Using A Receivership To Respond To Commercial Real Estate Fraud

Certificates of pending litigation, cautions, constructive trusts, interim preservation of property orders, fraudulent conveyance actions, Mareva injunctions and receiverships are just some of the remedies in the litigator's tool box when responding to a commercial real estate fraud.

Deciding which remedy to pursue and when depends on each case and the nature of the fraud. Considerations include whether to secure the property in question, the ill-gotten gains, the fraudster itself or, as is commonly the case, a combination of all three. Additional factors that inform the decision are the available timelines, costs, the accessibility of assets and the likelihood of recovery.

This article looks briefly at receivership proceedings as a way to respond to a commercial real estate fraud. Considered by some to be a remedy devoted to the insolvency bar, receiverships commenced under s. 101 of the Courts of Justice Act and the Business Corporations Act are becoming more common. Given the complexity of commercial real estate transactions and the parties to them, an "investigative receivership" can be a useful way to obtain information quickly to verify a suspected fraud and support the recovery effort.

"Breathtakingly broad" receivership orders in Akaqi

Required reading for every lawyer seeking an investigative receivership is the Court of Appeal for Ontario's decision in Akagi v. Synergy Group (2000) Inc. 2015 ONCA 368. In Akagi, receivership orders were obtained ex parte pursuant to s. 101 of the Courts of Justice Act. Initially, the receivership was sought to enforce a $137,000 judgment. With each subsequent order, the receiver's powers were expanded and the proceeding "morphed into a wide-ranging 'investigative receivership,' freezing and otherwise reaching the assets of 43 additional individuals and entities," none of which was a party to the receivership proceeding.

The Court of Appeal set aside the receivership orders on the basis that they had proceeded on an entirely misguided course. While acknowledging the value of an investigative receivership if used properly, the Court of Appeal made clear that a receivership is an extraordinary and intrusive remedy. It must be carefully tailored to do what is required to assist in the recovery effort while protecting the defendant's interests.

The orders in question were "breathtakingly broad" and based on the faulty premise that they could be used to conduct the civil equivalent of a criminal...