Receivership 101

What is receivership? You may have heard that if you declare bankruptcy, you “go into receivership.” However, bankruptcy and receivership are not the same thing. Receivership has a special meaning in the context of Canada’s Bankruptcy and Insolvency Act. Read on to learn how it may apply to your situation.

What is Receivership?

When receivership is associated with a consumer bankruptcy, the receiver takes possession of (“receives”) the debtor’s assets, and liquidates/distributes them to the creditors according to rules contained in Canada’s Bankruptcy and Insolvency Act. The receiver also handles such tasks as submitting tax returns on behalf of the debtor.

Receivership only comes into play when there are secured debts to be addressed, requiring the liquidation of assets for distribution to creditors. Thus, receivership may be part of consumer bankruptcies, but is not usually part of consumer proposals.

Receivership and bankruptcy are sometimes taken to be the same thing, but they are distinct parts of what is experienced by the consumer as the bankruptcy process.

Understanding Receivers

Your Trustee is entrusted to work for the best result for both you and your creditors, and if receivership is involved in your bankruptcy, the same individual may also be your receiver. In some situations, such as consumer bankruptcy, receivers are appointed by the court.

Court Appointed Receivers vs. Privately Appointed Receivers

In Canadian consumer bankruptcies, when dealing with substantially all of the entity’s assets, a receiver is always a Licensed Insolvency Trustee and may be the same Trustee who manages your bankruptcy.

You may have read about privately appointed receivers. In business situations, creditors sometimes appoint receivers privately to liquidate specific assets which have been used as surety against a debt. This can happen outside the context of a bankruptcy, simply because a specific debt has not been paid. Often the asset has been used as collateral, and if the debt has not been paid, the receiver is appointed to collect the collateral in order to resolve the debt.

Conversely, in the case of consumer bankruptcy, a receiver, if required, is always appointed as part of the court process to initiate the bankruptcy.

Summary

Bankruptcy can be a good solution to consumer debt – and it may involve receivership. Although receivership is a scary word, it is simply the term for one of the tasks your Licensed Insolvency Trustee is qualified to perform. If you have further questions about how receivership and bankruptcy work to resolve consumer debt, why not talk to a Licensed Insolvency Trustee? Your first appointment is always free.

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