Receiver claims under contract while ignoring arbitration clause

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Question: If a court-appointed receiver wishes to sue on a contract entered into by the now insolvent company, is the receiver bound by an arbitration clause in the agreement?

Answer: Somewhat surprisingly, in a recent decision the B.C. Court of Appeal in Petrowest Corporation v. Peace River Hydro Partners decided that the receiver was NOT bound by the arbitration clause.

As a general rule, court-appointed receivers step into the shoes of the insolvent company, inheriting the company’s rights and obligations under any agreements to which the company is a party. While receivers have the right to disclaim or walk away from agreements, if instead the receiver seeks the benefit of a particular agreement, then the receiver will usually be required to accept any burdens that go with that agreement. In Petrowest, the Court took a different tack, allowing the receiver to disclaim the arbitration clause in the agreement while still pursuing a claim based on the same agreement.

When a business you are dealing with goes into receivership, your rights may be affected, and experienced advice is necessary to avoid the pitfalls.

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