If you ignore a court order for support, watch out: A receiver can be appointed to sell your assets

money 1 - If you ignore a court order for support, watch out: A receiver can be appointed to sell your assets

In family law litigation, it is not unusual for orders to go unheeded. Those orders are often payment orders which require one spouse to sell an asset or make a payment and pay the other spouse.

While the rules which govern family law cases provide a variety of ways to enforce orders for payment, one of the remedies available is the appointment of a receiver/manager.

While the terms of each court order appointing a receiver differ, usually a receiver/manager takes possession of and sells assets belonging to the defaulting spouse.

If the receiver/manager is appointed to sell a business, the receiver will also do what is required to operate and manage the business before the business is actually sold.

While the governing rules say that a receiver can be appointed by the court where it is “just and convenient” to do so, the appointment of a receiver is usually a remedy of last resort, given its intrusive nature. In the past, circumstances triggering the appointment of a receiver have included a persistent failure to provide full financial disclosure, moving corporate assets out of reach of the creditor spouse, poor record-keeping and non-payment of support.

In a case heard earlier this year in Ontario by Justice Sonya Jain, the wife sought the appointment of a receiver/manager to enforce an order made on the consent of the husband and wife two years previously for the sale of assets.

The parties had agreed to sell the husband’s corporations, one of which held real estate and the other, an operating business which the husband ran and through which he was paid a salary of $300,000 annually. The husband’s business operated from the real estate held by the first company. The consent order also allowed the parties to split the net proceeds from the sale of the two corporations and their assets. When the agreement was made, the wife released her rights to receive spousal support.

Two years after the consent order was made — during which time the operating company’s sales had increased significantly — neither the real estate nor the operating company had been sold.

The wife believed that the husband was purposely not making bona fide efforts to sell either asset.

While a number of offers had been made to buy the real estate, none came to fruition. The husband explained that this was because of environmental issues associated with the property which required remediation.

The husband listed the property for $3.4 million and despite the environmental issues, and the fact that the property had been listed for about two years, the husband chose not to reduce the listing price. While the most recent potential buyer requested concessions for the environmental problems, the husband refused to disclose to the wife any information about the offers made.

In his court materials, the husband said he was considering increasing the purchase price to provide negotiating room related to the environmental remediation, and he also confirmed he had done some remediation work for about $164,000.

The wife said she was completely in the dark about what the husband was doing to honour the order as she was not a shareholder, officer or director of either company. Her position was that she had no other option to enforce the sale and distribution of net proceeds unless a receiver/manager was appointed.

The husband argued that appointing a receiver/manager was a “sledgehammer,” that there was neither urgency or mismanagement, and that the company was doing very well, so there was no point in jeopardizing the value of the company, which he said would be the result of the appointment.

He said he should be able to continue to be responsible for selling the corporations and at worst, a sales officer, rather than a receiver/manager should be appointed, which would be both less intrusive and less costly.

As Justice Jain observed, the difference between appointing a receiver/manager and a sales officer is that a receiver/manager is an “officer of the court” who has an obligation to report fully to the court. The receiver/manager has a legal obligation to ensure that the assets and properties are managed efficiently. He also is obliged to retain the necessary professionals to deal with the marketing, bidding and sale and sell the assets for the highest possible price. While it is hoped that a sales officer would take similar steps, there is no legal obligation to do so nor is the sales officer governed by the court.

The husband also took the position that both he and the wife would be ‘losers’ if a receiver/manager was appointed because of the significant costs of the receiver/manager and that as a result, any appointment would significantly affect the amount the parties would realize on the sale.

Justice Jain considered this position taken by the husband untenable, because she found that the husband had no incentive whatsoever to sell the companies or their assets. The wife had received no income from the companies for the past two years. By contrast, the husband was continuing to receive his generous salary while paying no spousal support.

Justice Jain reasoned that without the appointment, it would be “difficult if not impossible” for the wife to enforce her rights under the order and receive her share of the proceeds of sale. Not surprisingly given this finding, she proceeded to appoint a receiver/manager.

Defaulting payors should beware.

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