What is Receivership and How Can It Be Delayed?

Receivership is usually focused on creditors enforcing their rights through the appointment of a receiver to seize and sell assets. A business can seek protection to delay receivership while trying to negotiate a restructuring. These matters are very time sensitive. Don’t wait…we can help!

Receivership happens when a Receiver is appointed by creditors or the Court to control a company and/or its assets.

Receivership is a remedy typically used by a secured creditor but it is also possible for the Court to appoint a Receiver at the request of a secured creditor or another party with just cause.

Notice of Intention to Enforce Security

Prior to the appointment of a Receiver by a secured creditor, the creditor must give the debtor company a 10-day Notice of Intention to Enforce Security (NITES).  The secured creditor is not entitled to appoint a Receiver until the 10-day period specified in the NITES has expired unless the debtor company consents to an earlier appointment.

During the 10-day period, the company can file a Notice of Intention to Make a Proposal (NOI) and commence the restructuring process and stop further enforcement action.  If the 10-day period under the NITES is allowed to expire, the company will no longer be able to stay actions by that secured creditor.  If the secured creditor has legitimate concerns about the security of its collateral during the 10-day period under the NITES, the secured creditor could apply to the Court for the appointment of an interim receiver to preserve and protect the collateral, pending expiry of the 10-day notice period.

Court-Ordered Receivership

If the Court grants an application and appoints a Receiver, that Receiver is an officer of the Court and has responsibilities to all stakeholders, not just the creditor or stakeholder who sought the appointment.  In this case, the powers, duties and obligations of the Receiver will be defined in the Court order that appoints the Receiver.  The application to the Court for the appointment of a Receiver can be made on an ex-parte basis (without notice to the debtor company) or with notice to the debtor company.

Good to know! A Receiver is required to provide notice of its appointment to all known creditors of the debtor company within 10 days after appointment.  Also, the Receiver must prepare interim reports at least every six months after its appointment and a final report at the conclusion of their engagement.  These reports are available to any creditor who requests the report within six months after the report was completed.