Transcript Part 4 - Unsecured Creditors Pre

Part 4 – Unsecured Creditors
Pre -Judgment Enforcement
Categories
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Self-help
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Pre- or post-judgment
Legal process
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Pre-judgment
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Against person of debtor
Against property of debtor
Post-judgment
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against person of debtor
against personalty
against realty
against debts
against other types of property
Self-help
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Regulated by
Tort law
 Criminal law
 Collection Agencies Act
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Applies to collection agencies
Cost of Credit Disclosure Act
Applies to lenders themselves
 CCA & CCDA have similar regulations regarding
collection practices
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Self-help
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Unsecured creditors have no self-help remedy
against the property of the debtor
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No ‘real’ rights in the debtor’s property
The only self-help remedy is to ask for payment
When does asking turn into harassment?
Self-Help
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Harassment by lender (CCDA Reg s.16) or by
collection agency (CCA Reg s.14) is prohibited. Why?
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CCA Reg 14 No collection agency, branch office of a collection
agency or collector, by himself or while employed by a collection
agency, shall:
(g) use threatening, intimidating or coercive language, cite loss of
employment, loss of community ranking or sufferance of
embarrassment or, by the timing of personal or phone contacts
to irregular hours, intrude upon the privacy of the home and the
family of the debtor, the regular hours being from nine in the
forenoon to nine in the afternoon of the same day.
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Self-Help
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Publicization of debt is also prohibited. Why?
CCA Reg 14 No collection agency, branch office
of a collection agency or collector, by himself or
while employed by a collection agency, shall:
(f) conduct enquiries
(i) through persons other than the debtor for the
purpose of demanding payment of a debt, or
 (ii) at the place of employment of the debtor for any
purpose in relation to the debtor, except with the
debtor's approval;
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Pre-Judgment Legal Process
Pre-Judgment Legal Process
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Note: Pre-judgment legal remedies of an
unsecured debtor are extremely limited
Remedies against the person of the debtor
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Debtor’s prison
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obsolete
Arrest and Examinations Act
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obsolete except in the Maritimes
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NB Arrest and Examination Act
PEI Bailable Proceedings Act
NS Collection Act
Note: There is wide jurisdictional variation
Debtor’s Prison
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Originally a pre-judgment remedy
Common law did not allow for default judgment
 Debtor could avoid judgment simply by avoiding
appearing in court.
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Attachment of debtor’s goods was developed to compel
appearance (not as security against the claim)
 Subsequently the law developed to allow defendants to be
imprisoned in order to insure appearance
 From here it was a natural step to imprisonment of
judgment debtors as a means of compelling payment.
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Pre-Judgment Arrest
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Arrest and Examinations Act
S.1(2) Where in an action brought or to be brought. . .a
person by affidavit . . .shows to the satisfaction of the
judge. . .that he has a cause of action against another
person to an amount exceeding twenty dollars, and also
shows . . .that there is good cause for believing that the
person against whom the application is made is about
to quit the Province, the judge or other official may
order that the person against whom the application is
made be arrested...
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In PEI must also show intent to defraud
Pre-Judgment Arrest
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This remedy is draconian and archaic
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The arrest under s.1(2) is in aid of examination
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It is not for failure to pay the debt
The debtor is entitled to be released on making full
disclosure
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Very poorly integrated with the Rules of Court regarding
examination
The order releasing the debtor would also order the sheriff to
seize the assets
Difficult to enforce because it is usually too late when
application is brought
Pre-Judgment Legal Process
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Remedies against the assets of the debtor
Absconding Debtors Act
 Mareva Injunction
 Pre-judgment garnishment
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Absconding Debtors Act
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If any person indebted. . .
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[1] depart from or keep concealed within the Province,
[2] with intent to defraud his or their creditors,
a creditor may make the affidavit. . .stating the reasons for their belief
to the satisfaction of a judge,
whereupon such judge may issue a warrant. . .
and the warrant on delivery to a sheriff has priority over all other
processes not actually executed.
Most jurisdictions this remedy is only available after an action
has been commenced – in NB anytime
“indebted” – applies to action for debt, not damages
Elements [1][2] are difficult to establish and it may be too late
by the time the evidence is available
Absconding Debtors Act
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Jurisdictional variation as to the nature of the assets
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In some jurisdictions applies only to personal property
In others personal and real
In others personal, real and debts.
Normally, only allows sheriff to hold assets until a writ
is execution is filed (after judgment) and property is
sold under order for seizure and sale
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but in NB, sheriff can, after very minimal notice requirement, call
meeting of creditors, publicize sale, and then sell goods and distribute
proceeds to all creditors – mini-bankruptcy, and probably
unconstitutional: s.9
Absconding Debtors Act
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Priorities
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Under the Absconding Debtors Act, order is binding
against third parties (purchasers of the assets) after
publication of the order in the Royal Gazette
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Not a very effective means of giving notice
This is cured by the Creditors Relief Act
S.2.4(1) Notice of claim may be filed in the PPR
 S.2.4(2) No purchaser is bound by the order unless a
notice of claim is filed
 However, ordinary course rules etc, do not apply
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Mareva Injunction
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“If it appears that the debt is due and owing,
and there is a danger that the debtor may
dispose of his assets so as to defeat it before
judgment, the court has jurisdiction in a proper
case to grant an interlocutory judgment so as to
prevent him disposing of those assets”
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per Lord Denning The Mareva [1980] 1 All ER 213 (CA)
Common law did not permit pre-judgment
injunctions of this type before this case
Mareva Injunction
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Used to prevent debtor from dissipating assets or
removing them from the jurisdiction before the
creditors could reduce their claims to judgment and
execute.
Often the debtor is not within the jurisdiction.
The injunction is usually served on third parties,
normally the debtor’s bank: “freeze the assets of D
which you hold”
 Persons having knowledge of the injunction must
assist in preserving the assets or be guilty of
contempt of court.
Stop Here Fall 2008
Mareva Injunction
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Factors: leading Canadian case is Chitel v.
Rothbart (1982), 39 O.R. (2d) 513 (C.A.)
1) Clean hands
 2) Prima facie case on the merits
 3) Assets within the jurisdiction – no longer a strict
requirement
 4) Risk of removal or dissipation
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 5) Undertaking in damages, sometimes with
requirement of security
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Mareva Injunction
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Also, ordinary factors for granting an
interlocutory injunction apply: RJR MacDonald
[1994] 1 S.C.R. 311
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A serious question to be tried
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not as stringent as a prima facie case
Applicant will suffer irreparable harm if relief is not
granted
Ie, it is likely that any judgment will not be satisfied
 A very important factor
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Balance of convenience lies in favour of the
applicant
Mareva Injunction
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Prima facie case on the merits
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English cases say a good arguable case, but not so strong as
would entitle you to summary judgment
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A strong case is not sufficient
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This issue is not resolved in Aetna
A less stringent standard has now been adopted in interlocutory
injunctions generally. It is likely, but not entirely clear that that lower
standard applies in Mareva injunctions.
All the factors must be satisfied.
Test is not simply whether you would win at trial
You can’t get injunction/security just because you would
probably win at trial
If you want security, get it at the time you sign the agreement
Mareva Injunction
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Do the assets need to be within the jurisdiction?
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Yes, in the original English cases, and this
requirement is referred to in First Farm, but English
law has changed and worldwide Mareva injunctions
are now available.
Mareva Injunction
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Risk of removal or dissipation (e.g. sale within
the jurisdiction)
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“Jurisdiction”
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Hard to get injunction to restrain movement of assets
within Canada: Aetna Financial
“Risk”
Can’t simply assert that there is a risk – there is always a
possibility that the assets would be removed
 Must provide some reason to convince the court that
there is an unusual risk
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Mareva Injunction
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Irreparable harm
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Is it likely that any judgment will remain unsatisfied
if the injunction is not granted?
Mareva Injunction
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To summarize
1) Clean hands
 2) Prima facie case on the merits/serious question to
be tried
 3) It is likely that any judgment would remain
unsatisfied if the injunction were not granted
 4) Undertaking in damages, sometimes with
requirement of security
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Mareva Injunction
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The Mareva injunction should be an exceptional remedy
Chitel v Rothbart: “The courts must be careful to ensure that
the "new" Mareva injunction is not used as and does not become
a weapon in the hands of plaintiffs to force inequitable
settlements from defendants who cannot afford to risk ruin by
having an asset or assets completely tied up for a lengthy period
of time awaiting trial.”
 “I would respectfully adopt what Grange J. said in Canadian
Pacific Airlines Ltd. v. Hind:
 “The adoption of the Mareva principle can lead to some
sorry abuse. I would hate to see a defendant's assets tied
up merely because he was involved in litigation.”
Pre-Judgment Garnishment
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Not permitted in NB
In those provinces in which it is permitted the
creditor must have commenced an action and
generally must swear an affidavit that there is a
debt accruing due from the garnishee to the
debtor and pre-judgment must often satisfy a
judge that there is reason to believe he will be
prejudiced by failure of the motion. It is usually
only available for a liquidated debt.