A secured lender or creditor may appoint a Receiver pursuant to the terms of a General Security Agreement (“GSA”) granted by the debtor to the lender which captures all of the security or assets of the debtor. A Receiver may also be appointed by the Court.
Before a Receiver is appointed, the secured creditor must provide the debtor with a minimum of 10 days’ statutory notice (i.e. a Notice of Intention to Enforce Security) pursuant to the provisions of the Bankruptcy and Insolvency Act (“BIA”) to allow adequate time for the debtor to repay its indebtedness.
Only after the expiry of the minimum 10-day period can a secured creditor enforce its security. At any time prior to the expiry of the 10-day Notice, a debtor is able to file a Notice of Intention to Make a Proposal (pursuant to the BIA) to its creditors, which would stay and prevent a secured creditor from enforcing its security for an initial 30-day period.
Pursuant to the terms of most GSA’s, the Receiver is appointed to take possession and secure the debtor’s assets, to manage them in such a manner that provides the secured lender will be paid out, or to liquidate them for the same purpose. A receiver can also be appointed by the Court when the secured creditor does not receive cooperation from the debtor and makes an application to the Court for such an appointment.