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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 21:01, 10 June 2016
, 21:01, 10 June 2016→12. Consumer Goods
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*the value of the collateral; | *the value of the collateral; | ||
*the amount of the obligation that has been discharged; | *the amount of the obligation that has been discharged; | ||
*the reasons for default; and | |||
*the current and future financial circumstances of the parties. | |||
==== b) Disqualification from “Seize or Sue” and Leases ==== | |||
A secured party with a security interest in “consumer goods” may escape the seize or sue provisions when: | |||
*the debtor has engaged in wilful or reckless acts or neglect that has caused substantial damage or deterioration to the goods; the secured party may seek a court order pursuant to s 67(8) disqualifying the debtor from the rights and remedies ordinarily available under s 67(1)-(5) (s 67(8)); or | |||
*the secured party discovers after seizure that an accession that was collateral has been removed and not replaced by other goods of equivalent value and free from prior security interests, a claim may be advanced against the debtor for the value of the accession (s 67(8)). | |||
'''NOTE:''' The “seize or sue” rule does not apply to “true leases” but will apply to “security leases” or “conditional sales agreements”. BC courts have been developing tests to distinguish between true leases and security leases. Disputes often arise over car leases. Clients should consult with a lawyer who is familiar with this area of law when trying to figure out whether their contract is a true lease or a security lease. If the lease is a true lease the creditor has the option to seize and sue; see ''Daimler Chrysler Services Canada Inc v Cameron'', 2007 BCCA 144. | |||
==== c) Consequences of Electing to Proceed Against Collateral ==== | |||
Under s 67(2), an election to proceed against the collateral results in the extinguishment of the debtor’s obligations under the security agreement or any related agreement (with the exception of land mortgages executed before July 1, 1973), thereby automatically releasing any guarantor or indemnitor of the obligations contained in the security agreement. However, ss 67(3) and 67(4) contain exceptions. | |||
Since proceeding against the collateral precludes the creditor from recovering the deficiency of the debt, the creditor is well advised to collect as much of the debt as possible, from other sources prior to seizing the goods. Remember, however, that if the creditor collects 2/3 or more of the debt they lose the right to seize the goods. | |||
==== d) Consequences of Electing to Sue ==== | |||
'''An election to sue results in the following consequences for the creditor:''' | |||
*Under s 67(6), if the creditor gets a judgment against the debtor and seizes the collateral pursuant to a writ of seizure and sale, the right of recovery is limited to the gross amount realized from the sale of the collateral; | |||
*Under s 67(10), commencement of proceedings against the debtor extinguishes the security interest of the creditor in the goods. | |||
Therefore, the sale proceeds become subject to a bankruptcy stay; and the creditor may have to share the proceeds of the seizure and sale with other creditors as they will no longer have priority based on secured creditor status. | |||
Exceptions include cases of fraud or cases where the stay is unjust. Where there is alleged fraud or the stay is unjust for other reasons, the creditor can apply to the court to have the stay removed against them specifically. Generally the stay is removed so that litigants can continue their litigation. | |||