverships
[104]
that is because the court is now
[106]
supervising all the company's affairs
[108]
and assets through its court officer
[110]
the receiver responsibilities concerning
[112]
the business in a practical sense stop
[114]
upon the receiver being appointed
[116]
their recommendations and help are only
[118]
needed if requested by the receiver
[120]
they definitely will not be paid for any
[122]
kind of initiative unless the receiver
[124]
concurs in writing to make funds
[125]
available for them in return for their
[127]
services
[128]
what are the duties of the receiver the
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receiver's first task is to take
[132]
possession of and control all of the
[134]
assets
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properties and undertaking covered by
[136]
the secured creditor's security in a
[138]
private receivership
[140]
in court appointed receiverships the
[142]
receiver's powers and actions come from
[144]
the authority given to it by way of the
[145]
court order appointing the receiver
[148]
the receiver needs to make a decision
[149]
whether it can get a greater amount for
[151]
the assets if it runs the business
[153]
conversely the receiver may choose that
[155]
the danger of operating the business is
[157]
not worth it in terms of any type of
[159]
upside value that may be gained from
[161]
running the business
[162]
the receiver after that creates a
[163]
strategy for the running or the
[165]
shuttering of the business as well as
[166]
for the eventual sale of the assets
[168]
the kind of receivership appointment and
[170]
the nature of the business operations
[172]
and assets will dictate what approach
[174]
the receiver will take
[175]
in the meantime the receiver must
[177]
protect and conserve all the assets
[179]
including making sure there is
[181]
sufficient insurance coverage in place
[183]
in a private appointment
[185]
the receiver requires to obtain the
[187]
authorization of the secured creditor
[188]
who appointed the receiver prior to
[190]
implementing its plan and taking actions
[192]
concerning the running of the business
[194]
and the sale of the assets
[196]
in court appointed receiverships the
[198]
receiver requires the approval of the
[200]
court
[200]
the court appointment case this court
[203]
case dealt with some very unique issues
[206]
the receiver was originally appointed by
[208]
the court under the courts of justice
[209]
act
[210]
ontario and the bankruptcy and
[212]
insolvency act
[213]
canada the receiver was making a motion
[215]
for advice and directions about it
[217]
wanting approval for its fees and
[218]
disbursements since the last approval
[220]
order
[221]
it also wanted approval to make an
[222]
interim distribution
[224]
that seems pretty routine it was the
[227]
receiver's fifth report to the court
[229]
the motion was opposed by the company
[231]
whose assets were seized in the
[232]
receivership
[233]
there was only one problem that caused
[235]
that party to oppose the receiver's
[236]
motion
[237]
however it was a humongous problem this
[240]
receiver caused itself
[242]
the problem is that the receiver
[243]
obtained approvals from the court based
[245]
on the information contained in its
[246]
fourth report to the court and now the
[248]
receiver was asking for something
[250]
different
[251]
court appointed receiverships a brief
[253]
history of this court appointed
[255]
receivership
[256]
the major secured creditor who made a
[258]
secured loan against a real estate
[260]
project under both mortgage security and
[262]
a general security agreement began
[264]
court proceedings by making an
[265]
application to the ontario superior
[267]
court of justice commercial list for the
[269]
court appointment of a receiver
[271]
on june 22 2017 justice conway released
[274]
an order appointing the receiver in this
[276]
matter
[277]
the receiver the order followed the
[278]
model receivership order format and had
[281]
the usual provisions
[282]
specifically it mentioned in paragraph
[285]
18 that the receiver's chart shall form
[287]
a first charge in priority to all
[288]
security interests
[290]
trusts liens charges and encumbrances
[293]
statutory or otherwise in favor of any
[295]
person
[296]
the receiver performed its duties and
[298]
filed reports with the court on a timely
[300]
basis and received the necessary
[302]
approvals along the way
[304]
so far so good with the first three
[305]
court reports
[308]
the fourth report was okay too in
[311]
november 2019 the receiver brought a
[313]
motion for justice dietrich to approve
[315]
its fourth report and also its
[316]
supplementary fourth report
[318]
the same stakeholder currently opposing
[320]
the receiver's motion for advice and
[322]
directions also challenged certain of
[324]
the receivers recommendations contained
[326]
in its fourth report
[328]
it turns out that from the receiver's
[330]
efforts and sale of the real property
[332]
there was not only enough money to pay
[333]
out all the secured creditors
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but there were funds left over this is a
[337]
very unusual situation
[339]
so the receiver came to court one of the
[342]
approvals it was seeking was its
[343]
proposal to pay the claims of the
[345]
unsecured creditors
[346]
this company opposed that relief
[348]
claiming the unsecured creditors were
[350]
statute barred
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the reason the company opposed this is
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simple whatever the unsecured creditors
[355]
are not entitled to would presumably be
[357]
available to flow to the shareholders of
[359]
the company
[360]
justice dietrich looked for further
[362]
written materials on this issue from the
[364]
parties which were received on march 16
[366]
and 31st 2020 justice dietrich
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considered all the material and released
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her endorsement on this issue on june 19
[373]
2020
[374]
court appointed receiverships justice
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dietrich's decision
[378]
justice dietrich's order approved the
[380]
receiver's fourth report and
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supplementary fourth report
[383]
the fourth approval order as well as
[385]
payment to the receiver of its fees of
[387]
373
[390]
960.75 cents plus hst plus an accrual of
[393]
25
[394]
000 plus hst to finish the management of
[396]
the receivership
[398]
the order additionally authorized the
[400]
receiver's legal fees of 85
[403]
218.23 plus hst and an accrual of 15
[407]
dollars plus hst for concluding the
[409]
administration of the receivership
[412]
the fourth approval order approved
[413]
making payment to the unsecured
[415]
creditors in the amount of 190
[417]
800 and 71 cents those payouts were made
[421]
without delay by the receiver even prior
[423]
to the appeal time for appealing the
[424]
fourth approval order expired
[426]
the remaining funds were to be paid out
[428]
to the company who opposed the motion
[430]
or as the company may direct the
[433]
receiver made all the payments except
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for one the funds to be paid to the
[436]
company involved in the receivership
[438]
which was more than one million dollars
[440]
had not been paid out to the company as
[442]
of the date the receiver came to court
[444]
with its fifth report
[445]
court appointed receiverships oops we
[448]
need a fifth report to court
[450]
the fourth approval order was settled
[452]
with the consent of all stakeholders
[454]
that order was obtained on the basis
[456]
that there was not much work left to do
[458]
and it would be covered off by the
[459]
approved fee accruals
[461]
the receiver and its lawyer were to
[462]
finish its work and then file a
[464]
certificate with the court to advise the
[466]
work was finished
[467]
the fourth approval order also said that
[469]
when the receiver files the certificate
[471]
with the court
[472]
that is the trigger that discharges the
[473]
receiver and ends the receivership
[476]
this is all standard stuff there now is
[478]
only one huge
[479]
problem subsequent to the fourth
[481]
approval order being issued and entered
[483]
the receiver requested more money for
[485]
its fee and its legal fees
[487]
well above what it told the court
[488]
already the further amount it was
[490]
seeking was pretty close to an extra 100
[492]
000
[494]
the receiver then delivered a fifth
[495]
report laying out the added costs asked
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for and also documenting an added hsd
[500]
refund and accumulated interest
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the receiver acknowledged that it made
[504]
an error the receiver also
[506]
acknowledged that it could have brought
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this to everyone's attention before the
[509]
fourth approval order was settled
[510]
issued and entered with the appeal
[512]
period already having expired
[514]
personally i call that more than an
[516]
error that is a huge problem
[519]
it is a major blow to the firm's revenue
[521]
and cash flow
[522]
if not resolved in the receiver's favor
[524]
it will most certainly cause much angst
[526]
among the partners in the licensed
[528]
insolvency trustee firm
[531]
court appointed receiverships the fifth
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report to court hearing and what the two
[536]
parties said
[537]
the receiver's position was fairly
[539]
simple they really didn't have much they
[541]
could say at this stage
[542]
other than oops the receiver submitted
[545]
that the receivership order appointing
[546]
the receiver is clear
[548]
unless the court orders otherwise the
[550]
receiver will obtain its reasonable fees
[552]
and costs in those of its legal counsel
[554]
those fees and costs are secured by a
[556]
first ranking charge against the assets
[558]
being administered in the receivership
[560]
all other amounts come after this first
[562]
charge the receiver went on to say that
[565]
the appointment order in the fourth
[566]
approval order were therefore in
[568]
conflict and the appointment order must
[569]
prevail
[570]
the company and opposing the receiver's
[572]
motion had some pretty simple facts on
[574]
its side
[575]
the court agreed with these facts the
[577]
court stated that
[579]
the receiver only brought this motion on
[581]
in response to the company's attempt to
[583]
set down a date for its motion to compel
[585]
the receiver to make the one dollar
[586]
million plus payment to it as directed
[588]
by the fourth approval order
[590]
the company agreed to the settling of
[591]
the fourth approval order based on the
[593]
receiver's submissions to the court that
[595]
what it put in its fourth reports was
[596]
everything and there was there was
[598]
nothing else getting in the way of
[600]
making all the payments approved in the
[601]
fourth approval order
[603]
the fourth approval order was intended
[605]
to be final and for that reason
[607]
incorporates the provisions of the
[609]
appointment order that is
[611]
it is open to the court to find that the
[613]
receiver has no capacity to request more
[615]
fees since the clear objective of the
[616]
fourth approval order is to wrap up all
[618]
issues including the discontinuation of
[620]
the receivership
[622]
the receiver conceded that the details
[624]
pertaining to the extra fees was known
[626]
at the time the fourth approval order
[627]
was being settled and
[628]
also after that however the receiver
[631]
took no particular actions to request
[633]
them prior to the order being settled
[635]
and entered
[636]
the only action taken by the receiver
[638]
was this motion for directions supplied
[640]
in reply to the company's motion request
[642]
to get paid what was already approved by
[644]
the court the commercial list court
[646]
understood that the receiver has
[647]
undoubtedly made an error
[649]
the question the court needed to answer
[650]
was who should pay for it
[652]
the receiver or the company the court
[654]
decided that it should not be the
[655]
company who settled the fourth approval
[657]
order understanding what its terms were
[659]
including there was nothing standing in
[661]
the way of it getting its money is
[663]
already approved by the court
[665]
the easiest way to avoid costly mistakes
[668]
court appointed receiver hips by their
[670]
very nature
[671]
are complex administrations being a
[674]
receiver or a receiver manager is a
[676]
tough role
[677]
a court-appointed receiver must be fair
[679]
and neutral to all parties as an officer
[681]
of the court
[682]
everyone is scrutinizing the decisions
[684]
being made once a court appointed
[686]
receiver serves its motion materials
[688]
everyone goes through the receiver's
[689]
report with a fine-tooth comb
[691]
and rightly so it is not a good place to
[694]
be when you make any kind of air in a
[696]
public document
[697]
it is embarrassing and it makes everyone
[699]
else wonder what other mistakes have you
[701]
made
[701]
it is especially tough when your mistake
[703]
shortchanges your firm out of the money
[705]
that it has earned
[706]
these are awful circumstances by now you
[709]
probably realize that you don't have to
[710]
be a licensed insolvency trustee to know
[713]
the easiest way to avoid costly mistakes
[716]
check double check and triple check
[717]
everything before you sign and release
[719]
the report
[720]
as my carpenter friend says measure
[722]
twice and cut once
[724]
court appointed receivership summary i
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hope you have enjoyed this court
[728]
appointed receivership's brandon's blog
[731]
a sick insolvent company's business
[733]
might be saved by a debt restructuring
[735]
do you or your company have too much
[737]
debt are you or your company in need of
[739]
financial restructuring
[741]
the financial restructuring process is
[743]
complex
[744]
the ira smith team understands how to do
[746]
a complex restructuring
[748]
however more importantly we understand
[750]
the needs of the entrepreneur or the
[752]
person who has too much personal debt
[755]
call us now for a free consultation
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