Module #8 - Debtor and Creditor Law Flashcards
Creditor Strategies
good credit granting policies / banks do this very well and businesses do not do it very well / minimizes risk of fault
Collateral/security
something of value that can be used to pay the debts/faults
guarantees
Security Interest
an interest in personal property to secure payment or performance of an obligation
Personal Properties Security Act
regulate the creation and registration of security interests in all personal property within their respective jurisdictions.
enforceable against debtor
Attachment
recieves value, has rights in collateral, signs security agreement, must be IN WRITING
Significance of Attachment
allows the creditor to enforce the security interest
enforceable against third parties
Perfection
defined as combination of attachment and registration in any order,
registration often comes before perfection
Registration
registered notice of the security interest under the PPSA system
Significance of Perfection
credit has rights against other parties, like someone who buys the cottarreal
Unperfected Security Interest
it has not been perfected, aka not registered and don’t have priority
Perfected Security Interest
basically means its enforced against other people
When should you register?
register before attachment because priority goes to the first person who registers
Registering before loaning money
still wins and they have priority
Debtor goes bankrupt
PSI wins over trustee
PMSi
Purchase Money Security Interest
allows debtor to increase its assets, they have a better claim to the asset than the PSI
General Security Agreement
gives the lender security in all the assets that the debtor has including everything they ever get (every asset they ever get)
POCOB
Purchaser in the ordinary course of business
right over PSI
Fixed term loans
have fixed repayment (monthly or quarterly), fixed interest rate, secured by real property (to buy land or buildings)
Line of credit
no fixed repayment terms) secured by AR and inventory and have floating interest rate
Does contract law apply to debtor and creditor law?
YUP!
Surplus - PPSA
surplus always goes back to debtor
Deficiency - PPSA
deficiency debtor still liable for the money
Gurantee
conditional contract between gurantor and creditor
Who wants to enforce gurantee
creditor, not enforceable until the debtor defaults
where are gurantor contracts found
only in contingent liabilities
What should gurantor assume?
any debt that is between debtor and creditor
Bankruptcy Insolvency Act
protect creditors by preserving assets
rehabilitate debtors for forgiving individuals
PSI has favour over trustee in bankruptcy
secured creditors come in immediately and enforce their security and take their collateral
in a bankruptcy, all of the collateral is gone to the secured creditors first
Bankruptcy
legal process by which the assets of an insolvent debtor are transferred to a Trustee in Bankruptcy for distribution to the debtor’s unsecured creditors
Recievership
the appointment of a receiver by a secured creditor to take possession of a debtor’s assets
the bank appoints a receiver to take control of all the debtor’s assets
What do unsecured creditors get in a receivership situation
0, bank will sell off the assets
Involuntary Bankruptcy
court order
Voluntary
declaring bankruptcy
Individual going bankrupt
have to make payments to a trustee in bankruptcy and most of our debts are forgiven. then the individual debtor starts over again.
Corporation going bankrupt
cease to exist when declared bankrupt
Division 1 proposal
secured creditors often vote against proposals, defeated=bankrupt
Consumer proposal
very effective
Distribution on Bankruptcy
1st - secured creditors
2nd - preferred unsecured creditors / get paid everything that their own / rent, trustee fees, employee wages
3rd - ordinary unsecured creditors - trustees distribute what is left to these people
Company’s Creditors Arrangement Act
if a company has more than 5 million in debt, they can order a stay from all creditors which means they can’t take action against the company for a certain amount of time
CCA process
similar to proposals / there is a vote
then the company can continue doing business
these are very expensive, millions of dollars
you need lots of assets to do this (billion dollar companies)
Prevent fraud
you can’t transfer funds to other people and then claim bankruptcy
