Ontario Court Confirms Requirements for Appointment of an Equitable Receiver
In a recent decision in which an equitable receiver was appointed to pursue payment of various costs orders and interest owed to an applicant (in excess of $100,000), the Ontario Superior Court of Justice reviewed the requirements that must be in place before a receiver can be appointed.
The applicant who filed the request for a receiver is the owner and operator of a grocery store in a strip mall owned by the respondent (the person who owed the applicant money). Approximately 14 years ago, the applicant sued the respondent’s sole proprietorship and obtained a number of costs orders.
Since that time, the applicant has made many attempts to enforce the costs orders and obtain her money. Enforcement attempts included:
- An examination in aid of execution;
- Several attempted sales of the respondent’s interest in the home he owns with his wife (valued at approximately $1.5 million).
The first attempted sale of the respondent’s interest in his home resulted in the respondent and his son fraudulently arranging for a judgment of $700,000 to be issued against the respondent in favour of the son. When the sale was attempted by the Sheriff, one bid was received and a deposit of $26,000 was provided. The sale ultimately failed to close, and the Sheriff proposed distributing the net amount remaining. The respondent’s son would then receive the overwhelming proportion of the proceeds (due to the $700,000 judgment).
The judgment was eventually declared fraudulent and void, and was ordered to be ignored by the Sherriff in any further sales or attempted sales of the property. However, the applicant’s request that the property be sold by judicial sale, and that the money be given to her to satisfy what the respondent owed her was also rejected.
In making that decision, the court noted that as an execution creditor, the applicant did not have the right to apply for a sale of land where the land is owned jointly by the execution debtor and another person.
The court did note that use of a judicial sale has been permitted in the past and could be analogous to the use of an equitable receiver, however, the court expressed some reservations of its use in this case, including the fact that:
- The ordinary process of sale under the Execution Act could usually suffice;
- It was difficult to see how equitable remedies would necessarily be required;
- The court was not aware of any case that would permit a receiver to interfere with the interests of a third party (in this case, the receiver’s wife) that was not an execution debtor;
- Partition and sale was not available to an execution creditor.
Since that first initial sale, there were three more attempted sales by the Sherriff, none of which produced any proceeds that would satisfy the money owing to the applicant (which by the time of trial in this matter had escalated to approximately $113,000).
The Positions of the Parties
The applicant argued that an equitable receiver in aid of execution should be appointed since she had done everything she could to collect on the amount owing to her, and that she had been unable to do so other than some fairly small amounts. She further argued that she had been “frustrated at every turn” by the respondent, including the fact that he obtained a fraudulent judgment to attempt to defeat her attempts to interfere with her attempts to collect the money.
The applicant also noted that a receiver would be able to stand in the shoes of the respondent and will have the ability to apply for a partition or sale of the property and realize on the interest of the respondent in ways that the Sherriff could not.
The respondent argued that the sale of the property through an equitable receiver had already been dealt with by the court and could not be pursued again by the applicant.
The court cited legal scholars, noting that there are four requirements that must be met by a creditor in order for that creditor to be able to apply for the appointment of an equitable receiver:
- The creditor must obtain a writ of execution and file it with the Sheriff;
- The creditor must request the Sheriff to attempt to levy execution and report back with a Certificate of nulla bona or certify that the Sheriff was unable to find any property of the debtor to seize;
- The debtor must own or have an interest in an asset which is not exigible at common law; and
- There must be some kind of legal or practical impediment to seizure at common law.
With respect to the fourth requirement:
If the creditor could not enforce the judgment by legal execution or where legal execution was difficult, if not impossible, there might exist special circumstances. The creditor must show that there are special circumstances and that without an order appointing a receiver, it would be practically very difficult, if not impossible, to obtain any fruit of the judgment. However, it is doubtful that a court would appoint a receiver if the creditor were merely inconvenienced in pursing the legal remedies.
Taking the above factors into consideration, the court went on to say about the matter at hand:
In my view, there is some fusion of the third and fourth criteria. A common sense view must be taken as to whether an asset is exigible at common law. Theoretically, an undivided one-half interest in a jointly-owned property is exigible, and can be sold under the Execution Act. However, the practical ability to sell such an asset is severely circumscribed. Furthermore, where significant efforts are made by the debtor, as here, to place roadblocks in the way of selling the asset, it can be concluded that the asset is not really exigible in practical terms. I think the concept of “special circumstances”, as discussed by the author under the fourth criterion, must also be considered under the third.
The court determined that the applicant had satisfied all four criteria: she had obtained writs of execution, and had filed them with the Sheriff. In addition, there had been four attempts to sell the respondent’s interest in the property, and nothing had been recovered. In short, “The property is not exigible, in practical terms, at common law. Legal execution is difficult, if not impossible.”
The court, therefore, appointed a receiver in aid of execution.
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