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You may have heard that people who file for bankruptcy “go into receivership”. However, receivership is not a synonym for bankruptcy. Both processes are defined in Canada’s Bankruptcy and Insolvency Act (BIA), and they mean different things. But what is receivership? Read on to find out.
What Receivership Means
To understand what receivership means, we must first define what a receiver is.
A receiver is an individual who is appointed by a court or another party, such as a secured creditor, to take possession of a debtor’s assets. Sometimes, the court or creditor can also appoint the receiver to operate a business, which makes the receiver a receiver-manager or receiver-administrator.
Receivers are usually appointed when a lender is dissatisfied with a debtor’s financial security, and the receivership results from a default in the agreement between creditor and lender. However, receivers can also be appointed to administer property or a business of a deceased or incapacitated person, or when there is a risk of oppressive or prejudicial exercise of powers.
What Are The Responsibilities Of A Receiver?
A receiver’s main responsibility is to secure property. Sometimes, the receiver has the power to sell the property to benefit the creditors. A receiver-manager also gains the right to manage the property and continue its operations.
Who Can Be a Receiver
The Bankruptcy and Insolvency Act states that only a Licensed Insolvency Trustee can be appointed as a receiver. However, it’s important to note that anyone can be appointed as a receiver if the debtor is not insolvent, because then the BIA does not apply.
What Does Going Into Receivership Mean?
Going into receivership means having someone take control of your assets, whether in order to repay a debt, or because you cannot administer them on your own. This is a common colloquial term used to express that a company has gone into voluntary liquidation or administration.
Many people mistakenly believe that going into receivership is the same thing as filing for bankruptcy.
However, bankruptcy and receivership do not mean the same thing. Receivership can occur without filing for bankruptcy in order to repay an outstanding debt.
What’s The Difference Between Receivership And Liquidation?
Receivership can be associated with bankruptcy and may involve liquidation. The receiver may liquidate some of the debtor’s assets in order to pay their creditors.
Book a free, confidential, no-obligation consultation with one of our financial experts and find out if receivership or bankruptcy can solve your debt problems.
Frequently Asked Questions About Receivership
It depends on a case by case basis. If the bank is government insured but goes into receivership, the Canadian government will pay for your losses, up to the insured amount.
- Privately, pursuant to a security agreement; or
- By order of the court, pursuant to legislation or a rule of law that prescribes or permits the appointment of a receiver.
A receiver may also be appointed by a court for the following purposes:
- To administer the property that is the subject of a dispute.
- To administer property or a business when there is a risk of oppressive or prejudicial exercise of powers.
- To administer property or a business of a deceased or incapacitated person.
- To take possession of and administer property for the benefit of creditors in general.