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Appointment of Receiver-Manager Warranted Where Critical Supplier Cannot Otherwise be Paid

In Precision Feeds Ltd. v. Rock Lake Colony Ltd. (decided 1994), the Manitoba courts approved the appointment of a receiver-manager to take control of a non-profit corporation owned by a Hutterite colony where an internal dispute resulted in an impasse resulting in an inability to pay a critical supplier, which threatened irreparable harm to the corporation.

1. Facts

Rock Lake Colony Ltd., a corporation subject to The Corporations Act (Manitoba) (the "Act"), was owned by a Hutterite community in Manitoba. As a result of a leadership dispute involving rival factions in the community, the corporation's bank had stopped payment on the corporation's cheques.

Precision Feeds was a critical supplier to the debtor corporation. It brought an application under the oppression remedy for the appointment of a receiver-manager in respect of the debtor.

2. Rulings

The motion judge, Justice Schulman, appointed Deloitte as the receiver and manager of the debtor corporation unless the parties themselves found suitable financing for, and agreed on a procedure to deal with, the debtor's unpaid invoices. This order was made in the context of arrangements for an expedited hearing on the merits of the leadership dispute.

The Manitoba Court of Appeal agreed that the appointment of the receiver-manger was justified in view of the dispute between those purporting to manage the corporation. It would be for the motions judge to determine how long the receiver-manager remained in place.

3. Key Observation

Where there is a serious battle over who has legitimate control of a non-profit corporation, Precision Feeds is a useful reminder that the temporary appointment of a receiver-manager is a weapon at the court's disposal to ensure that the interests of the corporation are met while the combatants slug it in the courts for ultimate control.

In these circumstances, it is wise for the courts, as is evident in Precision Feeds, to give the parties a last opportunity, however brief, to make other arrangements before the appointment of the receiver-manager becomes effective and to keep the receiver-manager in place for only so long as is necessary to resolve the dispute by settlement, arbitration, litigation or other means.

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