Non-Trustee Receivers

May 20, 2010

It recently came to the attention of the Office of the Superintendent of Bankruptcy (OSB) that a person who is not a licensed trustee in bankruptcy was appointed to act as a receiver pursuant to a security agreement within the meaning of paragraph 243(2)(b) of the Bankruptcy and Insolvency Act (BIA).

Subsection 243(4) of the BIA specifies that only a licensed trustee in bankruptcy can be appointed as a receiver under subsection 243(1) of the BIA or under an agreement or order referred to in paragraph 243(2)(b) of the BIA. For purposes of clarity, the following "receivers", as defined under subsection 243(2) of the BIA, must be licensed trustees in bankruptcy:

• A person who is appointed by a court to take possession of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt (paragraph 243(1)(a)); or
• A person who is appointed by a court to exercise any control that the court considers advisable over that property and over the insolvent person's or bankrupt's business (paragraph 243(1)(b)); or
• A person who is appointed by a court to take any other action that the court considers advisable (paragraph 243(1)(c)); or
• A person who is appointed under an agreement under which property becomes subject to a security to take possession or control of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt (subparagraph 243(2)(b)(i)); or
• A person who is appointed under a court order made under another Act of Parliament, or an Act of a legislature of a province, that provides for or authorizes the appointment of a receiver or receiver-manager, to take possession or control of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt (subparagraph 243(2)(b)(ii)).

The fact that a person is not called "receiver" but some other name such as "agent" or "monitor" is of no consequence. If the person takes or has taken possession or control of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or a bankrupt under a security agreement or court order, he or she is a receiver for the purpose of subsection 243(2) of the BIA and therefore must be a licensed trustee.

Accordingly, it is the OSB's position that the appointment of a person who is not a licensed trustee in bankruptcy to act as a receiver within the meaning of subsection 243(2) is contrary to the provisions of the BIA. When such an appointment occurs, we will request that immediate steps be taken to have the non-licensed trustee receiver substituted with a licensed trustee in bankruptcy. Such steps may include obtaining a new or amended agreement or a court order that provides for the appropriate substitution. If the substitution is not effected immediately, the OSB reserves its right to make an application to the court to effect the appropriate appointment and to seek costs in relation thereto and in enforcing the provisions of the BIA.