Appointment of receiver and notice of exercise: will the Court of Appeal settle the controversy?

A recent judgment rendered by the Superior Court in the judicial district of Montréal¹ is in line with the current trend in rulings regarding the appointment of receivers under the Bankruptcy and Insolvency Act (“B.I.A.”), namely the requirement that the notice of exercise of a hypothecary right referred to in the Civil Code of Quebec (“C.C.Q.”) be submitted, and the time limit specified in the notice must have expired, prior to the application to appoint a receiver.

This decision forms part of a legal controversy that the Court of Appeal will have to resolve in the near future.

The facts

In this case, Caisse Desjardins de LaSalle (the “Caisse”) went to court as a secured creditor of DAC Aviation International Ltd. (“DAC”) to petition to have Raymond Chabot Inc. (“RCGT”) appointed as receiver of DAC’s assets.

RCGT had obtained a consulting mandate from DAC to review DAC’s affairs.

In the context of its mandate, RCGT concluded that DAC was insolvent and that the value of the assets in which the Caisse had a security interest would decrease significantly due to the loss of DAC’s main clients. For these reasons, RCGT recommended that a receiver be appointed to carry out the orderly realization of DAC’s assets.

The Caisse then applied for the appointment of a receiver under Section 243 of the B.I.A. The court dismissed the application on the grounds that the Caisse had not complied with the rules set out in the C.C.Q. for the exercise of a hypothecary right.

Citing the Supreme Court decisions in Lemare Lake² and Transport Desgagnés,³ Superior Court Justice Marie-Anne Paquette deviated from standard practice concerning the appointment of a national receiver, ruling instead that a notice of the exercise of a hypothecary right under the C.C.Q. must be given, and the time limit specified in the notice must have expired before a national receiver may be appointed.⁴

Analysis

In addressing the constitutional issues underlying the simultaneous application of federal and provincial legislation, Justice Paquette was of the opinion that the double aspect doctrine allows the provisions of the C.C.Q. to be applied within the context of the appointment of a receiver under the B.I.A.⁵

The application of provincial legislation in this context will have significant consequences, particularly by extending the deadline before a receiver can be appointed from 10 days under Section 244 of the B.I.A. to 60 days in the case of immovable property and 20 days for movable property.⁶

These constitutional questions were previously examined by authors Bélanger and Rigaud in a commentary published in 2016 following the Supreme Court ruling in Lemare Lake.⁷

These authors, whose opinion is shared by Superior Court Justices Clément Samson⁸ and Marie-Paule Gagnon,⁹ among others, conducted an in-depth analysis of the role of the national receiver and the primacy of the laws adopted by the federal parliament under its exclusive jurisdiction in bankruptcy matters, and concluded that the ratio decidendi in Lemare Lake does not allow us to conclude that the appointment of a receiver under the B.I.A. must be preceded by the service and publication of a notice of exercise of hypothecary rights and the expiry of the time limits set out therein.¹⁰

Until recently, this trend in case law seemed to be limited to certain judicial districts, but it appears to be gaining momentum with this new decision. It will certainly be a matter of interest for the Court of Appeal to put an end to this legal debate in Quebec, as the Court considers the current case regarding a motion for the appointment of a receiver for Media5 Corporation.