In the recent decision of Prospera Credit Union v. Portliving Farms (3624 Parkview) Investments Inc., 2021 BCSC 2449, the British Columbia Supreme Court considered the relevant factors in determining whether it is just and equitable to order the appointment of a receiver.
The lender/petitioner applied for a court-appointed receiver over real property held by the respondent motel owners. The petitioner held first mortgages over the property, and the loan agreements provided the petitioner could appoint a receiver in the event of default. The petitioner applied on the basis of both the loan agreements and s. 39 of the Law and Equity Act.
The Court noted that in some previous cases, the lender was presumptively entitled to a receivership order where the contract between the parties provided for such an appointment following default. The petitioner urged the Court to apply this approach and appoint a receiver.
However, a more recent line of cases indicates that while the contractual provision for the appointment of a receiver is relevant, it is not the only factor to be considered by the court.
The Court adopted an approach set out in more recent case authorities and balanced the rights and interests of the parties in determining whether it was just and equitable to appoint a receiver. In other words, although the contract between the parties explicitly authorized the petitioner to appoint a receiver in the case of default, the Court nevertheless considered all available evidence in determining whether such an appointment was appropriate under the Law and Equity Act.
In applying the more expansive test, the Court still held that the appointment of a receiver was appropriate. There was legitimacy to the petitioner’s concern about protecting its security, and the respondents had failed to respond to repeated requests for information although they were contractually obligated to do so. Further, there was no dispute as to the respondent’s default.
Moving forward, a party seeking to appoint a receiver should be cognizant that the contractual right alone may be insufficient on its own to satisfy the court that such an appointment is appropriate.
If you or your clients are seeking to appoint a receiver or are facing a receivership application brought by a lender, it is critical you consider the entirety of the circumstances which may justify a court-ordered receivership. The lawyers at Gehlen Dabbs Cash LLP are highly experienced and happy to assist with bringing or responding to a receivership applications.