In the recent case of Integris Credit Union v.
Mercedes-Benz Financial Services Canada Corporation, 2016 BCCA
231, the B.C. Court of Appeal rendered a decision which provides
certain equipment financiers with the ability to avoid sharing in
the costs of certain receiverships. The decision, while helpful to
equipment financiers, does not apply universally to all
receiverships and certain circumstances need to exist, and certain
steps need be undertaken, in order to obtain such relief.
In particular, it appears that an equipment financier must, at a
minimum, (i) have either a purchase money security interest (PMSI),
lease or conditional sales contract and (ii) make it known early in
the receivership that it wishes to seize its assets and resell the
assets outside of the scope of the receivership. Further, the
receivership must be a "liquidation" style of
receivership and not one where all of the assets are being sold as
a going concern.
If these criteria are met, then the proceeds from the equipment
financier may not be utilized to pay the costs of the receivership.
As will be described in greater detail below, this benefit may not
accrue to lenders against specific assets if they do not have a
PMSI but merely a first ranking security interest. Further,
it is questionable whether this relief would assist a sale
Oversimplified, Integris Credit Union, a lender, sought and
obtained a receivership order in respect of the debtor, All-Wood
Fibre Ltd. The receiver subsequently took steps to liquidate the
assets of the debtor and eventually applied to court for an order
approving the sale of the Debtor's property by way of auction.
Shortly after the debtor was placed into receivership,
Mercedes-Benz Financial Services Canada Corporation (MBFS) and BHL
Capital, both of whom leased equipment to the debtor, made it known
to the receiver that they desired to take back their assets to
market and sell them through their own processes. The receiver did
not comply, and so MBFS and BHL applied to court for an order
requiring the receiver to deliver the equipment to them. The lower
court ultimately approved the auction sale but excluded the
equipment from the sale and permitted MFBS and BHL to sell the
assets on the condition that any proceeds would be held in trust
pending disposition of the matter.
The lower court later determined that the equipment was subject
to the costs of the receivership. In making this determination, the
lower court reviewed the leases and determined them to be
"financing leases" as opposed to "true leases,"
with the result that the secured creditors/lessors were responsible
for a portion of the receiver's costs.
The Court of Appeal reversed this decision. In reaching its
determination, the Court of Appeal focused on the relationship
between the secured creditors and the debtor. The Court of Appeal
distinguished between a mere secured creditor and a PMSI holder,
noting that making a PMSI holder responsible for the costs of a
receivership would effectively circumvent the priority rules and
reverse priority. While the Court of Appeal did not expressly
define the circumstances in which a secured creditor will be
permitted to avoid sharing in the costs of a receivership, the
Court's reasoning suggests that a secured creditor's status
as a PMSI holder will often be a central consideration. What
remains uncertain is whether a secured creditor must also retain an
ownership interest in the subject property.
In order to assess the likelihood of a similar result in future
cases, consideration should be given to the following factors,
Whether the terms of the receivership order permit the relief
Whether the receivership is a liquidation receivership;
The nature of the relationship between the secured creditor and
the debtor, and, in particular, whether the secured creditor holds
a PMSI in connection with a conditional sales contract or leasing
Whether the secured creditor has made it known to the receiver
forthwith that it wishes to retain the asset and administer the
realization of the assets itself;
Whether the secured creditor has consented to the appointment
of the receiver; and
Whether the receiver has expended funds for the necessary
preservation or improvement of the asset.
If the right circumstances exist, then this decision can help
equipment financers reduce their costs in the event of an
insolvency. Consideration should also be given to the fact that a
leasing or conditional sales arrangement may be preferable to a
specific security agreement arrangement as the existence of a
leasing or conditional sales arrangement may increase the
likelihood of success at avoiding liability for the costs of a
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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