Alberta and Ontario Courts Reaffirm Enforceability of Consents to Receiverships

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On October 30, 2024, the Court of King’s Bench of Alberta (the “Court”) released its decision in ATB Financial v. Mayfield Investments Ltd.^[1] Following a series of defaults under a forbearance agreement between Mayfield Investments Ltd. (“Mayfield”) and its fulcrum creditor, ATB Financial (“ATB”), the Court had to consider whether it should stay the consent to a receivership order previously agreed to by the parties.

Background

Mayfield holds both direct and indirect interests in a portfolio of commercial real estate properties. Since 2021, it faced financial distress and was in continued default of its various financial obligations to ATB. As such, Mayfield and ATB entered into a series of forbearance agreements until ATB formally demanded repayment of Mayfield’s indebtedness in August 2023. Following this initial demand, ATB refreshed its demand for repayment in December 2023 and sent Mayfield a corresponding notice of intention to enforce security pursuant to section 244(1) of the Bankruptcy and Insolvency Act (Canada). In February 2024, the parties entered into another forbearance agreement, but Mayfield’s attempted sales process ultimately failed to generate a sufficient interest to repay its indebtedness to ATB, which qualified as a further default.

In June 2024, ATB applied to appoint a receiver over Mayfield. After further negotiations, the parties entered into a final forbearance agreement on the eve of the receivership application (the “Final Forbearance Agreement”). The Final Forbearance Agreement contemplated that the parties would consent to entering a consent to receivership order (the “Consent Receivership Order”) at the hearing on September 6, 2024, but that the activation of the order would be stayed until the earlier of October 31, 2024, or the filing by ATB of the lender’s certificate (the “Lender’s Certificate”), certifying that a forbearance default had occurred under the terms of the Final Forbearance Agreement. By mid-October, a forbearance default occurred and, consequently, ATB filed the Lender’s Certificate on October 24, 2024. Following the filing of the Lender’s Certificate, Mayfield moved to stay the effects of the Consent Receivership Order.

The Court was tasked with deciding, among other things: (i) the effect of the Consent Receivership Order, and (ii) whether the Consent Receivership Order should be stayed.

Decision

The Court found that Mayfield did not meet the requirements to justify a stay. The Consent Receivership Order clearly stipulated that upon the filing of the Lender’s Certificate, any stay imposed by the order shall “without further action by any person or further Court order, be terminated, effective immediately, and all provisions of this Order shall immediately take effect, including, without limitation, the appointment of the Receiver.” Accordingly, the Consent Receivership Order came into effect the moment the Lender’s Certificate was filed, based on the terms of the Final Forbearance Agreement.

Though the Court did find that Mayfield was not estopped from bringing its application, it was clear that Mayfield could not ignore its very consent to the Consent Receivership Order. Indeed, the Court noted at paragraph 40: “[n]egotiated forbearance agreements, including the use of consent orders, are an important part of insolvency practice. Commercial certainty for all stakeholders dictates that parties should expect that courts will hold them to their bargains, absent further agreement or circumstances that would make it appropriate to nullify or remove the orders.”

The Court found that Mayfield failed to establish the requisite elements of the test for granting a stay of the Consent Receivership Order. No serious question or arguable issue was raised by Mayfield with respect to the stay as it pertained to the Consent Receivership Order. Additionally, it was not established that Mayfield would suffer irreparable harm, and the balance of convenience did not support the stay. ATB had agreed to forbear on enforcing its security for many months and it was rightly entitled to file the Lender’s Certificate upon Mayfield’s default under the Final Forbearance Agreement. Mayfield had explicitly agreed to the terms of the Final Forbearance Agreement and the Consent Receivership Order and could not justifiably attempt to unwind its consent and agreement thereunder.

Key Takeaways

This decision underscores the Court’s emphasis on commercial certainty in insolvency proceedings and the agreements that are central to the practice. It reflects a pragmatic and common-sense approach, emphasizing that courts should honour the terms of negotiated agreements and consents, especially those consents that are built into agreements to forbear. In the case at bar, upholding the Consent Receivership Order (and refusing to stay the receivership) reinforces the principle that courts will prioritize contractual certainty and stability where commercial terms are negotiated between commercial parties.

Similar views are being echoed in the Ontario Superior Court of Justice (Commercial List). Indeed, in Royal Bank of Canada v. Right Drive Inc., the parties had entered into an agreement and consent whereby a receiver was set to be appointed over a debtor unless the applicant creditor was repaid the indebtedness owing to it in full by a certain date. The debtor failed to repay the indebtedness by the enumerated deadline in the agreement and consent. In His Honour’s endorsement granting the receivership order, The Honourable Justice Cavanagh emphasized the importance of commercial certainty: “[i]f courts do not enforce these kinds of agreements by which debtors are granted indulgences to allow them additional time to remedy defaults, creditors will be reluctant to enter into them.”

Ultimately, these cases highlight that courts will enforce a negotiated arrangement between a debtor and lender following an executed forbearance agreement. Should a condition of the forbearance include a consent to appoint a receiver, current judicial guidance suggests that those arrangements will be respected by the court.

If you require assistance with any matter or question related to insolvency and bankruptcy, please contact the authors or a member of our Financial Services Group.