Difference between revisions of "Creditors' Remedies against Debtors (10:III)"

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 Formerly, under legislation repealed by the PPSA, all creditors could only seize or sue but not both.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);