Canada Small Business Financing Regulations (SOR/99-141)

Regulations are current to 2017-10-13 and last amended on 2016-02-19. Previous Versions

 If the lender does not provide a report in accordance with section 34, the Minister is not liable after the day on which the report was due for any loss sustained by the lender as a result of a loan in respect of which the information specified in any of paragraphs 34(1)(a) to (d) was not provided.

Default

 The outstanding amount of the loan becomes due and payable and the borrower is in default as of the day on which the borrower fails to comply with a material condition of the loan agreement.

  • SOR/2014-7, s. 22.

Procedure on Default

[SOR/2009-102, s. 21(F)]
  •  (1) If a borrower is in default under section 36, the lender may give the borrower notice of default and demand that the borrower comply with a material condition within the period specified in the notice.

  • (2) Before submitting a claim for loss sustained as a result of a loan under section 38, the lender must demand repayment of the outstanding amount of the loan within the period specified in the demand.

  • (3) If the outstanding amount of the loan is not repaid within the period specified, the lender must take any of the following measures that will minimize the loss sustained by it in respect of the loan or that will maximize the amount recovered:

    • (a) collect the principal and interest outstanding on the loan;

    • (b) fully realize any security, guarantee or suretyship;

    • (c) realize on any insurance policy under which the lender is the beneficiary;

    • (d) fully implement a compromise settlement with the borrower or with a guarantor or surety or any other person on behalf of the borrower, guarantor or surety; and

    • (e) subject to subsection (4), take legal proceedings, including the enforcement of any resulting judgment, if the estimated cost of the proceedings is not greater than the estimated amount that may be recovered.

  • (4) If the borrower is a partnership or a sole proprietor, the lender may not execute a judgment by realizing on the assets (other than the assets of the small business in respect of which the loan is made) of the partners or sole proprietor, in an amount greater than the sum of

    • (a) in the case of a loan made before April 1, 2014, 25% of the original amount of the loan and in the case of a loan made after March 31, 2014, the original amount of the loan,

    • (b) interest on the judgment,

    • (c) taxed costs for, or incidental to, the legal proceedings against the borrower, and

    • (d) legal fees and disbursements — other than costs referred to in paragraph (c) — and other costs incurred by the lender for services rendered to it by persons other than its employees for the purpose of the legal proceedings against the borrower.

  • SOR/2009-102, s. 21;
  • SOR/2014-7, s. 23.

Claims Procedure

  •  (1) A lender must take all of the measures described in subsection 37(3) that are applicable before submitting a claim to the Minister for loss sustained as a result of a loan.

  • (2) Regardless of the nature of the default, a lender must submit a claim for loss within 60 months after the day on which the last payment on the loan is received.

  • (3) The Minister is authorized to extend the 60-month period if the lender requests the extension before that period expires.

  • (4) A claim for loss must be certified by the lender and be accompanied by

    • (a) documentation that substantiates

      • (i) the cost and proof of payment of the purchase or improvement that was financed by the loan in an amount equal to or greater than the principal outstanding on the loan, and

      • (ii) the amount disbursed by the lender under the loan agreement;

    • (b) a copy of the loan record; and

    • (c) the loan approval and administration file, if requested by the Minister.

  • (5) A claim for loss must include the lender’s acknowledgement that it has acted with due diligence in applying the procedures referred to in section 8 and has taken the measures described in subsection 37(3).

  • (6) A claim for loss must include all documents that evidence the security taken by the lender in respect of the loan and all guarantees and suretyships taken by the lender in respect of the loan.

  • (7) A loss sustained by a lender in respect of a loan must be calculated by determining the aggregate of the following amounts and deducting from that aggregate amount the proceeds realized from the taking of any measures described in subsection 37(3) and any overcharges referred to in paragraph 27(2)(b) that have not been reimbursed to the borrower:

    • (a) the amount of principal outstanding on the loan;

    • (b) the amount of interest due and not paid pursuant to the loan agreement, calculated in accordance with subsection (8);

    • (c) uncollected taxed costs for, or incidental to, any legal proceedings in respect of the loan; and

    • (d) legal fees and disbursements, other than the costs referred to in paragraph (c), and other costs incurred by the lender for services rendered to it by persons other than its employees, for the purpose of collecting, or attempting to collect, the loan from the borrower or the guarantor or surety.

  • (8) The amount of interest referred to in paragraph (7)(b) is calculated as follows:

    • (a) in respect of the period beginning on the day after the last day on which interest is current and ending on the day of the first scheduled payment date after that day, at the rate of interest in effect under the loan agreement on the last day on which interest is current,

    • (b) in respect of the 12-month period immediately following the period referred to in paragraph (a), at the rate of interest in effect under the loan agreement on the first day of the 12-month period,

    • (c) in respect of the 12-month period immediately following the period referred to in paragraph (b), at a rate of interest equal to one half of the rate of interest referred to in that paragraph, and

    • (d) in respect of the 12-month period immediately following the period referred to in paragraph (c), at a rate of interest of 0%.

  • SOR/2009-102, s. 22;
  • SOR/2014-7, s. 24;
  • SOR/2016-18, s. 10.

Additional Claims Procedure

  •  (1) If the Minister has paid the lender the amount of any loss, calculated in accordance with subsection 38(7), the lender may, within the applicable period set out below, submit an additional claim for part of the previously unclaimed loss if the failure to respect the deadline for claiming that part of the loss was inadvertent:

    • (a) in the case where the lender has notified the Minister of recovery of 100% of the compromise settlement, guarantee or suretyship under subsection 39(4), within 12 months after the day of notification;

    • (b) in the case where the lender has submitted a final claim under subsection 39(5) after an interim claim, within 12 months after the day on which the claim was made final; and

    • (c) in any other case, within 12 months after the date of expiry of the period specified in subsection 38(2) or (3), as the case may be.

  • (2) An additional claim for part of the loss arising from any amount paid as a result of a claim submitted under a deemed trust by the Canada Revenue Agency or by any provincial department of revenue may be submitted after the period specified in subsection (1).

  • (3) An additional claim for part of the loss must be certified by the lender and be accompanied

    • (a) in the case of an additional claim submitted under subsection (1), by documentation that substantiates

      • (i) the cost and proof of payment of the purchase or improvement that was financed by the loan, and

      • (ii) if appropriate, the costs referred to in paragraphs 38(7)(c) and (d) that were not previously claimed; and

    • (b) in the case of an additional claim submitted under subsection (2), by documentation that substantiates

      • (i) the amount paid as a result of a claim submitted under a deemed trust by the Canada Revenue Agency or by any provincial department of revenue, and

      • (ii) if appropriate, the costs referred to in paragraphs 38(7)(c) and (d) that were not previously claimed.

  • SOR/2014-7, s. 25;
  • SOR/2016-18, s. 11.

Interim Claims Procedure

  •  (1) A lender may make an interim claim to the Minister in accordance with this section for loss sustained as a result of a loan or guaranteed business improvement loan made under the Small Business Loans Act where the lender has taken all of the measures described in subsection 37(3) that are applicable and

    • (a) paragraph 37(3)(b) applies but the guarantee or suretyship has not been fully realized; or

    • (b) paragraph 37(3)(d) applies but the compromise settlement has not been fully implemented.

  • (2) The Minister must pay the interim claim as if the lender had fully implemented the compromise settlement or fully realized the guarantee or suretyship at the time the interim claim is submitted.

  • (3) Subsections 38(2) to (8) apply, with any modifications that the circumstances require, in respect of the submission of an interim claim.

  • (4) If, after the interim claim is paid, the lender, by fully implementing the compromise settlement or fully realizing the guarantee or suretyship, recovers 100% of the compromise settlement, guarantee or suretyship, the lender must so notify the Minister and the interim claim is deemed to be a final claim.

  • (5) If, after the interim claim is paid, the lender, by fully implementing the compromise settlement or fully realizing the guarantee or suretyship, recovers less than 100% of the compromise settlement, guarantee or suretyship, the lender may submit a final claim under section 38 for the difference.

  • SOR/2014-7, s. 26(E).
 
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