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Jun 16, 2017

Suppliers' repossession rights when debtors file for bankruptcy

Ontario companies, such as those that are in the wholesale industry, can be vulnerable when their customers fall into financial difficulties. When a business has an agreement to pay for goods and then files for bankruptcy before settling its account, the wholesaler may be entitled to repossess the goods. However, the Bankruptcy and Insolvency Act sets out specific conditions that must be met by any company wishing to claim repossession.

As soon as the retail business files for bankruptcy, possession of any stock will go to the Licensed Insolvency Trustee (LIT). A demand to repossess goods must be submitted on the appropriate form to the LIT within 15 days from the date on which the debtor files for bankruptcy. The delivery date of the goods must have been within the 30 days prior to the filing.

Other conditions include the need for the goods to be in the purchaser's possession -- or in the possession of the LIT. As such, the products must not have been resold or be subject to a sales agreement. The goods must still be in the same condition as they were on the delivery date, and they must be identifiable. Furthermore, a balance owing must exist at the time of the presentation of the demand.

If the debtor has made a partial payment, only the unpaid portion of the goods may be repossessed, unless an agreement is reached whereby all the goods are repossessed in exchange for a reimbursement for the amount already paid. Upon repossession, the supplier will have no further right to collect money for the goods.

Ontario business owners who are at risk of suffering losses due to a customer's bankruptcy should seek the guidance of an experienced insolvency lawyer to navigate the legalities of repossessing goods.