BIA and CCQ overlap in prescribing delays and modalities in appointing receivers under s. 243 BIA

There is growing confusion about whether the appointment of a receiver under section 243 of the Bankruptcy and Insolvency Act can also be subject to the Civil Code of Quebec’s (CCQ) prior notice rules. Justice Paquette recently decided in Mise sous séquestre de DAC Aviation internationale ltée¹  that the appointment of a receiver under section 243 was not only subject to the delay provided by section 244(2) BIA, but also to the delays and modalities for the prior notice of the exercise of hypothecary rights prescribed by the CCQ. 

Practically, this means that in addition to the BIA notice requirements, appointing a receiver under section 243 BIA will require notification of the registry office and notification delays of between 10 to 60 days depending on the nature of the proposed hypothecary right and underlying nature of the hypothecated property. 

Facts

A financial institution (FI) was a secured creditor for DAC Aviation Internationale Ltée (DAC) with a hypothec on the universality of DAC’s assets. The FI and DAC agreed to a forbearance agreement. Subsequently, the FI alleged DAC failed in its duty to collaborate and therefore applied to the Superior Court of Quebec for the appointment of Raymond Chabot Inc. (RCGT) as the receiver of DAC’s assets. The FI sent a 10-day notice under section 244(2) BIA but did not send a notice under the CCQ. 

Decision

According to Justice Paquette, objective and subjective conditions must be satisfied in appointing a receiver under section 243 BIA. The objective conditions require a 10-day notice to the debtor (section 244(2) BIA); the subjective conditions require the appointment to be “just or convenient” (section 243(1) BIA). According to Justice Paquette, the objective conditions also require compliance with the rules governing the exercise of hypothecary rights under the CCQ.

Justice Paquette began the objective prong of her analysis by highlighting the jurisprudential controversy over the dual application of the BIA and CCQ.²  Justice Paquette echoed Justice Ouellet’s reasoning in Mécanique NS and Justice Dumas in Media 5 by arguing that appointing a receiver is akin to exercising a hypothecary right. 

In other words, appointing a receiver under the BIA or, for example, a designated person under article 2791 CCQ does not erase the CCQ notice requirements.³ The exercise of such rights falls clearly within the CCQ’s purview and, barring express conflict with the BIA, provincial laws continue to apply.⁴ Accordingly, the FI had not satisfied the objective conditions as it had not provided notice pursuant to the delays and modalities of the CCQ.

Moving to the subjective conditions, Justice Paquette was unconvinced that appointing a receiver would be just or convenient in the circumstances given that (1) DAC had not breached the terms of its forbearance agreement with the FI and (2) RCGT’s opinions did not account for the value of DAC’s holdings in foreign companies.⁵

Takeaways 

Per Justice Paquette, the appointment of a receiver under section 243 BIA can be made if the following conditions are satisfied:

Objective conditions

• The application is made by a secured creditor;
• A notice pursuant to section 244 BIA has been given; and
• Provincial law requirements, in this case the terms and conditions for the exercise of hypothecary recourses provided for in the CCQ, are respected:
  • The debtor is in default;
  • A notice has been served to the debtor and filed at the registry office; and
  • 20 days (for personal property), 60 days (for real property) or 10 days (for repossession of the property) have elapsed since the publication of the notice without the debtor remedying its default.

Subjective condition

• Such a measure is just or convenient.⁶ 

Other considerations

• Given this decision, it seems prudent that notices under the BIA and CCQ should be sent simultaneously in satisfaction of the objective conditions (using the terminology proposed by Justice Paquette).
• Importantly, the notice delays under the BIA and CCQ may be shortened. Section 243(1.1)(b) BIA provides for an abridgment of the 10-day delay if the court considers it appropriate to appoint a receiver before then. Similarly, article 2767 CCQ allows a court, upon application by the creditor, to force the surrender of the hypothecated property before the expiry of the prior notices under article 2758 CCQ where there is reason to believe the recovery of the creditor’s claim may be endangered or where the property may decline or depreciate rapidly.
• Under the subjective conditions, given Justice Paquette’s reasoning that the exercise of hypothecary rights is akin to appointing a receiver under the BIA, it may be prudent for creditors to justify why they elected for appointing a receiver under the BIA rather than the exercise of hypothecary rights under the CCQ.

The Quebec Court of Appeal will have an opportunity to clarify this debate in the upcoming hearing on the appeal of Media5 on June 16, 2020.