Preliminary Measures to Exercising a Hypothecary Right and Appointment of a Receiver: The Court of Appeal of Quebec Sheds Light on a Dispute

On July 20, 2020, the Court of Appeal finally ruled on a controversy that had existed for several years in Quebec regarding the respect of the delays set out in the Civil Code of Québec [CCQ] for the surrender of property, in the context of a recourse undertaken by a secured creditor under the Bankruptcy and Insolvency Act [BIA] (Séquestre de Media5 Corporation, 2020 QCCA 943). It is now clear that a secured creditor who wishes to appoint a national receiver under section 243 BIA in order to enforce its security, will first have to ensure that the prior notice period set out in article 2758 CCQ has duly expired. However, it will remain possible to plead that urgent circumstances require the appointment of an interim receiver under sections 46, 47 or 47.1 of the BIA.

This question has been subject of fervent debate among insolvency practitioners in Quebec. Some argued that the delays for the prior notice of the exercise of hypothecary rights set out in the CCQ (i.e. 20 days for movable property or 60 days for immovable property) should be respected when a secured creditor wished to enforce a security interest through the mechanism of appointing a receiver under the BIA. On the other hand, the majority maintained that compliance with the provincial delays for the surrender of property did not have to be respected when aiming to enforce a security under the federal BIA. This debate ultimately stemmed from a controversial decision rendered by the Honourable Gaétan Dumas in 2011 (Média5 Corporation inc. (Séquestre de), 2011 QCCS 6874), which affirmed that the pre-determined delays concerning the surrender of property had to be respected before the creditor could proceed with the appointment of a receiver under the BIA. The Court of Appeal has just put an end to this debate by determining that the minority opinion must prevail in Quebec.

This recent decision follows the majority decision rendered in 2015 in Lemare Lake (Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd., 2015 SCC 53), in which the Supreme Court of Canada [SCC] ruled that there was no impediment to juxtaposing the delays required by the BIA (i.e., a 10-day delay limit under s. 244 BIA) with those set out in a provincial statute. Moreover the SCC clarified that underlying goals of section 243 BIA, notably those of flexibility and efficiency, were not sufficient to circumvent the delays provided by a provincial statute. The SCC determined that when there is no operational conflict, and no frustration of purpose (where the provincial law thwarts the purpose of the federal law), a harmonious interpretation of federal and provincial laws should be favoured. Since the case originated in Saskatchewan, some argued that this authority was not applicable in Quebec. The Court of Appeal recently put an end to the debate by determining that, on the contrary, the principles outlined by the SCC in Lemare Lake should also be followed in Quebec.

Furthermore, the Court of Appeal clearly and thoroughly reiterated the required criteria for the appointment of a receiver under section 243 BIA.

RSS represented the debtors Media5 Corporation and Essagal Acquisitions Inc. in the above-mentioned appeal.



Jean-Yves Fortin, Ad. E.

Lawyer, Partner

Annie Claude Beauchemin

Lawyer, Partner

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