Coming to a realization – Favouring receivership over liquidating CCAA proceedings


Author: Jason Dolman

Publication ǀ April 12, 2022

In a decision rendered on March 30, 2022, the Honourable Philippe Bélanger of the Superior Court of Quebec dismissed an application brought by a purported legal hypothec creditor for an initial order under the Companies' Creditors Arrangement Act (“CCAA”) and instead granted an application by the first-ranking conventional hypothecary creditor, Romspen Investment Corporation (“Romspen”) for the appointment of a receiver under s. 243 of the Bankruptcy and Insolvency Act (“BIA”).

Fishman Flanz Meland Paquin LLP acted for Romspen in this case and its proposed receivership order was adopted by the Court in its entirety.

The decision not only provides insight into how courts weigh competing CCAA and receivership applications, but was also a rare opportunity to consider the standing of contingent creditors to seek CCAA orders. It also addressed the broad scope of powers that could be granted to receivers.


Flora 1 Limited Partnership (“Flora”) acquired a vacant lot for the development of three towers of residential condominiums with commercial spaces and parking garages. 9186-9297 Quebec Inc. (“Upbrella”) was retained to act as general contractor for the project, and Flora and its general partner, 10542113 Canada Inc. (“105” and together with Flora, the “Debtors”), obtained project financing from Romspen.

The project began in June of 2019, and intended purchasers of condominium units executed preliminary purchase contracts and provided deposits, which were guaranteed by secured creditor Aviva Insurance Company of Canada (“Aviva”). The project was only partially completed when Flora resiliated Upbrella’s fixed-price construction contract in April of 2021 and for a brief period retained Les Entreprises QMD inc. (“QMD”) as replacement general contractor. Work on the project ultimately ceased in December of 2021.

Flora and Upbrella instituted proceedings against each other. Flora claimed more than $13,000,000 from Upbrella and the cancellation of Upbrella’s published notice of a legal hypothec of construction, alleging that Upbrella was responsible for construction delays and that it misrepresented the progress of the work. Each of Upbrella and Romspen sought to exercise separate hypothecary recourses to sell Flora’s project under judicial authority.

Parties asserting secured claims against the Debtors included Romspen, Upbrella, QMD, various sub-contractors and Aviva. HRM Projet Villanova Inc., a former partner of Flora, also asserted a secured claim for the balance allegedly owing to it for the sale of its interests.

The Court noted that Flora was insolvent and had no funding to complete the project. All parties asserting claims wished to be paid as soon as possible and agreed that a sale process for the project should be implemented without further delay to obtain maximum realization. The question for the Court was whether the sale process should be run by a CCAA monitor or a BIA receiver.

In deciding to appoint a receiver instead of rendering a CCAA initial order, the Court considered that:

  • Flora preferred the appointment of a receiver over a CCAA process;
  • most of the secured creditors (including Romspen and most of the subcontractors asserting legal hypothecs), who would bear the financial risk of reduced sale proceeds or additional fees, preferred the appointment of a receiver;
  • Flora is a single purpose entity without ongoing operations or employees, whose principal asset is a partially-completed construction project to be sold in the short term;
  • there was no plan that was “highly likely to succeed”, as no party had put forth any plan of arrangement to allow Flora to restructure its debt or complete the project;
  • Upbrella had not proven that the restructuring tools or flexibility of the CCAA were essential to maximizing the value of the project;
  • the professionals who had been proposed for the respective roles of monitor and receiver were both highly competent and able to conduct the sale process, and the fact that the proposed monitor had already acted in the restructuring of Flora’s limited partner did not justify appointing the proposed monitor instead of the receiver proposed by Romspen;
  • some of the claims asserted by holders of legal hypothecs had already been settled by Flora, with funding from Romspen, and a receiver could address any such remaining claims; and
  • in similar cases involving the sale of partially completed construction projects, courts have tended to appoint a receiver instead of rendering a CCAA initial order.

In addition to the above factors, the Court made the following observations that will be of particular interest to insolvency professionals:

  • The CCAA order was not sought by the Debtors, but by Upbrella, a party purporting to be a creditor, whose claim was contested by the Debtors. Justice Bélanger recognized that a CCAA order can be requested by a creditor, and that he could not at that time determine the status of Upbrella’s claim. He determined that the identity of the party seeking the CCAA initial order is less important than identifying and retaining a process that allows for the maximum realization from Flora’s assets. Issues with the applicant’s claim are not, in and of themselves, grounds for disregarding an order that is in the interests of the creditors. The Court distinguished the CCAA context from the burden imposed on a creditor seeking a receiving order under the BIA, who must establish an unsecured claim of at least $1,000.
  • Although the Court did not accept at that stage that a reverse vesting order would be essential to the sale of the project (in order to preserve construction permits), it appeared to suggest that a receiver could be granted the power to achieve a sale in that manner. Courts appointing receivers under s. 243 BIA can authorize them to “take any other action that the court considers advisable”.

In a separate analysis, the Court reviewed competing proposals of super-priority interim financing and retained the proposal offered by Romspen, considering the following factors:

  • Romspen’s offer was more financially advantageous for Flora and its creditors, in that it did not charge any standby or commitment fees and would rank after the claims of holders of legal hypothecs of construction. Romspen’s interim financing offer had the support of Flora and most of the holders of legal hypothecs. Justice Bélanger found it inappropriate that the interim-lender put forth by Upbrella (the “Proposed CCAA Lender”) had written to the Court with an improved offer after the hearing had already ended. He stated that this was not an auction permitting the Proposed CCAA Lender to match the conditions offered by Romspen. However, even if all conditions had been substantially similar, the Court would still have allowed Romspen to provide the interim financing in order to protect its “skin in the game”.
  • The financing proposed by the Proposed CCAA Lender was for $2,000,000, as compared with $850,000 offered by Romspen, largely due to substantially higher estimated professional fees budgeted by the Proposed CCAA Lender.
  • The financing put forward by the Proposed CCAA Lender would have inappropriately granted the fees incurred by Upbrella’s legal counsel a super-priority rank ahead of Romspen’s security, such that Upbrella’s fees would indirectly have been paid by Romspen.
  • 11.2 CCAA allows interim financing to be applied for by “a debtor company”, not by a creditor. Although the Court did not decide whether s. 11 CCAA would be of assistance to a creditor seeking such relief, it noted that the proposed “debtor company” in this case, Flora, supported Romspen’s interim financing.


This decision reaffirms the jurisprudential trend to favour receivership over a liquidating CCAA proceeding in the context of a single purpose real estate entity with a property to be sold, in the absence of any ongoing operations, employees or proposed plan of arrangement. The support of the receivership order by the Debtors and the majority of the secured creditors was also a very important factor in this case.

The Court also appears to have clarified that contingent creditors may have standing to initiate CCAA proceedings in respect of their debtor, and that a CCAA process that would otherwise be in the interests of creditors should not be refused for the sole reason that the applicant’s claim is contested or contingent. It is not clear that the same reasoning would apply in a proposed non-liquidating CCAA application, where other competing interests would be at play. It would be exceptional for a Court to allow a creditor with a litigious claim to forcibly restructure ongoing operations of a debtor against that debtor’s wishes. It is far more common and practical for debtors to propose their own plans of compromise or arrangement for approval by their creditors.

The decision also appears to open the door to potential applications by receivers for reverse vesting orders and potentially other powers that have not been typically wielded by receivers, thus seeing a closer convergence of CCAA and BIA files.

Regarding proposed interim financing, whether for a CCAA or receivership file, this decision is a reminder of the importance of formulating a cost-effective budget that does not unduly prejudice creditors, as well as giving careful consideration to which creditors will be primed.

Justice Bélanger did not decide the question of whether s. 11 CCAA might allow a creditor to seek interim financing, and it is far from clear that the scope of that provision is that wide. The wording of s. 11 CCAA applies despite “anything in the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act…subject to the restrictions set out in this Act”, whereas other provisions of the CCAA apply despite “anything in federal or provincial law” or “notwithstanding any other provision of this Act”,[1] suggesting that s. 11 CCAA may not be sufficient to override the wording of s. 11.2 CCAA, which requires that the applicant for interim financing be a “debtor company”. This remains to be determined by a court.

[1] S. 11.8(3), 11.8(5) and 11.8(8)(b) CCAA.