In Royal Bank of Canada v. Casselman, three motions were brought before the Court. First, a continuation of a motion for approval and directions brought by the receiver. Second, a motion to allow counsel for the debtor to withdraw as lawyer of record. Third, a motion by the Sexton Group Ltd. ("Sexton") asking for the bankruptcy to be stayed and the disallowance of its secured claim by the trustee to be put in abeyance or set aside.
The interesting question before the Court came as a result of the third motion.
The respondent Casselman Plywood Hardware Building Centre Ltd. ("Casselman") was an insolvent corporation, and had defaulted under its credit facilities with the Royal Bank of Canada ("RBC"). As a result, RBC brought an application to the Court to appoint a receiver under section 243 of the Bankruptcy and Insolvency Act ("BIA").
The Court granted the receivership, and the receiver was empowered to, inter alia, take control of the business, and liquidate and sell any of the undertakings and assets at its discretion.
After the sale due to the receivership, Casselman filed a voluntary assignment into bankruptcy. Importantly, the receiver was not appointed to be the trustee, but rather a different firm was chosen. All of the parties knew about the bankruptcy, and did not interfere with the discharge of the trustee's duties. However, the selection of the trustee was done without written authorization from the receiver and without seeking leave from the Court.
Sexton, one of Casselman's secured creditors, filed a proof of claim in the bankruptcy for $500,000. The trustee disallowed Sexton's secured claim. Sexton responded by moving before the Court to stay the bankruptcy proceedings until after the receiver had completed its evaluation of the claims of the secured creditors.
The issue before the Court was:
Should the receiver be allowed to complete its work and prepare a final report to the Court regarding the disposition of the remaining assets, or should the receivership be wound up, and the net proceeds of the sale transferred to the trustee in bankruptcy? In essence, was the receiver or the trustee the appropriate party to evaluate Sexton's secured claim?
The Court found that the appropriate solution was to allow the receiver to complete its work, including evaluating the claims of the secured creditors. The Court held that the fact that a comprehensive receivership order was in place prior to the bankruptcy was of central importance.
The Court also held that the receiver should finish its work because the bankruptcy was initiated without court approval. The Trustee was granted the right to stay informed of the steps taken by the receiver and to take a position regarding the receiver's report.