(Not) So Long, Astoria: Only 10 Days to Appeal Orders in Receivership Proceedings

In Business Development Bank of Canada v. Astoria Organic Matters Ltd., 2019 ONCA 269, (“Astoria”) the Ontario Court of Appeal recently held that appeals of decisions rendered pursuant to receivership orders issued under the authority of section 243 of the Bankruptcy and Insolvency Act (Canada) (the “BIA”) and section 101 of the Courts of Justice Act (Ontario) (the “CJA”) are subject to the much shorter and more restrictive appeal provisions in the BIA. While Astoria was specifically addressing an appeal of a decision refusing to grant leave to bring an action against the receiver, the reasoning seems applicable to broad range of decisions in the receivership context, such as approval and vesting orders, lift stays and fee approvals.

Background

Business Development Bank of Canada, a secured creditor of Astoria Organic Matters Ltd. (“Astoria”), obtained an order from Hainey J. appointing BDO Canada Ltd. (“BDO”) as receiver with respect to Astoria. Consistent with the model order of the Commercial List, the Order stated that it was issued pursuant to both section 243 of the BIA and section 101 of the CJA and contained the following standard “leave to sue” provision requiring leave before any action could be commenced against the receiver:

  1. THIS COURT ORDERS that no proceeding or enforcement process in any court or tribunal (each, a “Proceeding”), shall be commenced or continued against the Receiver except with the written consent of the Receiver or with leave of this Court.

BDO sold assets to SusGlobal Energy Belleville Ltd. (“SusGlobal”). Shortly after closing, SusGlobal alleged that BDO had breached obligations owed to it under the Asset Purchase Agreement and brought an application for leave to sue BDO. McEwen J. dismissed the application. SusGlobal filed an appeal of that decision after the 10-day appeal period provided in the BIA had expired but within the 30-day appeal period under the CJA. The sole issue on appeal to the Ontario Court of Appeal was which appeal period governed.

Express and Implied Statutory Authority

The Court of Appeal considered whether the leave to sue provision was included in the appointment order under authority conferred by the BIA, the CJA or both. Section 243 of the BIA, which was added in 2009, authorizes a court to appoint a national receiver over the assets of a debtor in all provinces:

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. [emphasis added]

In Ontario, section 101 of the CJA also provides authority to appoint a receiver and has a separate provision, lacking in the BIA, which gives the Court the authority to include “such terms as are considered just”:

Injunctions and receivers

101 (1) In the Superior Court of Justice, an interlocutory injunction or mandatory order may be granted or a receiver or receiver and manager may be appointed by an interlocutory order, where it appears to a judge of the court to be just or convenient to do so.

Terms

(2) An order under subsection (1) may include such terms as are considered just.  [emphasis added]

The jurisdiction of a court to make any particular order is either derived from statute or from its inherent jurisdiction. In the context of insolvency legislation such as the BIA, the courts look first to statutory authority and exhaust their statutory interpretive function before resorting to inherent jurisdiction (Century Services Inc. v. Canada (Attorney General), 2010 SCC 60 at paras. 64-65). Statutory authority includes the powers expressly granted by statute and, by implication, “all powers which are practically necessary for the accomplishment of the object intended to be secured by the statutory regime created by the legislature” (ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board), 2006 SCC 4 at para. 51).

It seems pretty clear that section 243 of the BIA does not provide the express authority to include terms such as a leave to sue provision in receivership appointment orders. While the Court in Astoria appeared reticent to concede this point, seeming to key on the language “if it considers it just and convenient to do so” as conferring some independent authority, section 243 only expressly confers the authority to appoint a receiver to take actions that the court considers advisable. It does not contain a provision similar to section 101(2) of the CJA authorizing the Court to include such terms in the appointment as the court considers just. This seems like a legislative oversight and should be rectified in the BIA.

As a result, the issue was whether authority to include such leave to sue provisions could be implied under the “doctrine of necessary implication” as it was practically necessary to accomplish the objective intended to be secured by the appointment of a national receiver.

Implied Authority Under BIA to Include Terms Essential to Appointment of Receiver

The Court noted the lengthy history of leave to sue provisions being included in receivership appointment orders prior to the addition of section 243 to the BIA. They are included in the model receivership appointment orders developed in Ontario, Alberta, British Columbia and Nova Scotia. The Court stated that Parliament must be taken to have included the authority to make such orders that were essential and commonplace to the appointment of a receiver:

It is unlikely that Parliament would have authorized the court to appoint a receiver and at the same time excluded the power to do so with provisions considered to be essential to the court’s role in a receivership… A leave to sue provision is essential to a receivership; it is required to preserve the integrity of the court’s role as supervisor of the receivership. (Astoria at para. 46 [emphasis added])

Additionally, the Court noted that the purpose of enacting section 243 was to allow the appointment of a national receiver to increase efficiency and eliminate the need to apply for the appointment in multiple jurisdictions. If the Court did not have the authority to include the leave to sue protection under the BIA which applies nationwide, the receiver would have to seek that relief under the CJA and comparable legislation in each of the other provinces, which is exactly the patchwork relief that section 243 was designed to avoid.

For those reasons, the Court held that the authority to include leave to sue provisions could be implied into the BIA under the doctrine of necessary implication:

By expressly empowering a court, in the BIA, to appoint a receiver as a court officer authorized to take a broad range of actions when just or convenient to do so, Parliament must be taken to have clothed the court with the power to make orders that are essential to the functioning of its officer, the court-appointed national receiver, and to the court’s role in supervising it. (Astoria at para. 51)

Paramountcy: BIA Appeal Provisions Govern

Accordingly, the leave to sue provision could have been based under either the authority of the BIA or the CJA and the appeal provisions in the BIA and the CJA both arguably applied. Pursuant to the doctrine of paramountcy, the Court held that the more restrictive appeal provisions in the BIA governed:

In cases like this, where the court’s power may be grounded in the BIA or the CJA, the doctrine of paramountcy would prevent an appellant from resorting to the CJA appeal provisions as they are in operational conflict with those of the BIA in respect of timing and leave requirements. To the question “May one appeal without leave and do so after 10 days have expired?” one enactment says “yes” and the other says “no”, meeting the test for operational conflict. (Astoria at para. 67)

More Restrictive Appeal Provisions May Govern in Broad Range of Circumstances

While Astoria dealt with the narrow issue of whether the BIA conferred authority to include leave to sue provisions as part of a receivership appointment order, the reasoning in the decision would apply equally to all terms in an appointment order that are necessary for the accomplishment of the objective of section 243 of the BIA. Since the objective is to avoid a receiver being required to seek the specified relief in multiple jurisdictions, one could certainly argue that section 243 confers the implied authority to include all of the material provisions in the model receivership appointment order, including, among others:

  1. The authority of the receiver to take possession of and secure the property of the debtor, carry on the business of the debtor, collect receivables and continue litigation;

  2. The authority of the receiver to obtain approval and vesting orders to convey the property of the debtor free and clear of encumbrances;

  3. The stay of proceedings against the debtor, and applications to lift the stay of proceedings;

  4. The prohibition on discontinuing or altering supply under existing agreements, and applications for leave against that prohibition;

  5. The authority to distribute proceeds to creditors;

  6. Passing accounts of the receiver and its counsel;

  7. Limitations on the receiver’s liability for employment, environmental and other liabilities; and

  8. Borrowing by the receiver.

Based on the Court’s reasoning in Astoria, the more restrictive appeal provisions in the BIA will likely apply to all judicial decisions related to these provisions.

Takeaways

  1. The Commercial List Users Committee in Ontario should consider removing the reference to section 101 of the CJA in the model receivership appointment order as, based on Astoria, it is entirely superfluous.

  2. Debtors, creditors, receivers and other stakeholders in a receivership should ensure that any appeals of decisions made in receivership proceedings are filed within 10 days of such decision moving forward.

  3. Potential appellants must also consider whether their appeal fits within one of the following four categories where an appeal to the Court of Appeal exists as of right, otherwise, they must bring an application for leave to appeal to a single judge of the Court of Appeal: 

    1. if the point at issue involves future rights;

    2. if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings;

    3. if the property involved in the appeal exceeds in value ten thousand dollars; or

    4. from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five hundred dollars (BIA, s. 193).

Authors

Subscribe

Stay Connected

Get the latest posts from this blog

Please enter a valid email address