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INTERIM RECEIVERS : Historical Evolution and Future Presented by Alex L. MacFarlane Partner, McMillan Binch LLP Ontario Bar Association Scope of Orders in an Insolvency Proceeding Toronto, Ontario June 9, 2004 Prepared with the assistance

SLIDE 1

INTERIM RECEIVERS:

Historical Evolution and Future Presented by

Alex L. MacFarlane

Partner, McMillan Binch LLP

Ontario Bar Association Scope of Orders in an Insolvency Proceeding Toronto, Ontario June 9, 2004

Prepared with the assistance of Michael Hollinger, Associate, and Dean Psarras, Student-at-Law

SLIDE 2

OVERVIEW

Interim Receivers under the BIA

– Expansion of Interim Receivers’ Powers under Appointment Orders

Interim Receivers in CCAA Proceedings
Benefits of Interim Receivers
Liability of Interim Receivers

– 30-Day Goods – Environmental Liability – Employer and Pension Liability

Proposed Model Order
Insolvency Law Reform
Concluding Remarks

SLIDE 3

INTERIM RECEIVERS UNDER BIA

Section 46
Protect estate of debtor
Sections 47 and 47.1
Introduced in 1992 – broader than s.46
No limitation regarding undue interference with

business

No limitation on only selling perishable goods
Broad discretion to effect actions court determines

“advisable”

SLIDE 4

EXPANSION OF POWERS UNDER BIA

Initially construed narrowly
Canada (Minister of Indian Affairs &

Northern Development) v. Curragh Inc.

Not only what “justice dictates” but also

what “practicality demands”

Broad powers used in Re T. Eaton Co. and

Re Charon Systems Inc.

SLIDE 5

INTERIM RECEIVERS IN CCAA PROCEEDINGS

Abandoned contaminated property, preserved and

sold tax losses

Re Royal Oak Mines Inc.
Ensured creditor confidence regarding funding of
perations
General Electric Capital Canada Inc. v. Euro United

Inc.

Operated business, auctioned-off tax losses and

liquidated company

Irwin Toy

SLIDE 6

BENEFITS OF ss. 47 & 47.1 INTERIM RECEIVERS

Allows for flexibility and creativity to maximize

realization

National in scope and does not require recognition
rders
BIA, s.188
Powers not limited by contractual terms

SLIDE 7

NARROW INTERPRETATION

Re Big Sky Living
Ex-parte circumstances
Breadth of orders
Lack of notification
Third party limitations

SLIDE 8

BIG SKY TOO RESTRICTIVE

Commercial realities require flexible realization

vehicle

Possible solutions to Big Sky concerns:

– Limit time period of interim receivers – Institute interim stay period and “comeback clause”

SLIDE 9

LIABILITY

30 DAY GOODS

– Do interim receivers fall under 243(2)(b)? – Are section 81.1 suppliers protected? – Interim receivers as managers or liquidators?

SLIDE 10

LIABILITY

ENVIRONMENTAL

– Taking possession may invite liability – Section 14.06(2) provides some protection – Orders cannot provide full immunity

SLIDE 11

LIABILITY

EMPLOYER AND PENSION

– Re Royal Crest Lifecare Group – T.C.T. Logistics

Court’s power to grant immunity
Successor employer liability

SLIDE 12

LIABILITY

EMPLOYER AND PENSION (cont’d)

– Expansion of “Mancini Test” in T.C.T. Logistics

Timing of application
Complexity of receivership
Duration of operating business
Availability of potential purchasers
Likelihood of purchasers becoming successor employers
Practicality of proceeding before OLRB
Fairness to employees and arrangements with union

– End-run around ss. 47 & 47.1?

SLIDE 13

LIABILITY

EMPLOYER AND PENSION (Cont’d)

– Implications

Narrower scope of initial appointment orders
Negotiation with unions and environmental

regulators

Tribunals may be used as a delay tactic
Increased risk of going-concern sales

SLIDE 14

PROPOSED MODEL ORDER

Dual ss. 47 & 47.1 interim receiver / Courts
f Justice Act (Ontario) receiver

– National Scope – Priming Charge – Vesting Order

SLIDE 15

INSOLVENCY LAW REFORM

JTF Report & Report of the Standing Senate

Committee on Banking, Trade and Commerce

– Repeal 30-day suppliers’ protections – Clarify role of interim receiver – Define “interim” – “Receiver” to include interim receivers when they act like receivers

SLIDE 16

CONCLUDING REMARKS

Rise of the interim receiver as flexible realization

vehicle

Breadth of role being tested
Liability critical in choice between going-concern

sale or liquidation

Recommendations

– Capping interim receiver liability to fees earned – Using special purpose vehicles

SLIDE 17

INTERIM RECEIVERS:

Historical Evolution and Future Presented by

Alex L. MacFarlane

Partner, McMillan Binch LLP

Ontario Bar Association Scope of Orders in an Insolvency Proceeding Toronto, Ontario June 9, 2004

Prepared with the assistance of Michael Hollinger, Associate, and Dean Psarras, Student-at-Law