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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 03:40, 19 August 2021
, 03:40, 19 August 2021no edit summary
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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)]. | 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 | |||
Under section 8 of the ''Limitation Act'', in British Columbia, the period for when a proceeding for the collection of a debt must be commenced 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; | ||
*b) that the injury, loss or damage was caused by or contributed to by an act or omission; | *b) that the injury, loss or damage was caused by or contributed to by an act or omission; | ||
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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 interests of | A person who buys an item from a disposal sale takes the good free and clear of the interests of the secured party, but also debtors, , and any subordinate creditors whether or not the secured party complied with the requirements of section 59(14). In the case of a prior secured creditor’s interest, if the goods are “consumer goods” of a value less than $1,500 (and not fixtures) and the purchaser gave value for the goods, the purchaser takes them free of the prior secured creditor’s interest (see ss 30(3-4)). | ||
=== 8. Notice of Intention to Dispose of Collateral === | === 8. Notice of Intention to Dispose of Collateral === | ||
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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. | 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)):''' | '''When a secured party is considering methods of disposal, they must give notice to the following parties (see s 59(6) and s 60(2)):''' | ||
*i) the debtor; | *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); | *ii) any other person who is known by the secured party as the owner of the collateral (where that is not the debtor); | ||
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*v) the date, time and place of disposition. | *v) the date, time and place of disposition. | ||
'''In the case of a receiver attending to the disposition of the collateral, the receiver must give notice to (see s 59(10)):''' | '''In the case of a receiver attending to the disposition of the collateral, the receiver must give notice to (see s 59(10) and 60(2)):''' | ||
*i) the debtor; | *i) the debtor; | ||
*ii) any other person known by the secured party to be an owner of the collateral; | *ii) any other person known by the secured party to be an owner of the collateral; | ||
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*i) a description of the collateral; | *i) a description of the collateral; | ||
*ii) a statement that unless the collateral is redeemed it will be disposed of; and | *ii) a statement that unless the collateral is redeemed it will be disposed of; and | ||
*iii) the | *iii) the date, time and place of any sale by public auction, or the place to which closed tenders may be delivered and the date after which closed tenders will not be accepted | ||
=== 9. Surplus or Deficiency === | === 9. Surplus or Deficiency === | ||
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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 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. | The security agreement may contain an “acceleration clause” (s. 16 of PPSA) 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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===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 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. | Where the collateral is a “consumer good”, the calculation of the obligation secured and the obligation that must be tendered is varied. Consumer goods are defined as goods that are used or acquired for use primarily for personal, family or household purposes (s 1). 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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A secured party with a security interest in “consumer goods” may escape the seize or sue provisions where: | 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 | *the debtor has engaged in wilful or reckless acts or neglect that has caused substantial damage or more deterioration than would be reasonably expected; a court, on application, may order that subsections (1) to (7) or any one or more of them do not apply so as to limit the rights and remedies of the secured party (ss 67(9)); or | ||
*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)). | *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”. 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]. | ||
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'''An election to sue results in the following consequences for the creditor:''' | '''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(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. | *Under s 67(10), commencement of proceedings against the debtor extinguishes the security interest of the creditor in the goods. The secured party must also discharge any registration relating to the security interest no later than one month after the exercise of their rights. | ||
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. | 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. | ||
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Besides the debtor, another creditor may contest the claim (s 15). Grounds for filing include an allegation that there is no debt due in good faith from the debtor to the claimant, or an allegation that the claim is not one of debt as required by s 6 of the ''Creditor Assistance Act''. A claimant whose claim is contested must make an application to the Supreme Court of British Columbia within eight days of being notified; otherwise, the claim will be deemed to have been abandoned. | Besides the debtor, another creditor may contest the claim (s 15). Grounds for filing include an allegation that there is no debt due in good faith from the debtor to the claimant, or an allegation that the claim is not one of debt as required by s 6 of the ''Creditor Assistance Act''. A claimant whose claim is contested must make an application to the Supreme Court of British Columbia within eight days of being notified; otherwise, the claim will be deemed to have been abandoned. | ||
Under s 12, if the amount levied does not satisfy all of the writs of execution and certificates of claim, the sheriff is authorized to make a further seizure of the execution debtor’s personal property to satisfy all writs and certificates of claim. In addition, the certificate, if issued, remains in force for three years and may be renewed similarly to a writ of execution. | Under s 12, if the amount levied does not satisfy all of the writs of execution and certificates of claim, the sheriff is authorized to make a further seizure of the execution debtor’s personal property to satisfy all writs and certificates of claim. In addition, the certificate, if issued, remains in force for three years and may be renewed similarly to a writ of execution (s 13(1) and (2)). | ||
=== 2. Execution === | === 2. Execution === | ||
Under s 55 of the | Under s 55 of the Court Order Enforcement Act [COEA], any judgment creditor may have the property of the judgment debtor seized and sold by the sheriff to satisfy the amount owing under the judgment, subject to exemptions under ss 70-79 or as otherwise provided for in the COEA. Section 60 of the COEA directs that any surplus after payment of the judgment, interest, and reasonable costs of seizure and sale be paid to the debtor. | ||
=== 3. Exemptions from Seizure === | === 3. Exemptions from Seizure === | ||
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In addition, s 71.1(1) of the ''COEA'' exempts the principal residence of the debtor; $12,000 is the prescribed amount of equity exemption if the debtor's principal residence is located within the boundaries of the Capital Regional District or the Greater Vancouver Regional District. If the debtor’s principal residence is located outside of these boundaries, $9,000 is the prescribed amount of equity exemption. These values are calculated using the net equity. | In addition, s 71.1(1) of the ''COEA'' exempts the principal residence of the debtor; $12,000 is the prescribed amount of equity exemption if the debtor's principal residence is located within the boundaries of the Capital Regional District or the Greater Vancouver Regional District. If the debtor’s principal residence is located outside of these boundaries, $9,000 is the prescribed amount of equity exemption. These values are calculated using the net equity. | ||
Section 71.3 of the COEA specifies that property in registered plans may be exempt from seizure as well (including Deferred Profit Sharing Plans, Registered Retirement Income Funds and/or Registered Retirement Savings Plans). In order to qualify for an exemption, the plan must be registered similar to the Registered Retirement Savings Plan | 6 Section 71.3 of the COEA specifies that property in registered plans may be exempt from seizure as well (including Deferred Profit Sharing Plans, Registered Retirement Income Funds and/or Registered Retirement Savings Plans). In order to qualify for an exemption, the plan must be registered similar to the Registered Retirement Savings Plan. However, there are some employee DPSPs that are not registered and exempt from seizure. Notwithstanding this section, property can be seized despite being in a registered plan if it was contributed to the plan after or within 12 months before the date on which the debt became due. Under section 1(1) the Family Maintenance Enforcement Act, a maintenance debtor refers to “a person required under a maintenance order to pay maintenance costs”. | ||
:'''NOTE:''' Refer to BC Reg 28/98 (Court Order Enforcement Exemption Regulations) for further details regarding exemptions under the ''COEA''. Where there are competing priority interests between judgment creditors and secured parties, each party should seek the assistance of counsel. | :'''NOTE:''' Refer to BC Reg 28/98 (Court Order Enforcement Exemption Regulations) for further details regarding exemptions under the ''COEA''. Where there are competing priority interests between judgment creditors and secured parties, each party should seek the assistance of counsel. | ||