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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 of Michael Hollinger, Associate, and Dean Psarras, Student-at-Law

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

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”

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.

INTERIM RECEIVERS IN CCAA PROCEEDINGS • Abandoned contaminated property, preserved and sold tax losses • Re Royal Oak Mines Inc. • Ensured creditor confidence regarding funding of operations • General Electric Capital Canada Inc. v. Euro United Inc. • Operated business, auctioned-off tax losses and liquidated company • Irwin Toy

BENEFITS OF ss. 47 & 47.1 INTERIM RECEIVERS • Allows for flexibility and creativity to maximize realization • National in scope and does not require recognition orders • BIA, s.188 • Powers not limited by contractual terms

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

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”

LIABILITY • 30 DAY GOODS – Do interim receivers fall under 243(2)(b)? – Are section 81.1 suppliers protected? – Interim receivers as managers or liquidators?

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

LIABILITY • EMPLOYER AND PENSION – Re Royal Crest Lifecare Group – T.C.T. Logistics • Court’s power to grant immunity • Successor employer liability

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?

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

PROPOSED MODEL ORDER • Dual ss. 47 & 47.1 interim receiver / Courts of Justice Act (Ontario) receiver – National Scope – Priming Charge – Vesting Order

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

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

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