The Alberta Court of Appeal recently issued a decision on the priority of a receiver’s charge for fees and disbursements over a municipality’s claim for unpaid property taxes.
The court-appointed receiver (the “Receiver”) was the Receiver for seven companies (collectively, the “Company”), a residential home builder. The Company was placed in receivership and the Receiver appointed under the Bankruptcy and Insolvency Act (the “BIA”) by court order on November 2, 2017. The receivership order gave priority to the Receiver’s charges over other claims.
On November 24, 2017, the Receiver applied for an order granting it the authority to repair, maintain and complete the Company’s properties, and a corresponding first priority charge as against each specific property for any expenses incurred (the “Property Powers Order”). Such expenses were included in the Receiver’s claim for fees and disbursements (the “Receiver’s Charge”).
The Receiver’s application was heard on November 29, 2017. At the same time, the chambers judge heard applications filed by two secured creditors of the Company, both of which disputed the priority for the Receiver’s Charge. Before those applications were disposed of, the City of Edmonton applied to modify the Property Powers Order, or alternatively for a declaration that its special lien for unpaid property taxes ranked ahead of the Receiver’s Charge.
The chambers judge dismissed the applications of the secured creditors, but granted the City of Edmonton’s application.
The Receiver appealed.
Issue on Appeal
The issue on appeal was whether the chambers judge properly exercised his discretion under s. 243(6) of the BIA when he refused to prioritize the Receiver’s charge for fees and disbursements over the City of Edmonton’s claim for unpaid property taxes.
Sections 243(1) and (6) of the BIA read:
“Court may appoint receiver
243 (1) Subject to subsection (1.1), on application by a secured creditor, a court may appoint a receiver to do any or all of the following if it considers it to be just or convenient to do so:
(a) 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;
(b) exercise any control that the court considers advisable over that property and over the insolvent person’s or bankrupt’s business; or
(c) take any other action that the court considers advisable. […]
Orders respecting fees and disbursements
(6) If a receiver is appointed under subsection (1), the court may make any order respecting the payment of fees and disbursements of the receiver that it considers proper, including one that gives the receiver a charge, ranking ahead of any or all of the secured creditors, over all or part of the property of the insolvent person or bankrupt in respect of the receiver’s claim for fees or disbursements, but the court may not make the order unless it is satisfied that the secured creditors who would be materially affected by the order were given reasonable notice and an opportunity to make representations.”
Alberta Court of Appeal Decision
With regards to s. 243(6) of the BIA, the court explained that the standard receivership order template normally already provides for such a priority. It stated that the intended purpose of the template, which was developed as a joint project of the insolvency bar and bench, was to standardize receivership practice. It has provided guidance for practitioners and the judiciary since its inception. While the standard receivership order does not bind the court, it serves as a standard form from which deviations must be blacklined before the court grants the initial receivership order.
In this case, the receivership order issued included the following provision with respect to the Receiver’s accounts:
“Any expenditure or liability which shall properly be made or incurred by the Receiver … shall be allowed to it in passing its accounts and shall form a first charge on the Property in priority to all security interests, trusts, liens, charges and encumbrances, statutory or otherwise, in favour of any Person (the “Receiver’s Charge”).”
After reviewing the order, the law and case law principles, the court concluded:
“Although the court has discretion under s. 243(6) with respect to the priority to be given to receiver’s charges, the exercise of discretion must be on a principled basis. [W]e have concluded that the appeal with respect to [the City of] Edmonton’s application for priority must be allowed. The Receiver has a super priority for its fees and disbursements in accordance with the original receivership order.”
As a result, the court allowed the appeal, finding that the chambers judge improperly exercised his discretion in deciding that the Receiver’s Charge ought not to rank ahead of the City of Edmonton’s property tax claim.
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