While the use of an Interim Receiver is not seen often when dealing with consumer bankruptcies and proposals, the Interim Receiver can play a very important role when dealing with commercial situations. There are four times that you can see this type of appointment:
1. After the filing of a Notice of Intention to Enforce Security but before the mandatory 10 day waiting period has expired;
2. After the filing of a Notice of Intention to File a Proposal but before the proposal is approved by court;
3. After the filing of a Proposal but before the proposal is approved by court; and
4. After a creditor has filed Petition with court for the court to grant a receiving order and place a debtor into bankruptcy but prior to the approval of this order.
The purpose of the appointment of an Interim Receiver in these situations is largely to play a protective role. In fact, the only way this type of appointment will be considered is if it can clearly be demonstrated to the court that the Interim receiver is necessary to protect the estate of the debtor or the interests of the creditors (either generally or of the creditor requesting the appointment).
Once appointment there are a number of powers that can be utilized by the Interim Receiver, but ultimately the use of these powers must come directly from court. As it is the court that makes the appointment, the Interim Receiver is an Officer of the Court and must look to the court for its directions. The most common role played by the Interim Receiver is that of a monitor, they simply monitor the affairs of the debtor until such time as the court has approved the pending action. However, there are a number of additional actions that an Interim Receiver may take, most commonly, upon the direction of the court the Interim Receiver can take conservatory measures for the protection of estate assets. Additionally, because the Interim Receiver takes direction from the court it can be empowered to take any action the court views as necessary, including the supervision of or May exercise such care/control over any of the business affairs of the debtor that the court directs.
There are many advantages associated with the appointment of an Interim Receiver. The most important of which are as follows:
1. Provides for protection of estate assets;
2. Permits for conservatory measures to be taken;
3. Allows for the protection of creditors interests;
4. Court can have the Interim Receiver report on companies financial position;
5. Can be used as a mechanism to meet creditors demands through obtaining court orders directing the actions of the Interim Receiver;
6. Provides the creditors with greater assurance the assets are safe;
7. Can open up new avenues of financing as now opens the possibility of lending monies and granting security with priority of the other secured creditors; and
8. Debtor cooperation with this appointment can be viewed as a demonstration of good faith by the creditors.
While there are clearly a number of advantages associated with the appointment of an Interim Receiver there are also some risks, the primary risk being liability of the requesting party. If the order in question is not ratified by the courts there is potential liability associated with this type of process. As well, the appointment of an Interim Receiver can have substantial costs associated with it. As a result there are a number of crucial things to be considered prior to making the court application requesting this type of appointment. The issues to consider are as follows:
1. Is the value of the assets sufficient to merit the extra cost;
2. Do the day to day transactions involve large sums of money;
3. Is the inventory susceptible to theft;
4. Does the debtor have a history of questionable acts;
5. Is the debtor likely to oppose the appointment of the Interim Receiver;
6. Is there strong proof of insolvency;
7. Is the security valid and enforceable (where applicable)?
As you can see the issue of whether or not to appoint an Interim Receiver is not a simple one and not a decision that should be taken lightly. If you are considering requesting this type of appointment you would be best advised to discuss much of the content of this article with legal counsel prior to embarking on a course of action now, only to find out an Interim Receiver was not beneficial in your situation. Additionally, if you should require any additional information concerning the role, rights or responsibilities of an Interim Receiver feel free to contact me through either my Edmonton bankruptcy or Alberta bankruptcy sites or simply by calling me directly at (780) 435-5110.
Barton K. Goth is a senior advisor with Goth & Company Inc. – Trustee in Bankruptcy and publiser of the Edmonton Bankruptcy Article Series. Goth & Company Inc. is an Edmonton based firm licensed by the Federal Government and committed to helping people find solutions to financial difficulties. If you require more information bankruptcy or the various alternatives you can visit Goth & Company Inc. at their www.bankruptcy-edmonton.com/, post a question on their Edmonton Blog, or you can contact Goth & Company Inc. directly.
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