Executive Summary: Key Legal and Evidentiary Issues

• NBC’s request for an interim receiver under s. 47 of the Bankruptcy and Insolvency Act (BIA) was denied due to insufficient evidence of necessity to protect NBC’s interests or the debtor’s estate.

• The Court found that NBC’s concerns over cheque kiting and potential exposure did not demonstrate a material ongoing risk, especially since the overdraft had been resolved.

• NBC’s request for a preservation-focused receiver under provincial law (e.g., Judicature Act) was also denied due to the same lack of evidentiary basis.

• The Farm Debt Mediation Act (FDMA) imposed a stay preventing receivership proceedings against four defendants classified as “farmers.”

• A stand-alone investigative receivership was found unavailable under both the BIA and provincial statutes, as NBC failed to show how such a measure would aid debt recovery or preservation of assets.

• The Court emphasized that information-gathering objectives alone do not justify appointing a receiver without demonstrable need to protect security or debtor property.

Factual Background

In National Bank of Canada v Precision Livestock Diagnostics Ltd., the National Bank of Canada (NBC) sought the appointment of an interim receiver under section 47 of the Bankruptcy and Insolvency Act (BIA) following the discovery of suspected cheque kiting activities among corporate borrowers within the Sunterra Group.

The bank had issued a notice under section 244 of the BIA on March 14, 2025, after identifying unusual cheque activity that resulted in a temporary overdraft of approximately $43 million. This overdraft was fully repaid within 15 days. NBC also took steps to restrict account access and later demanded repayment of its remaining loan exposure of approximately $17 million.

Although NBC engaged a trustee (FTI) to monitor transactions informally, it pursued court-appointed receivership to:

1. Secure and control the “Account Property” – bank accounts, funds, receivables, and records.

2. Investigate the "Impugned Transactions" – the alleged cheque kiting scheme.

Policy Terms and Legal Framework

NBC relied on section 47 of the BIA, which allows for interim receivership only when necessary to protect either:

• (a) the debtor’s estate, or

• (b) the interests of the secured creditor (NBC, in this case).

NBC also invoked the Judicature Act and other provincial statutes to support the alternative appointment of a receiver “as just or convenient.”

However, the Court found that NBC had not demonstrated the requisite necessity or risk under either framework.

Why the Court Rejected the Applications

1. Under the BIA (Section 47)

Justice Lema ruled that:

• NBC did not demonstrate an ongoing risk to its collateral or the debtors’ estates.

• NBC had already recovered the overdraft, frozen the accounts, and halted further credit.

• NBC’s concerns over other possible affected parties (like U.S. bank Compeer Financial) were irrelevant under section 47, which focuses solely on the applying creditor’s interests.

• There was no evidence of asset dissipation or risk that documents would be destroyed.

• The appointment of an interim receiver for the purpose of investigation alone was outside the scope of powers granted under section 47.

2. Under the Judicature Act and Other Provincial Statutes

NBC also argued for a preservation-focused or investigative receiver under Alberta law. Justice Lema again found:

• The Judicature Act standard (“just or convenient”) still requires evidence of necessity, urgency, or risk — none of which was present.

• NBC failed to show why regular litigation tools (like discovery or production orders) were insufficient for investigation.

• NBC presented no evidence of misconduct necessitating immediate control over the defendants' business or assets.

3. Farm Debt Mediation Act Stay

Four defendants (Sunterra Farms Ltd., Sunwold Farms Ltd., Sunterra Farms Iowa Inc., Sunwold Farms Inc.) qualified as “farmers” under the Farm Debt Mediation Act (FDMA). Because NBC had served a notice under section 21 of that Act on March 14, 2025, a 15-business-day hold period was in effect, barring any enforcement steps, including the appointment of a receiver.

Justice Lema confirmed that this statutory stay applied to both BIA and provincial statute-based receiverships, effectively barring any appointment during the hold period.

4. Investigative Receivership Not Justified

NBC also proposed a stand-alone investigative receivership, citing its loss of confidence in Sunterra’s management and the potential for unknown liabilities. The Court declined this as well:

• NBC did not provide evidence that investigation via receivership was more effective or necessary than litigation or informal measures.

• The Akagi decision (ONCA) was reviewed, affirming that investigative receiverships are only appropriate where necessary to secure creditor recovery — not to satisfy informational curiosity.

Final Ruling and Costs

Justice Lema dismissed NBC’s application in its entirety, ruling that neither a BIA interim receiver, a provincial statute-based receiver, nor an investigative receiver was warranted or possible.

The defendants were awarded costs, with cost submissions due in April 2025. No amount was specified at this stage.