On July 20, 2020, the Quebec Court of Appeal (Court of Appeal) released its decision in Séquestre de Media5 Corporation, overturning the lower court’s decision and authorizing the appointment of a receiver pursuant to section 243(1) of the Bankruptcy and Insolvency Act (BIA). Drawing on the Supreme Court of Canada (Supreme Court) decision in Lemare Lake and on an existing body of case law, the trial judge concluded that it was not possible to appoint a receiver in Quebec at the request of a secured creditor in order to sell the property of a business when this property is only located in Quebec. The Superior Court of Quebec’s decision thus resulted in a very limited application of section 243(1) of the BIA in the province.
The main issue on appeal was the scope to be given to that section, while considering the requirements of the Civil Code of Quebec (CCQ) regarding the exercise of hypothecary rights. In that respect, here are the five principles set forth by the Court of Appeal:
- In light of the teachings of the Supreme Court in Lemare Lake, the BIA provisions regarding the appointment of a receiver should coexist and be construed harmoniously with provincial property and civil right laws, including the security and mortgage provisions found in the CCQ.
- The possibility of selling a debtor company’s assets on a going concern basis instead of selling these assets individually is a cornerstone of insolvency law.
- Under section 243(1) of the BIA, the appointment of a receiver by a secured creditor requires that (a) the debtor is insolvent; (b) the hypothec applies to all or substantially all of the inventory, accounts receivable or other property used in relation to a business carried on by the debtor; and (c) the notice and 10-day notice period prescribed by sections 244 and 243(1.1) of the BIA have been met, respectively.
- This appointment must also comply with the requirements of the CCQ regarding the exercise of a hypothecary right, notably the issuance and expiry of a 20-day notice (over movable property) or 60-day notice (over immovable property). The Court of Appeal reiterated that nothing prevents the application of a shorter notice period, so far as this relief is prescribed by the CCQ.
- Finally, the secured creditor must act in good faith and the receiver’s appointment must not impair other creditors’ rights. This appointment should promote the purposes of the BIA and not preclude the implementation of a proposal or an arrangement under the Companies’ Creditors Arrangement Act.
Moreover, the Court of Appeal confirmed the strictly conservatory nature of the measures that can be taken by an interim receiver appointed under section 47 of the BIA and reaffirmed that the appointment of this type of receiver cannot be used for the purpose of selling an insolvent business on a going concern basis.
For further information, please contact:
Bernard Boucher 514-982-4006
Sébastien Guy 514-982-4020
Philippe Dubois 514-982-4290
or any other member of our Restructuring & Insolvency group.
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