Receivership 101 : What is Receivership?
What is Going Into Receivership?
What it means to ‘go into receivership’ in Canada and how Bankruptcy Canada can help guide you through the process.
Receivership has a unique definition within the context of Canada’s Bankruptcy and Insolvency Act.
Although you may have heard that if a company declares bankruptcy that they ‘go into receivership’, bankruptcy and receivership are not the same.
This article will explain what ‘receivership’ is, and how it can help individuals and businesses that are facing financial hardship.
What is Receivership?
In order to best understand how receivership could work for you, it needs to be defined.
So, what is Receivership?
Simply put, a Receivership is a remedy that is available to secured creditors with the aim of recovering an outstanding sum under a secured loan should a company default on loan payments.
If associated with consumer bankruptcy, the debtor’s assets are ‘received’ by the receiver, who then distributes them to creditors in accordance with Canada’s Bankruptcy and Insolvency Act.
They will also take responsibility for completing specific tasks such as submitting tax returns on the debtor’s behalf.
An asset will often have been used as collateral, and as a result of nonpayment, the receiver is then appointed to collect the collateral to resolve the debt.
Under the security agreement and after deducting the receivership’s fees and expenses, the Reciever is tasked with selling these assets.
They will then prioritise which proceeds of the sale will be used to pay which creditors.
There may be some situations where the proceeds from the sale of assets are insufficient to fully repay the liabilities of a second creditor.
In this situation, nothing will be paid to unsecured creditors.
Receivership can only come into fruition when secured debts which require distribution to creditors as a result of the liquidation of assets need to be addressed.
Although not typically part of consumer proposals, it may be a part of consumer bankruptcies.
Bankruptcy and receivership are not mutually exclusive– though they can occur at the same time, a receivership can take place without the company being bankrupt.
Understanding Different Receivers
A Trustee is appointed to work to ensure that both you and your creditors are able to achieve the best results.
If Receivership is part of your bankruptcy, the same individual or company can also be a receiver.
There may be some situations where Receivers are appointed by the court- for example, in the case of consumer bankruptcy.
Regardless of whether they are appointed by the courts or privately, a Receiver is always a Licensed Insolvency Trustee in Canadian consumer bankruptcies.
In the case of consumer bankruptcy, a receiver is always appointed as part of the court proceedings to initiate the process of bankruptcy.
However, privately appointed receivers can be used outside of the context of bankruptcy.
When dealing with consumer debts, bankruptcy can be a viable option which may sometimes involve receivership.
Always consult a Licensed Insolvency Trustee for advice about receiverships.
If you need help to review your financial situation, call 877-879-4470 today.