Secured Transactions – Winter 2013 Professor: Yael Emerich Summary
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Recourses and RemediesRecall that the remedies rules do not apply to deemed security interests (like leases longer than one year) (OPPSA 57.1; NBPPSA 3(2), 55). The definitions of “default” under both PPSAs provide for either default according to the terms of the security agreement, or failure to make payments. The Bankruptcy and Insolvency Act is also relevant here. A secured creditor who is planning to enforce a security that covers all or substantially all of either (a) the debtor’s inventory, or (b) the debtor’s accounts receivable, or (c) the debtor’s property in general, must give 10-day notice to the debtor if that debtor is insolvent. In practice, an intelligent debtor who receives a 10-day notice will enter bankruptcy protection of some form, thereby short-circuiting the secured creditor’s remedies. However, the BIA notice requirement only applies if the debtor is insolvent at the date on which the secured creditor begins to enforce security. If the debtor is not insolvent, there is no need to send a notice. In essence, a secured creditor can seize the collateral subject to the security interest as soon as the debtor defaults (58(2) NBPPSA; 62 OPPSA). At that point, the secured creditor has a several remedies: - Sale of the collateral (NBPPSA 59; OPPSA 63). - In New Brunswick, taking in payment/foreclosure (NBPPSA 61). In Ontario, the taking in payment remedy is limited to consumer goods (OPPSA 65). - In New Brunswick, collection of accounts receivable (NBPPSA 57(2)). The PPSA also allows for certain optional rights to be included in security agreements, but they are not automatically available: - In Ontario, collection of accounts receivable (OPPSA 61). - Receivership of the debtor’s business (NBPPSA 64; OPPSA 60).
- A right of redemption: the debtor can buy out the security interest by tendering full performance of the obligation secured by it (NBPPSA 62(2); OPPSA 66(1)). - A right of reinstatement: the debtor can cure any defect or default and be returned to the contractual status quo. This will end any existing enforcement proceedings (NBPSSA 62(4)). In Ontario, the right of reinstatement exists only for consumer debts, and is limited to once in the life of the contract (OPPSA 66(2)). That said, secured creditors in Ontario can purchase the collateral during the sale process (OPPSA 63(8)).
(a) the inventory, (b) the accounts receivable, or (c) the other property of an insolvent person that was acquired for, or is used in relation to, a business carried on by the insolvent person shall send to that insolvent person, in the prescribed form and manner, a notice of that intention. (2) Where a notice is required to be sent under subsection (1), the secured creditor shall not enforce the security in respect of which the notice is required until the expiry of ten days after sending that notice, unless the insolvent person consents to an earlier enforcement of the security. (2.1) For the purposes of subsection (2), consent to earlier enforcement of a security may not be obtained by a secured creditor prior to the sending of the notice referred to in subsection (1). (3) This section does not apply, or ceases to apply, in respect of a secured creditor (a) whose right to realize or otherwise deal with his security is protected by subsection 69.1(5) or (6); or (b) in respect of whom a stay under sections 69 to 69.2 has been lifted pursuant to section 69.4. (4) This section does not apply where there is a receiver in respect of the insolvent person. OPPSA GENERAL 1 “default” means the failure to pay or otherwise perform the obligation secured when due or the occurrence of any event whereupon under the terms of the security agreement the security becomes enforceable. 57.1 Unless otherwise provided in this Part, this Part applies to a security interest only if it secures payment or performance of an obligation [i.e. it does not apply to deemed security interests like true leases longer than one year - Mike] 58 The rights and remedies mentioned in this Part are cumulative 59(1) Where the debtor is in default under a security agreement, the secured party has the rights and remedies provided in the security agreement and the rights and remedies provided in this Part and, when in possession or control of the collateral, the rights, remedies and duties provided in section 17 or 17.1, as the case may be. 59(2) The secured party may enforce a security interest by any method permitted by law and, if the collateral is or includes documents of title, the secured party may proceed either as to the documents of title or as to the goods covered thereby, and any method of enforcement that is permitted with respect to the documents of title is also permitted, with necessary modifications, with respect to the goods covered thereby. 59(3) Where the debtor is in default under a security agreement, the debtor has the rights and remedies provided in the security agreement and the rights and remedies provided in this Part and in section 17. 59(5) Debtors can’t waive rights beyond those that the PPSA allows them to waive. 59(6) Where the security agreement covers real property, the secured creditor can proceed under PPSA or under real property law or both. 60 Receivers and receiver-managers may be appointed pursuant to the terms of the agreement or by the court in the right circumstances. However, the act does not grant an automatic right to have a receiver/receiver-manager. COLLECTION RIGHTS OF SECURED PARTY 61(1) The secured party, either after default or at any time if permitted by the agreement, can collect money from any person obligated on an account or on chattel paper or any obligor on an instrument that is subject to the security interest. SALE OF COLLATERAL ON DEFAULT 63(1) Upon default under a security agreement, the secured party may dispose of any of the collateral in its condition either before or after any commercially reasonable repair, processing or preparation for disposition, and the proceeds of the disposition shall be applied consecutively to, (a) the reasonable expenses of the secured party, including the cost of insurance and payment of taxes and other charges incurred in retaking, holding, repairing, processing and preparing for disposition and disposing of the collateral and, to the extent provided for in the security agreement, any other reasonable expenses incurred by the secured party; and (b) the satisfaction of the obligation secured by the security interest of the party making the disposition, and the surplus, if any, shall be dealt with in accordance with section 64. 63(2) Collateral may be disposed of in whole or in part, and any such disposition may be by public sale, private sale, lease or otherwise and, subject to subsection (4), may be made at any time and place and on any terms so long as every aspect of the disposition is commercially reasonable. 63(3) Secured party may delay disposal of collateral for a commercially reasonable time. 63(4) Who has a right to receive notice of sale 63(5) What must be included in the notice (similar to NB requirements). At least fifteen days notice. 63(7) No notice required for emergencies, perishable collateral, etc. 63(8) The secured party may buy the collateral or any part thereof only at a public sale unless the Superior Court of Justice, on application, orders otherwise 63(9) Where collateral is disposed of in accordance with this section, the disposition discharges the security interest of the secured party making the disposition and, if the disposition is made to a buyer who buys in good faith for value, discharges also any subordinate security interest and terminates the debtor’s interest in the collateral 64 Secured party must account for surplus to debtor and others interested in the sale. 65(1) Compulsory disposition of consumer goods. If the collateral is consumer goods and at least 60% of the debt is paid, then the secured party has to dispose of the goods within 90 days. Otherwise consumer can sue for damages [??]. TAKING IN PAYMENT 65(2) Except for cases covered by 65(1), the secured party can take the collateral in payment of the debt. Notice must be served on all the parties mentioned in 63(4)(a)-(d) 65(3) Those receiving notice have fifteen days to object. The fifteen day period can be extended 65(3.1). 65(6) If no effective objection is made, the secured party shall be deemed to have irrevocably elected to accept the collateral in full satisfaction of the obligation secured at the earlier of, 65(7) When a secured party disposes of the collateral after expiration of the period mentioned in subsection (6) to a buyer who buys in good faith for value and who takes possession of it or, in the case of an intangible, receives an assignment of it, the buyer acquires the collateral free from any interest of the secured party and the debtor and free from every interest subordinate to that of the secured party, whether or not the requirements of this section have been complied with by the secured party. 66 Anyone entitled to receive notice under 63(4), which includes the debtor, can redeem the collateral by tendering payment of all outstanding obligations, costs, etc. NBPPSA Walsh has a great table listing rights of the debtor and of the creditor at 358. GENERAL “default” means (a) the failure to pay or otherwise perform the obligation secured when due, or (b) the occurrence of any event or set of circumstances whereupon, under the terms of the security agreement, the security interest becomes enforceable. 56(2) Rights of secured party: If the debtor is in default under a security agreement, the secured party has against the debtor only (a) the rights and remedies provided in the security agreement, (b) the rights and remedies provided in [the PPSA], (c) when in possession of collateral other than investment property, the rights and remedies provided in section 17, and (d) when in control of collateral that is investment property, the rights and remedies provided in section 17.1.
(a) the rights and remedies provided in the security agreement, (b) the rights and remedies provided by any other Act or rule of law not inconsistent with this Act, and (c) the rights and remedies provided in this Part and in section 17 or 17.1. 56(4) The debtor cannot waive any protection under section 17, 17.1 or 57-66 unless provided otherwise in those sections.. 57(2) NOTICE PRIOR TO SEIZURE If the debtor is in default under a security agreement, the secured party is entitled (a) to notify a debtor on an intangible or chattel paper or an obligor on an instrument to make payment to the secured party whether or not the assignor was making collections on the collateral before the notification, (b) to apply any money taken as collateral or paid to the secured party under paragraph (a) to the satisfaction of the obligation secured by the security interest, and (c) subject to section 59, to take control of any proceeds to which the secured party is entitled under section 28. 57(3) A secured party who enforces a security interest by giving notice in accordance with paragraph (2)(a) shall notify the debtor within fifteen days after doing so. 57(4) A secured party may deduct reasonable collection expenses from money collected under 57(2) or money held as collateral. RIGHT TO TAKE POSSESSION 58(2) Subject to subsections (3) to (7), sections 36, 37 and 38, the Bankruptcy and Insolvency Act (Canada) and any other Act or rule of law requiring a secured party to give prior notice of the intention to enforce a security interest, if the debtor is in default under a security agreement, (a) the secured party has, unless otherwise agreed, the right to take possession of the collateral or otherwise enforce the security interest by any method permitted by law, (b)-(c) Rules seizure of goods that are difficult/cannot be moved, (d) Rules for when the collateral is a document of title. 58(3)-(9) Rules preventing seizure of basic necessities of life, with exception for the vendor’s purchase money security interest. RIGHT TO SELL COLLATERAL 59(2) After seizing or repossessing the collateral, a secured party may dispose of it in its existing condition or after repair, processing or preparation for disposition. 59(3) The proceeds of the disposition of collateral shall be applied consecutively to (a)the reasonable expenses of seizing, repossessing, holding, repairing, processing or preparing for disposition and disposing of the collateral and any other reasonable expenses incurred by the secured party, and (b)the satisfaction of the obligations secured by the security interest of the party making the disposition.
[(f)-(h) reminder of debtor’s rights and other provisions in the PPSA] (i) information about the sale of the collateral 59(10) Notice given to non-debtors is different. 59(11)-(12) Notice rules for receivers. 59(14) The secured party may purchase the collateral or any part of it but only at public sale, including public auction or closed tender, and only for a price that bears a reasonable relationship to the market value of the collateral. 59(15) If a secured party disposes of collateral to a purchaser for value and in good faith who takes possession of it, the purchaser acquires the collateral, whether or not the requirements of this section have been complied with by the secured party, free from (a) the interest of the debtor; (b) an interest subordinate to that of the debtor; (c) an interest subordinate to that of the secured party. and all obligations secured by the subordinate interests shall be deemed to be performed for the purposes of sections 49 and 50. 59(16) Subsection (15) does not affect the rights of a person with a security interest that is deemed by section 74 to be registered under this Act if the person has not been given a notice under this section. 59(18) Notice under subsection (8) or (11) need not be given in some situations, usually urgency or where notice unnecessary. 60 Secured party must account for surplus to debtor or other creditors. 60(3) Unless otherwise agreed in the security agreement, or unless otherwise provided under this or any other Act, the debtor is liable for any deficiency. [i.e. you have a follow-up personal action] TAKING OF COLLATERAL IN PAYMENT 61(1)After default, the secured party may propose to take the collateral in satisfaction of the obligation secured by it and shall give notice of the proposal to [the debtor and various other people]. 61(2) If the interest in the collateral of any person entitled to a notice under subsection (1) would be adversely affected by the secured party’s proposal, that person may give to the secured party a notice of objection within fifteen days after the notice under subsection (1) is given. 61(3) Subject to subsections (6) and (7), if a notice of objection is given under subsection (2), the secured party shall dispose of the collateral under section 59. 61(4) If no notice of objection is given under subsection (2), the secured party (a) shall be deemed, on the expiry of the fifteen day period or periods referred to in subsection (2), to have irrevocably elected to take the collateral in satisfaction of the obligation secured by it, and (b) is entitled to hold or dispose of the collateral free from all rights and interests of the debtor, any person entitled to receive a notice under paragraph (1)(b) or (c) who has been given the notice and any person entitled to receive a notice under paragraph (1)(d) whose interest is subordinate to that of the secured party. and all obligations secured by such interests shall be deemed to have been performed for the purposes of sections 49 and 50. 61(5) A notice of a proposal under subsection (1) and a notice of objection under subsection (2) may be given in accordance with section 69 or, if the notice is to be given to a person who has registered a financing statement or a notice of judgment, by registered mail addressed to the address of that person that was registered as part of the financing statement or notice of judgment. 61(6) The secured party may require any person who has made an objection to the proposal to furnish proof of that person’s interest in the collateral and, unless the person furnishes the proof within ten days after the secured party’s request, the secured party may proceed as if no objection had been made by that person. 61(7) On application by a secured party, the Court may determine that an objection to the proposal of a secured party is ineffective because (a) the person made the objection for a purpose other than the protection of an interest in the collateral or in the proceeds of a disposition of the collateral, or (b) the market value of the collateral is less than the total amount owing to the secured party together with the estimated expenses recoverable under paragraph 59(3)(a). 61(8) If a secured party disposes of collateral to a purchaser for value and in good faith who takes possession of it, the purchaser acquires the collateral, whether or not the requirements of this section have been complied with by the secured party, free from (a) the interest of the debtor and the secured party, and (b) any interest subordinate to that of the debtor and the secured party, and all obligations secured by the subordinate interests shall be deemed to have been performed for the purposes of sections 49 and 50. 61(9) Subsection (8) does not affect the rights of a person with a security interest that is deemed by section 74 to be registered under this Act if the person has not been given a notice under subsection (1). 64 Right to appoint receiver or receiver-manager. 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