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Difference between revisions of "Creditors' Remedies against Debtors (10:III)"
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Creditors' Remedies against Debtors (10:III) (view source)
Revision as of 17:09, 10 June 2016
, 17:09, 10 June 2016→5. Remedies
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Where a debtor defaults on a security agreement, s 56 provides that the only rights and remedies the secured party has against the debtor are those provided in the security agreement (as long as they do not derogate those rights given to the debtor by the ''PPSA''), as well as those specifically provided by the ''PPSA'' (s 17 and ss 36 – 38). | Where a debtor defaults on a security agreement, s 56 provides that the only rights and remedies the secured party has against the debtor are those provided in the security agreement (as long as they do not derogate those rights given to the debtor by the ''PPSA''), as well as those specifically provided by the ''PPSA'' (s 17 and ss 36 – 38). | ||
Important sections of the PPSA for the creditor are ss 58 and 59, which contain rules for seizing and disposing of collateral. These sections provide that, unless the security agreement states otherwise, where the debtor defaults on their payment, the creditor may elect to take possession of the collateral pursuant to the contract, dispose of the collateral and then sue for any amount still owing. Section 67, provides for a more limited set of remedies where the collateral takes the form of consumer goods – known as the “seize or sue” rule. Formerly, under legislation repealed by the PPSA, all creditors could only seize or sue but not both. The principle of “seize or sue” still applies to “consumer goods” (see Section II.A.6: Seizure, below); it no longer applies to commercial goods.6.Seizure Where the security interest does not involve fixtures, accessions, crops, or consumer goods, s 58 provides the fundamental rule for realization upon non-possessory security interest in tangible personal property: the secured party has a right to seize (in the case of a secured loan transaction) or to repossess (in the case of a secured credit sales transaction) the collateral. Upon seizing the collateral, s 17 defines the rights and obligations of secured parties in possession of collateral. The section imposes a standard of reasonable care on the secured party in possession of the collateral and the secured party must follow the notice provisions outlined in ss 59(6) – (12) before they are entitled to carry through with disposal.7.Disposal of Collateral After seizing collateral, the secured party under s 59(2) may dispose of it either in its present condition or after repairing it (though s 68(2) protects the debtor from incurring unnecessary expenses because all rights, etc., under the PPSA must be discharged “in good faith”). Further, s 59(3) provides that the secured party may dispose of the collateral by a private or public sale (either as a whole or in commercial units or parts) and, if the security agreement so provides, by lease.See also Section II.A.10: Voluntary Foreclosure. Section 59(2) provides a priority scheme regarding application of the proceeds of sale: first, toward the reasonable expenses of seizing, repairing, etc.; second, toward the satisfaction of the obligations owed to the secured party; and last, if any surplus exists, to the satisfaction of obligations owed to persons holding a subordinate security interest, and then toward the debtor (s 60). A person who buys an item from a disposal sale takes the good free and clear of the debtor, the secured party, and any subordinate creditors whether or not the secured party complied with the requirements of the section. In the case of a prior secured creditor’ s interest, if the goods are “consumer goods” of a value less than $1,000 and the purchaser gave value for the goods, the purchaser takes them free of the prior secured creditor’ s interest (see s 59(14)). 8.Notice of Intention to Dispose of Collateral NOTE: The forms of notices under the PPSA depend on a number of factors, including the nature of the security and the terms of the security agreement. Advice concerning the validity of notices should be referred to a lawyer. Subject to the circumstances where notice is not required as per s 59(17) (e.g. for perishable collateral, collateral requiring disproportionately high storage costs relative to its value, etc.), the requirements for notice are outlined in ss 59(6) and (10). These sections require that the secured party, or receiver, as the case may be, must provide at least 20 days’ notice of their intention to dispose of the collateral to parties including the debtor and any other creditor. When a secured party is considering methods of disposal, they must give notice to the following parties (see s 59(6)):i)the debtor; ii)any other person who is known by the secured party as the owner of the collateral (where that is not the debtor); | |||