Executive Summary: Key Legal and Evidentiary Issues

• Mitsubishi sought to appoint a receiver under the Bankruptcy and Insolvency Act and Courts of Justice Act due to default on a $1.5 million credit agreement.

• Ribs argued that a more recent settlement agreement governed the parties' relationship and precluded the receivership application.

• The court examined the binding nature and terms of successive settlement agreements, particularly the most recent one from March 2025.

• Mitsubishi claimed breach based on the failure to arrange a timely meeting with RBC, but Ribs had substantially complied with payment terms.

• The judge emphasized commercial reasonableness and viability of the debtor’s ongoing operations in assessing the appropriateness of appointing a receiver.

• Ultimately, the receivership request was adjourned sine die as it was not just or convenient to grant it under the circumstances.

Background and financial arrangements

The case involves Mitsubishi HC Capital Canada Inc. and Ribs Transport Inc. Mitsubishi was the secured creditor under a $1.5 million credit agreement with Ribs, signed in March 2023. The agreement included provisions allowing Mitsubishi to enforce its security upon default. The principal of Ribs, Ishant Pajni, also signed an unlimited personal guarantee. Ribs defaulted in April 2024 by missing payments and failing to meet reporting obligations, triggering Mitsubishi’s right to enforce security under section 244 of the Bankruptcy and Insolvency Act (BIA).

The parties entered into a First Settlement Agreement in June 2024, where Ribs acknowledged its default and consented to a receivership order. Despite continued missed payments and non-compliance, Mitsubishi allowed further leniency by entering into an Amended Settlement Agreement in October 2024, pushing the repayment deadline to December 2, 2024. When Ribs again failed to pay in full, Mitsubishi initiated a receivership application in January 2025.

The second settlement agreement

Rather than proceed immediately, the parties returned to negotiation and reached a Second Settlement Agreement on March 21, 2025. Under this agreement, Ribs agreed to pay $107,000 upfront and continue weekly $7,000 payments until the debt was repaid. It also committed to providing updates on its refinancing efforts with the Royal Bank of Canada (RBC) and to arrange a joint conference call involving all three parties by March 25, 2025.

Mitsubishi accepted this agreement with one minor amendment—changing the term “vacate” to “adjourn sine die” concerning the receivership application, while preserving its right to revive the application on notice. Ribs complied with the payment terms and made efforts to coordinate a meeting, which ultimately occurred—albeit late—by telephone on April 28, 2025, the day before the scheduled court hearing.

Legal framework and analysis

Mitsubishi grounded its application in section 243 of the BIA and section 101 of the Courts of Justice Act, both of which allow courts to appoint a receiver where it is “just or convenient.” The court applied a holistic approach, evaluating the parties’ rights, the debtor’s business viability, and proportionality of the remedy.

Mitsubishi argued that the delay in arranging the RBC conference constituted a breach of the Second Settlement Agreement, entitling it to revive its receivership motion. However, the court found no binding condition that required the conference to happen by a strict deadline, especially given the bank’s refusal to participate in an in-person meeting. It emphasized that Ribs had substantially complied with its obligations, and the slight delay was not solely its fault.

The court also noted that Ribs had paid $432,000 to Mitsubishi over the past 10 months, demonstrating its ability to meet ongoing obligations. The judge concluded that appointing a receiver under these circumstances would not be just or convenient, especially since doing so could dismantle a viable business and yield a poor recovery through liquidation.

Outcome

Justice Kurz dismissed the receivership request and adjourned the application sine die, returnable on 14 days’ notice if Ribs defaults on the Second Settlement Agreement. The court affirmed that the latest agreement was binding and enforceable, superseding earlier ones. Costs were left for the parties to resolve, with Ribs being the more successful party and invited to submit a claim if necessary.