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Creditors' Remedies against Debtors (10:III) (view source)
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After default, a secured party may make a proposal to the debtor and other interested parties to take the collateral to satisfy obligations secured by it (s 61). | After default, a secured party may make a proposal to the debtor and other interested parties to take the collateral to satisfy obligations secured by it (s 61). | ||
'''The debtor and other interested parties have 15 days to object to the secured party’s proposal. Failure to object is deemed to be an irrevocable election to forfeit all rights and interests in the good and entitles the secured party to retain the good.''' | |||
If the debtor or other secured party provides notice of objection to the secured party within 15 days after the notice is given, the secured party must dispose of the collateral in accordance with the provisions of s 59. In such circumstances, the secured party may make an application to the court for an order that an objection to the secured party’s proposal is ineffective because: | |||
*i) the objection was made for a purpose other than protecting an interest in the collateral or the proceeds of the disposition of the collateral; or | |||
*ii) the market value of the collateral is less than the total amount owing to the secured party plus the costs of disposition. | |||
=== 11. Restrictions on Realization === | |||
==== a) Subordination of Unperfected Security Interests ==== | |||
Under s 20(a), an unperfected security interest is subordinate to the interest of: | |||
*a person who causes the collateral to be seized under legal process to enforce a judgment (including execution, garnishment or attachment), or who has obtained a charging order or equitable execution affecting or relating to the collateral; | |||
*a representative of a creditor enforcing the rights of a person referred to above; and | |||
*a sheriff acting under the Creditor Assistance Act and any judgment creditor entitled to participate in the distribution of property under the ''Creditor Assistance Act''. | |||
Also, if an interest is unperfected at the date of the bankruptcy or winding-up, then that interest is not effective against a trustee in bankruptcy or a liquidator (''Winding-up and Restructuring Act'', RSC 1985, c 6). | |||
In addition, ss 20(c), 30(3) and 31 confirm the subordination of the interest of a secured party to a bona fide purchaser for value under various circumstances. | |||
==== b) Restriction on the Right to Accelerate a Term Debt ==== | |||
The security agreement may contain an “acceleration clause” that provides that the total amount owing becomes due upon default in payments or whenever the secured party has “commercially reasonable grounds” to believe that they may not be repaid or that the collateral is “in jeopardy”. If there is an acceleration clause in the security agreement, it may not be invoked unless this objective test of “commercially reasonable grounds” has been satisfied. A secured creditor has commercially reasonable grounds when they have a reasonable belief that there is a risk of non-payment. This could occur for a variety of reasons including the debtor fleeing the country, being hospitalized or illegal activity taking place on the premises. If the risk is not obvious the creditor must make commercially reasonable efforts to verify their suspicions. Commercially reasonable efforts do not mean best efforts. | |||
==== c) Limitation of the Right of Seizure for Consumer Goods ==== | |||
For collateral that is a “consumer good”, where the debtor has paid at least two-thirds of the total amount secured, the creditor may not seize the good without first obtaining a court order (see [[{{PAGENAME}}#a) Secured Party's Remedies | Section II.A.12.a: Secured Party's Remedies]]). | |||
==== d) Obligation While in Possession of Collateral ==== | |||
Section 17 of the PPSA imposes a standard of reasonable care on any secured party in possession of the collateral. e)Rights of a Debtor The PPSA preserves the debtor’ s (but not the secured party’ s) rights and remedies under other statutes that are not inconsistent with the PPSA as well as the specific rights and remedies provided in the security agreement, ss 17 and 56(2)(b). f)Rights of Redemption and Reinstatement Under s 62, a debtor has redemption rights. Any person entitled to notice of a pending disposition of collateral may “redeem” the collateral by tendering to the secured party fulfilment of the obligations secured by the collateral plus the reasonable expenses incurred by the secured party associated in seizing the collateral or otherwise preparing it for disposition. The aforementioned obligations may simply be the amount in arrears; however, it is more often the case that an acceleration clause applies, and that the obligations will be the total amount of the debt. Where the security agreement contains an acceleration clause, the debtor may apply to court for relief from the consequences of default or for an order staying enforcement of the security agreement’ s acceleration provision. Where the collateral is a “consumer good”, the calculation of the obligation secured and the obligation that must be tendered is varied. The debtor may “reinstate” the security agreement by paying only the monies actually in arrears – negating the operation of any acceleration clause. The debtor may waive this right but any such agreement must be in writing after default. Note that the number of times the debtor may reinstate the security agreement is limited depending on the period of time for repayment set out in the security agreement; however, the frequency of reinstatement may be varied by agreement between the parties. 1 2.Consumer Goods a)Secured Party’s Remedies Section 67(1) lists the options available to a secured party. The secured party may elect to pursue one of the following remedies:seize or repossess the goods (s 58); enact the voluntary foreclosure remedy (s 61) (discussedabove); accept the surrender of the goods by the debtor; or start an action to recover a judgment against the debtor for the amount of the unpaid debt or unperformed obligations under the security agreement. This is sometimes called the “seize or sue” rule. If the debtor has paid at least two-thirds of the total amount of the secured obligation, the secured party may not seize the consumer good used as collateral (s 58(3)). However, the secured party may apply to court for an order that the “two-thirds rule” should not apply and the court will make a decision based on (s 58(4), (5)): the value of the collateral; the amount of the obligation that has been discharged; | |||