Consent Receivership Orders – Not Always a Slam Dunk

This post was written prior to our January 2017 merger, under our previous firm name, MacPherson Leslie & Tyerman LLP.

Consent receivership orders have become commonplace in forbearance agreements.  Secured lenders are now often requiring as part of the security for a forbearance agreement that debtors consent to a receivership order that would see a receiver appointed over all the debtor’s property in the event of a default on any of the terms of the forbearance agreement. A forbearance agreement is an agreement by the lender not to exercise its security and enforcement rights against a defaulting debtor.

Forbearance agreements can be useful in helping a secured lender to bootstrap its security and remove several of the common defenses debtors try to use to prevent a secured lender from exercising its enforcement remedies.  A standard forbearance agreement will contain terms having a debtor acknowledge such things as its default under a loan agreement, the validity of the lender’s security, the amount of the debt owed, and receipt of the required demands and notices.  The goal is to remove all obstacles to the enforcement of the security and other enforcement rights.  The acknowledgments are extremely helpful in achieving that goal but obtaining the debtor’s consent to a receivership order does not mean a receivership is a sure thing.

Even with the consent of a debtor in hand, a secured creditor must still apply to the court for a receivership order.  Appointing a receiver over all of the property of a debtor is an extra-ordinary remedy a court will not grant unless it is satisfied that is just and convenient to do so.  While having the consent of the debtor will certainly make it easier for a secured creditor to meet the just and convenient test, there is still the need to put evidence before the court that a receivership is appropriate.  The prior consent removes the debtor’s ability to argue against the appropriateness of a receivership, but it will not prevent other creditors from doing so.

Secured creditors need to be aware of this fact and account for it accordingly.  Obtaining a receivership order is not a slam dunk, even with consent.