When Debtors Push Back: Navigating CCAA and Receivership Battles

If a lender applies to appoint a receiver, but, at the same time, the debtor applies for protection under the Companies’ Creditors Arrangement Act (CCAA), who wins? To be successful, lenders, must be proactive, build and gather evidence, and clearly understand how courts decide between competing applications.
Most lenders prefer the appointment of a receiver pursuant to the Bankruptcy and Insolvency Act, as compared to CCAA reorganizations. Receiverships are generally faster, led by the lender, and focused on preserving and realizing collateral, often without extensive court supervision. However, courts do not automatically grant receivership orders, even where the security documents indicate a clear contractual right. Recent case law shows that, when faced with competing applications for receivership and CCAA protection, judges are balancing the competing interests of both lenders and debtors, as well as the interests of non-lender stakeholders.[1]

Lenders and Receiverships – Not Automatic

At the outset of a receivership application, a lender’s strategy should be anchored in its security agreement. A contractual right to appoint a receiver upon default fundamentally frames the debate and lowers the lender’s burden to prove its entitlement to what is otherwise considered an “extraordinary” remedy. A demonstrated history of forbearance – for example, granting extensions in order to assist the debtor on refinancing efforts – can also strengthen the case for a receivership. Likewise, where the debtor has expressly covenanted to the appointment of a receiver, courts will ordinarily not interfere.

However, receivers are never automatically appointed, even with a clear contractual right to appoint one. In deciding such applications, courts weigh multiple factors to determine whether a receivership is the most equitable outcome, such as the potential for irreparable harm, the balance of convenience to all parties, and the conduct of both debtor and lender.

Debtors and CCAA Restructuring – Must Be Realistic and Viable

When a debtor seeks CCAA protection, the court must believe its restructuring plan is viable. A successful plan avoids liquidation by proving a realistic path forward. Key factors include:
  • Ability to Secure Additional Financing: The court is unlikely to approve a plan if refinancing efforts are merely speculative.[2] A debtor's repeated failure to secure refinancing over a long period can weigh against a CCAA application.[3]
  • Nature of Business Operations: A primary argument for CCAA protection is often to avoid potentially extensive layoffs of employees and the loss of key personnel. The court may distinguish between an active business with many employees and a passive entity like a single land development project, where a receivership might be more efficient.[4]
  • Support of Secured Creditors: The argument in favour of a receivership is much stronger where the interests at stake are primarily those of secured lenders.[5] Where the majority of secured lenders are opposed to the CCAA proceedings, courts have favoured the appointment of a receiver.[6]
  • Credible Cash Flow and Financial Projections: The company must provide credible projections demonstrating that they can sustain operations during restructuring.[7]
A central argument for any lender seeking a receivership is the loss of confidence in the debtor’s management. However, this cannot be a mere statement of dissatisfaction at the debtor’s breach of its loan obligations, and often involves a lack of cooperation, candour, and disclosure. To demonstrate that a lender-led restructuring effort is more appropriate, the court requires objective grounds for the loss of confidence. This can include successive failed refinancing or sale attempts or restructuring plans that primarily benefit company insiders or erode the lender’s security. If a lender can show that a CCAA filing is simply a delay tactic to postpone inevitable liquidation, the court is more likely to favour a  receivership. 

 

How We Can Help

RAR Litigation specializes in debt enforcement. Our lawyers have successfully acted on behalf of lenders, helping them navigate the enforcement process, protecting their rights, and recovering their investments. 

Contact us to discuss how RAR Litigation can support you and your business.

[1] 1599285 Ontario Ltd. et al. v 1000195736 Ontario Ltd. et al., 2024 ONSC 3847 [“Morgis”], at para 26, citing Rompsen Investment Corporation v 6711162 Canada Inc., 2014 ONSC 2781.

[2] Morgis para 39-40.

[3] Morgis para 48.

[4] Morgis para 48.

[5] Morgis para 48.

[6] Ashcroft Urban Development Inc. (Re)(“Ashcroft”), 2024 ONSC 7192, at para 5, 96 and 112.

[7] JBT Transport Inc., 2025 ONSC 1436, at para 14; Ashcroft, at para 11 and 13.

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