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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 22:37, 11 August 2020
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{{LSLAP Manual TOC|expanded = creditors}} | {{LSLAP Manual TOC|expanded = creditors}} | ||
Before taking action against a debtor, a creditor must provide a reasonable time for payment on a demand loan or term loan. That time begins to run from the date of the demand for payment and not the date of the loan. What constitutes a reasonable demand period depends upon the facts of each case. For a list of factors to be considered see Royal Bank of Canada v. W. Got Associates Electric Ltd., [1999] 3 SCR 408, 1999 CanLII 714 (SCC), para. 18). | Before taking action against a debtor, a creditor must provide a reasonable time for payment on a demand loan or term loan. That time begins to run from the date of the demand for payment and not the date of the loan. What constitutes a reasonable demand period depends upon the facts of each case. For a list of factors to be considered see [https://www.canlii.org/en/ca/scc/doc/1999/1999canlii714/1999canlii714.html ''Royal Bank of Canada v. W. Got Associates Electric Ltd.'', [1999<nowiki>]</nowiki> 3 SCR 408, 1999 CanLII 714 (SCC), para. 18)]. | ||
Under the current Limitation Act, in British Columbia the period for when a proceeding for the collection of a debt must be commencted is 2 years from the “date of discovery” of the claim. The date of discovery is defined as the day on which the claimant knew or ought reasonably to have known all of the following: | Under the current Limitation Act, in British Columbia the period for when a proceeding for the collection of a debt must be commencted is 2 years from the “date of discovery” of the claim. The date of discovery is defined as the day on which the claimant knew or ought reasonably to have known all of the following: | ||
*a) that injury, loss or damage had occurred; | *a) that injury, loss or damage had occurred; | ||
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:'''NOTE:''' The limitation period does not apply to claims exempted under sections 3 | :'''NOTE:''' The limitation period does not apply to court proceedings and claims exempted under sections 2 or 3. | ||
== A. Secured Creditors == | == A. Secured Creditors == | ||
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=== 2. General Introduction to the PPSA === | === 2. General Introduction to the PPSA === | ||
The ''Personal Property Security Act'' [PPSA] establishes a system for the registration, priority, and enforcement of secured loan and credit transactions involving personal property in B.C. Secured creditors holding agreements that create or provide for security interests (i.e. chattel mortgages and conditional sales agreements) must register these security agreements in order to “perfect” its interest and establish its priority in regards to third parties. See “Perfection” | The ''Personal Property Security Act'' [PPSA] establishes a system for the registration, priority, and enforcement of secured loan and credit transactions involving personal property in B.C. Secured creditors holding agreements that create or provide for security interests (i.e. chattel mortgages and conditional sales agreements) must register these security agreements in order to “perfect” its interest and establish its priority in regards to third parties. See “Perfection” on page 3. | ||
For agreements that are subject to the PPSA, Part 5 of the PPSA outlines the creditor’s remedies (ss 56 - Rights and remedies, 57 - Collection of payments under intangibles or chattel paper, 58 – Right of seizure or repossession, and 67 - Rights and remedies: consumer goods). For agreements that involve fixtures, crops or accessions, ss 36 – 38 apply. In addition, Part 6 contains some sections (i.e. ss 68(2) - Good faith and commercially reasonable, and 72 - Notice) that are of procedural importance. | For agreements that are subject to the PPSA, Part 5 of the PPSA outlines the creditor’s remedies (ss 56 - Rights and remedies, 57 - Collection of payments under intangibles or chattel paper, 58 – Right of seizure or repossession, and 67 - Rights and remedies: consumer goods). For agreements that involve fixtures, crops or accessions, ss 36 – 38 apply. In addition, Part 6 contains some sections (i.e. ss 68(2) - Good faith and commercially reasonable, and 72 - Notice) that are of procedural importance. | ||
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=== 3. What Does the PPSA Govern? === | === 3. What Does the PPSA Govern? === | ||
The scope of the ''PPSA'' is defined in s 2 as including every transaction that in substance creates a security interest without regard to its form. As well, under s 3, a transaction involving either a transfer of an account or chattel paper, a commercial consignment, or a lease for a term of more than one year that does not secure payment or performance of an obligation (i.e. does not create a security interest) is subject to the ''PPSA''. Section 55 provides that Part 5 does not apply to transactions brought within the ''PPSA'' by s 3. It is necessary to look to the terms and the common law. | The scope of the ''PPSA'' is defined in s 2 as including every transaction that in substance creates a security interest without regard to its form. As well, under s 3, a transaction involving either a transfer of an account or chattel paper, a commercial consignment, or a lease for a term of more than one year that does not secure payment or performance of an obligation (i.e. does not create a security interest) is subject to the ''PPSA''. '''Section 55 provides that Part 5 does not apply to transactions brought within the ''PPSA'' by s 3. It is necessary to look to the terms and the common law.''' | ||
:'''NOTE:''' Section 4 lists types of transactions that are exempt from the ''PPSA''. The ''PPSA'' does not apply to a “lien, charge or other interest given by a rule of law or an enactment unless the enactment contains an express provision that the ''PPSA'' applies”. Generally this excludes real property and natural resources. | :'''NOTE:''' Section 4 lists types of transactions that are exempt from the ''PPSA''. The ''PPSA'' does not apply to a “lien, charge or other interest given by a rule of law or an enactment unless the enactment contains an express provision that the ''PPSA'' applies”. Generally this excludes real property and natural resources. | ||
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*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). | *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, | A person who buys an item from a disposal sale takes the good free and clear of the interests of a 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 $1,5000 (and not fixtures) 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 === | === 8. Notice of Intention to Dispose of Collateral === | ||
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'''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.''' | '''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 | 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 (s 61(2)). In such circumstances, under s 61(7), 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 | *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. | *ii) the market value of the collateral is less than the total amount owing to the secured party plus the costs of disposition. | ||
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==== b) Restriction on the Right to Accelerate a Term Debt ==== | ==== 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 on other grounds, such as 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 other than in the case of default payments, the acceleration clause may not be invoked unless this objective test of “commercially | The security agreement may contain an “acceleration clause” that provides that the total amount owing becomes due upon default in payments or on other grounds, such as 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, other than in the case of default of payments, the acceleration clause 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 ==== | ==== c) Limitation of the Right of Seizure for Consumer Goods ==== | ||
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==== f) Rights of Redemption and Reinstatement ==== | ==== 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 | 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. | ||
===12. Consumer Goods === | ===12. Consumer Goods === | ||
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 | 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. | ||
==== a) Secured Party’s Remedies ==== | ==== a) Secured Party’s Remedies ==== | ||
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==== b) Disqualification from “Seize or Sue” and Leases ==== | ==== 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 | A secured party with a security interest in “consumer goods” may escape the seize or sue provisions where: | ||
*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 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)). | *the secured party discovers after s 58 seizure or bringing action to recover a judgment 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 notwithstanding ss 67(2), (5) and (6) 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. Creditors and debtors 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 ''[https://www.canlii.org/en/bc/bcca/doc/2007/2007bcca144/2007bcca144.html?autocompleteStr=Daimler%20Chrysler%20Services%20Canada%20Inc%20v%20Cameron%2C%202007%20BCCA%20144&autocompletePos=1 Daimler Chrysler Services Canada Inc v Cameron'', 2007 BCCA 144]. | |||
:'''NOTE:''' The “seize or sue” rule does not apply to “true leases” but will apply to “security leases” or “conditional sales agreements”. | |||
==== c) Consequences of Electing to Proceed Against Collateral ==== | ==== c) Consequences of Electing to Proceed Against Collateral ==== | ||