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Debt Recovery
Managing outstanding debts can be a challenge for businesses of all sizes, especially when direct collection efforts fail.
What are your debt recovery options? What regulations are in place to make sure everyone’s treated fairly? Read on to find out.
Secured vs. Unsecured Debt Recovery at a Glance
Not all debts are created equal, and the routes available for recovery vary based on the debt type.
Secured debt, for one, is easier to recover because, as the name implies, it’s “secured” against an asset. If your debtor fails to make payments, you can foreclose.
In cases of unsecured debt, creditors may have to resort to the courts. It’s also worth noting that secured debt may have a priority in legal proceedings over its unsecured counterpart. But we’ll get to all that in a minute.
Debt Recovery Laws in British Columbia
There are several laws governing debt recovery in British Columbia. Let’s take a quick look at what these laws mean for you as a creditor.
The Limitation Act and Debt Claim Deadlines
A new Limitation Act came into force in British Columbia in 2013.
The former act laid down a range of basic limitation periods based on the type of legal action you are pursuing. In comparison, the new version establishes a single two-year limitation period for civil court proceedings.
This statute update is actually designed to reduce stale-dated claims. However, this shortening of the limitation periods means that creditors now have to act faster, consider their options quickly, and push for legal proceedings soon after the discovery of the claim.
Bankruptcy and Insolvency Act Proceedings
Under the Bankruptcy and Insolvency Act (BIA), your debtor may be eligible to file for bankruptcy if they can prove they’re “insolvent,” which means they can’t possibly pay what they owe even if they sell all their assets.
In this case, they go to a Licensed Insolvency Trustee (LIT), who helps them file the documents. That starts a phase called Stay of Proceedings. That’s when you, as the creditor, can no longer call or pursue collection efforts without court permission.
How will you get back at least some of the money you’re owed? Well, the BIA allows the LIT to collect the debtor’s surplus income, sell their non-exempt assets, and distribute the money among the creditors. More on the distribution priority and the steps you need to take later.
Side Note: It’s also possible for creditors to hire a litigator to petition for the involuntary bankruptcy of the debtor.
Companies’ Creditors Arrangement Act
Besides the BIA, the Companies’ Creditors Arrangement Act (CCAA) is another federal law governing insolvency in Canada. It allows insolvent corporations (with over $5 million in debt) to restructure their business.
Applying for a CCAA gives the corporation a 30-day Stay of Proceedings. During this time, the company can prepare a plan and negotiate with the creditors.
Legal Options for Recovering Debt
Your legal options include:
- Demand Letters. The first route is to contact the debtor with your collection claim. Make sure to document every notice you send in case you need them for litigation later.
- Asset Control. Depending on the nature of your claim, you may be able to foreclose or repossess assets.
- Civil Claims. Your litigator can start a proceeding in civil courts on your behalf. Court bailiffs are legally authorized to enforce the ruling by seizing and selling the debtor’s possessions.
Recovering Debt From a Bankrupt Debtor
The Office of the Superintendent of Bankruptcy (OSB) clarifies the various routes creditors can take when they’re owed money by someone who has declared bankruptcy.
Here’s what you need to know:
Filing a Proof of Claim
If one of your debtors files for bankruptcy under the BIA, their LIT is required to send you a notice within five days.
In order to recover any of your money, you have to send back a Proof of Claim (or Form 31), which is an application that shows you deserve a share in the dividends.
A list of instructions may be provided for filing the form, but debt recovery management solutions can make the process easier. Your lawyer can also help you fill in the details accurately.
Don’t forget to attach a Statement of Account along with the supporting documents that back the validity of your claim.
If you’re a secured creditor, you may not have to file a Proof of Claim at all. Instead, you may be allowed to take possession of the security asset. Filing out the form is recommended if you want a vote at the meeting of creditors to recover any unsecured debts you’re owed, though.
Secured vs. Unsecured Credit Priority
Canadian law gives a recovery priority to preferred creditors. Section 136 of the BIA, in particular, lists the claim priority.
What’s left of the fund secured by the LIT is split among the unsecured creditors who don’t have priority under section 136 on a pro rata basis.
Consumer Proposals
When total credit recovery isn’t possible, the LIT may choose to send creditors a consumer proposal, requesting to modify the individual’s payment (amount or timeline).
Creditors with voting rights gather in a meeting and decide whether this proposal is satisfactory or not. But they usually have 45 days to decide, or else the proposal is deemed accepted by default.
It’s important to note that, as long as you’re an unsecured creditor, you’re supposed to halt any legal action until the proposal is withdrawn, rejected, or annulled.
Opposing Discharge
A discharge basically closes the bankruptcy and releases the debtor from the obligation to repay any debts they had on the date of filing.
For first-time bankruptcy declarers, the discharge can come automatically within 9 months or so from the filing. And for people who don’t qualify for automatic discharge, the LIT can ask the court to schedule a hearing.
Either way, creditors are allowed to object to the discharge, denying the debt relief attempt and keeping the claim valid. But to do that, creditors have to review the LIT’s reports, prepare their grounds for the opposition, and defend the argument in court.
Why Choose Harbourview Law?
At Harbourview Law, our business litigation group handles debt recovery, foreclosures, and enforcement of security, along with CCAA/BIA disputes.
With over two decades of experience, our lawyers bring a deep understanding of the common legal challenges, helping you save time, money, and energy.
Every case we take on is approached with a client-centric approach and strong, strategic advocacy. Get in touch to see how our team can help you.
Frequently Asked Questions About Debt Recovery
How long do I have to sue for an unpaid debt?
In most cases, the basic limitation period applies. So, you have only two years to sue.
How are votes distributed in a meeting of creditors?
Each creditor gets a vote for every dollar in the approved debt claim. The more you’re owed, the more weight your vote carries in accepting and rejecting proposals.
Can legal costs be recovered in a debt claim?
Legally, debt collection agencies can add legal fees to the total claim amount.
If you need court bailiff services for judgment enforcement, you’ll have to pay a direct deposit. If they succeed in collecting, however, the costs (hourly rate, storage, mileage, locksmiths, etc.) may be covered by the debtor.
Debt Recovery
Why Choose Harbourview Law Group?
Bench Strength With Real-World Experience
We bring real-world business and construction experience to every case. We understand how legal challenges impact your project or operations, so our approach is focused on resolving issues quickly, efficiently, and with your bottom line in mind.
We Minimize Downtime
Disputes are an inevitable part of doing business, but they come at a high cost in time, money, and energy. Our goal is to resolve them as quickly as possible so you can get back to what matters most: running your business.
Building Long-Term Partnerships
We’re proud of our high client retention. Many of our clients come to us after experiencing frustration with prior representation. They come to us with cases that weren’t moving forward and legal bills that kept piling up. We take a different approach: proactive communication, steady progress, and lasting partnerships built on trust and results.