Options For Farmers Dealing With
Financial Difficulties
 |
| Agdex#: |
817 |
| Publication Date: |
May 2004 |
| Order#: |
04-041 |
| Last Reviewed: |
May 2004 |
| History: |
(Replaces OMAFRA Factsheet Options
for Farmers Dealing with Financial Difficulties, Order No. 00-051) |
| Written by: |
Rob Gamble - Finance and Business
Structures Program Lead/OMAFRA |
Table of Contents
Introduction
Farming, like any other business, involves financial risk. Even the best
managed business can experience financial difficulties when market prices
decline, part of the farm business fails to generate the expected profits,
or financing arrangements are inadequate.
This Factsheet is aimed at helping farm business owners make decisions
about the future direction of their business. It outlines some options
farm businesses experiencing financial difficulties can choose as well
as what farm business advisory services are available.
Making a decision is an important step in managing the stress created
by financial difficulty. Not only does it reduce uncertainty but it also
provides some sense of control to the family in difficulty. While this
Factsheet is primarily focused on the farm business, it cannot be emphasized
enough that family and personal issues are equally important and must
be addressed.
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Section 1 - First Steps And Getting Advice
It would be foolish to imply that there are simple answers for businesses
experiencing financial difficulty. The decisions that need to be made
are difficult. Two questions must be answered about the business:
- Can the farm business, in its current form, continue to
operate?
- If it cannot, can changes be made which would allow the business to
continue?
An analysis of the farm business is the first step to answering these
questions.
Financial Analysis will:
- Show you the production and financial condition of the farm.
- Help you determine if the difficulties have been caused by a one time
single event or by an ongoing problem.
- Indicate if debt restructuring or management changes could solve the
problems.
The Ontario Farm Management Analysis Project (OFMAP) is an excellent
farm analysis program that can be used to answers the question "Where
am I today?" It also provides benchmark information that allows you
to compare your farm business with other similar businesses. The forms
needed to complete an analysis are available on the OMAFRA web site.
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The OMAFRA Factsheet Diagnosing and Managing Cash Flow Problems - Order
No. 06-085 also explains how to analyse cash flow problems a business
may be experiencing.
If your farm business has experienced significant losses, you may be
at a point where you want to prevent the loss of any more of your farm
equity. To preserve the remaining equity, you may decide to exit from
farming. The following diagram summarizes the decision process.
The results of the analysis should give you some concrete information
on which to base your decisions. You may decide that even though changes
would allow the farm to continue, family or career considerations make
an exit from the business your best choice.
Whatever conclusion you reach it is important to view it as a management
decision you control.
Where Do I Get Advice?
If advice is needed to address financial concerns, there are services
to help you get a clear picture of your farm business.
Canadian Farm Business Advisory Service
The Canadian Farm Business Advisory Service (CFBAS) provides financial
management and business planning counseling to farmers through two services:
- Farm Business Assessment
- Specialized Business Planning
- Planning and Assessment for Value-Added Enterprise
These CFBAS services are available to any qualifying producer,
regardless of financial situation. A farmer may be experiencing financial
difficulty or simply want to fine tune the farm business and increase
its profitability.
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Farm Business Assessment
Under this program, producers can access a total of 5 days worth
of planning expertise from a private sector financial planner for a nominal
fee of $100. The remaining cost is paid for by government under the Agricultural
Policy Framework (APF).
The program is intended to help you better understand and document your
current business situation and develop a basic action plan to move forward.
Qualified professionals provide the following:
Farm Financial Assessment:
- up to 3 days' worth of consultation, at least one day of which would
be spent on the farm
- a business profile, and financial statements
- a farm business ratio analysis
- an income and expense statement for the previous 3 years
- a review of opportunities, goals and options.
Action Plan
- 2 days' worth of consultation to review chosen option and goals and
assess the impact of changes
- financial planning, including cash flows and ratio analysis
- strategies
- financial projections of chosen option a written report.
Follow-Up
- 1 day of consultation to review farmer file, compare projected to
actual, and do a post assessment beginning farmers can access 3 follow-up
days of consultations.
-
Specialized Business Planning Services
The Specialized Business Planning Services component is available to
farmers who require a more specialized business plan for a specific business
activity. This program offers a 50% rebate, to a maximum of $8,000.00
of government assistance for the following:
- Purchase specialized consulting services, to assist in planning
for succession, expansion, marketing, diversification, etc.
- The farmer chooses and hires the consultant service based on
the needs identified.
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Planning and Assessment for Value-added Enterprise (PAVE)
The Planning and Assessment for Value-added Enterprises (PAVE) program
is available for producers who are considering establishing or expanding
a value-added enterprise.
This program offers a 50% rebate , to a maximum of $10,000.00 of government
assistance (higher limits for group applications) for a feasibility assessment
or the development of a business plan.
Who is Eligible for CFBAS and Pave?
The services are available to all farmers with gross farm incomes of
at least $10,000. It will also be available to beginning farmers.
Eligible farmers will be able to access any part of the CFBAS or PAVE
services. Producers can use each of the services once in the five-year
period of the program, which ends March 31, 2008.
Contact:
Agriculture and Agri-Food Canada
174 Stone Road West
Guelph, Ontario N1G 4T1
Telephone: 1-866-452-5558 or (519) 763-8135
Fax: (519) 836-3213
Or visit: www.agr.gc.ca/renewal
In Northern Ontario call 1-800-461-6132
Legal And Accounting Advice
Legal and accounting advice is important when considering
available alternatives. Your accountant will advise the tax consequences
of selling certain assets. A lawyer can advise on the implications of
various security arrangements and the legal steps to ensure a title is
transferred or debt obligations discharged.
The OMAFRA Factsheets entitled A Guide to Agricultural Security
Agreements, Order No. 03-069 and Taxation on the Sale of Farm Business
Assets, Order No. 03-021, provide an overview of the tax implications
of selling farm assets and legal issues regarding security agreements.
Copies are available through Service Ontario Information
Centre at 416-326-1234 or Toll Free: 800-267-8097or the Service
Ontario web site. A list of other useful business Factsheets can be
found in Section 4.
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Section 2 - Negotiating Financial Settlements
Farm businesses that have encountered financial difficulty and wish to
continue farming can try to negotiate a settlement with their creditors.
They can do this privately or through the Farm Debt Mediation Service,
provided by Agriculture and Agri-Food Canada.
Farm Debt Mediation Service
The Farm Debt Mediation Service (FDMS) is an Agriculture and Agri-Food
Canada program providing insolvent farmers and their creditors with mediation
services to help them arrive at a mutually satisfactory arrangement.
The service is a private, confidential and a less expensive alternative
to the process of resolving insolvency disputes in the courts. Past experience
indicates a 70% success rate, meaning that farmers and their creditors
are able to work out a plan 70% of the time.
Program Description
There are two options for a farmer who wants to use the Farm Debt Mediation
Service
-
The Stay of Proceedings, Review and Mediation
-
The Review and Mediation without a Stay
The significant difference between these two processes is the application
of the Stay of Proceedings under the first option. This is very important
where creditors have already begun legal actions against you.
Steps in the Farm Debt Mediation Process
The steps for both options are the same except for the application of
the stay. Once the administrator confirms eligibility:
-
A financial expert is assigned to conduct a detailed
review of the farmer's financial affairs. The expert may also help
the farmer prepare a recovery plan outlining what the farmer proposes
to do to resolve their financial difficulty.
-
The administrator appoints a mediator to meet with
the farmer and his or her creditors.
-
If the farmer has applied for a stay, the meeting
would include all creditors.
-
In applications without a stay, the meeting includes
all secured creditors and any other creditors who need to be involved
in reaching a settlement.
-
With the assistance of the mediator, the farmer and
creditors discuss and possibly amend the recovery plan. If an agreement
is reached, the settlement is put into writing and, when signed by
all the parties, becomes a binding contract.
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What is a Stay of Proceedings?
Secured creditors are required by law to serve farmers with a Notice
of Intent to Realize on Security before undertaking any action to recover
debts. A farmer has 15 business days to respond to this notice
before legal action begins. A farmer can, at that point, choose to apply
for the stay of proceedings to prevent further action by the creditor.
However, legal advice should be received as to the best time to exercise
the stay of proceedings and to clarify the farmer's situation with respect
to legal proceedings that have already begun.
The farmer could also apply for a stay when being sued for a debt by
an unsecured creditor. Though unsecured creditors are not required to
provide the Notice, the stay still protects the farmer's assets during
mediation. The initial stay of proceedings is for 30 days, but can be
extended to a maximum of 120 days.
If a Notice hasn't been served and legal action hasn't been taken, the
farmer may prefer to apply for review and mediation only, without applying
for a stay.
Who is Eligible?
Individuals, corporations, partnerships, co-operatives or other associations
of persons "engaged in farming for commercial purposes" who
are insolvent, are eligible for debt mediation.
To be considered insolvent, applicants must meet one of the following
criteria:
-
be unable to meet their obligations as they generally
come due
-
have ceased paying their current obligations in the
ordinary course of business as they generally become due, or
-
the value of their property, if disposed of at a
fairly conducted sale under legal process, would not be sufficient
to enable payment of all their obligations, due and accruing due.
Contact:
Farm Debt Mediation Service Agriculture and Agri-Food Canada
174 Stone Road West
Guelph, Ontario N1G 4T1
Telephone: 1-866-452-5556 or 519-836-8135
Fax: (519) 836-321
Website: Farm Debt Mediation
Service Agriculture and Agri-Food Canada
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Privately Negotiated Settlements
Lenders and financial specialists admit that not many individuals prepare
a recovery plan on their own and then approach their creditors with it.
However, it is an option to consider. Farmers who see financial difficulty
on the horizon and want to take action privately, before it becomes more
serious, may take this approach. Some caution should be exercised on the
timing of the negotiation. Approaching a lender before preparing a plan
of action could cause the lender to lose confidence in your ability to
manage the situation. As a result, the lender might place restrictions
on the business or take unilateral action against you.
If a creditor has served you with a Notice of Intent to Realize
on Security, consider the Farm Debt Mediation Service.
Consider the following suggestions if you want to proceed privately.
-
Locate a competent financial consultant. This could
be your current accountant, lawyer or a consultant.
-
The plan needs to show the benefits of the changes
you are proposing. Be prepared to show the financial advantages your
lenders will gain in letting your business restructure and continue
instead of winding down.
-
Creditors also want to know if your business is able
to survive in the long term. A plan should demonstrate that the business
is viable in the long term, able to make debt payments and build equity.
-
In any negotiation mutual trust is needed. Being honest
with creditors helps establish this. At the same time creditors demonstrate
trustworthiness by giving clear answers and timely commitments.
-
Some businesses are able to attract outside investment.
An infusion of capital can help you through financial difficulty but
comes with conditions. Outside investors often want partial ownership
in the business and a say in how it is run.
-
As the business owner, you must demonstrate a willingness
to make the necessary changes. This might mean selling some assets
or changing your management practices to increase profits.
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Section 3 - Planning An Exit From
Farming
The decision to make a career change and leave agriculture is never
an easy one. For some the decision comes after a series of difficult years.
For others creditors or the occurrence of a disastrous event makes the
decision for them. This section looks at some issues around planning an
exit from agriculture.
The exit process is discussed under several headings:
- A Voluntary Exit
- A Forced Exit
- Bankruptcy
- Implications of Loan Guarantees
-
A Voluntary Exit
When the warning signals of financial difficulty show up, some farmers
choose to may make a voluntary exit. A planned departure can be advantageous.
It can allow for the sale of assets at the best time, reduce the stress
of uncertainty on the family and provide more time for the owners to plan
a career change. A number of options are available.
Planned Sale of Assets
If sufficient equity remains, a planned sale of assets makes sense. With
cooperation from the lenders and proper tax and legal advice, the greatest
amount of capital can likely be salvaged. Debts can be paid off and legal
documentation prepared to show these debts have been discharged. Obtain
advice on the timing of the sale, along with the taxes payable, from an
accountant.
Bankruptcy
Farmers should attempt to reach negotiated settlements with their creditors
whenever possible. However, when an agreement cannot be reached bankruptcy
my be necessary in order to be released completely from the unmanageable
debt and to prevent creditors pursuing them in the future. Part 3 below
covers this topic more completely.
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Can You Walk Away from the Business?
You can walk away from a business, but it is not likely the best option
to choose. A quit claim deed is an instrument used to turn over the title
of a property to a lender and is most often associated with some type
of negotiated settlement where little of no equity remains. Lenders may
insist upon foreclosure or power of sale action as an alternative to a
quit claim deed. Although it can be used to turn real property over to
a lender, there still may be tax liabilities to be concerned with and
other creditors who want payment. It would be best used as part of a negotiated
settlement with all the creditors involved.
-
A Forced Exit
When a borrower provides security to a lender, he or she gives the lender
an "interest in" or certain rights in the secured property.
This interest remains until the loan is paid off and the security document
is discharged.
If a borrower fails to live up to the terms of the loan agreement, legal
action may be taken to satisfy the debt. Even after action is taken, there
may be an opportunity to negotiate an orderly and gradual sale of assets.
As long as the creditor does not think that the security is in jeopardy,
a planned sale will likely return the greatest amount to both the lender
and borrower.
A lender is able to take a variety of legal actions if a borrower defaults
on a loan.
Land Mortgage Action
Mortgage Foreclosure is a court-supervised action the
lender may choose when the borrower is in default under the land mortgage
agreement. By foreclosing on the mortgage the lender takes possession
and title to the land. If the lender sells the land for more than the
amount owing on the mortgage, the lender keeps the difference. If the
property sells for less than the debt, the lender cannot sue the borrower
for the shortfall.
Power of Sale is an alternative way to realize on land
when the borrower is in default under the land mortgage agreement. The
mortgage contract gives the lender the right to sell the land, but not
title to the land. If the land sells for more than the amount of the
debt, the surplus goes to the borrower unless another creditor is entitled
to it ahead of the borrower. If the land sells for less than the amount
of the debt, the lender can sue the borrower for the difference.
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Action for Security on Personal Property
Personal property is assets other than real estate.
Realization of Security describes the action taken against
the borrower's property under the Bank Act or the provincial Personal
Property Security Act (PPSA). Under the realization process, the lender
normally demands payment. When payment is not made, the secured assets
can be seized and either sold to reduce the debt (in which case, the lender
can usually also sue to recover any shortfall) or kept in satisfaction
of the debt.
Before realizing on PPSA security, a secured party must give notice and
then wait 15 business days under section 21 of the Farm Debt Mediation
Act.
Receivership Procedure
Some security agreements allow the lender to appoint a private receiver
or receiver-manager when the loan is in default. The receiver works for
the lender, but the borrower pays the fees.
In some cases, lenders may ask the court to appoint a receiver. A court
appointed receiver gets all instructions from the court and must consider
the interests of all creditors, not just the one who requested the appointment.
The receiver can carry on the business and apply profits to reduce debt,
or sell the whole business, or wind down the business and sell assets
separately. During a receivership, it is possible that the business can
be adjusted and a part of it salvaged. Normally though, a business is
wound down during receivership and the assets are sold to pay the debts.
-
Bankruptcy
Bankruptcy, while unpalatable, is an option for farmers who have unmanageable
debt, little or no equity remaining, and who have been unable to reach
an agreement with their creditors.
It is a legal process, which releases a debtor from his debts and divides
up assets amongst creditors.
Bankruptcy may be voluntary or forced.
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Voluntary Bankruptcy
Any business or individual may declare bankruptcy on a voluntary basis.
This is called "an assignment into bankruptcy". An individual
may take this step at any time. Once the person has filed for bankruptcy
there is a stay of proceedings on any other action being taken to recover
debt. This does not apply to secured creditors who have already taken
possession of assets or who have commenced proceedings to do so at least
10 days prior to the filing for bankruptcy.
Forced Bankruptcy
A farmer, whose principal occupation is farming and who is farming as
a sole proprietorship, cannot be forced into bankruptcy by a lender.
However, a partnership or corporation can be forced into bankruptcy. A
creditor can file a petition with the court to have the business placed
into bankruptcy. An individual that incurred the debt while part of a
partnership that is now dissolved can also be petitioned into bankruptcy.
Lenders do not use this option very often because of the expense and
time that it takes. It is usually faster and less expensive for them to
realize on their security.
The Bankruptcy Process
The following is an outline of the steps and
details of the bankruptcy process. Apart from the initial step, both the
voluntary and forced bankruptcy proceedings are the same.
An individual who assigns themselves into bankruptcy contacts a Trustee
in Bankruptcy and then files the appropriate papers.
In a forced bankruptcy, the court appoints a trustee.
The Trustee
A trustee, usually associated with a chartered accounting firm, may be
found in the yellow pages of the telephone directory or by contacting
The Office of the Superintendent of Bankruptcy, Industry Canada:
(416) 973-6486. Your accountant or lawyer can usually recommend
a trustee.
If a potential bankrupt person has no funds, the Superintendent of Bankruptcy
can help you obtain a trustee through the Bankruptcy Assistance
Program (B.A.P.).
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Creditors
The trustee and debtor meet with the creditors to disclose the financial
situation. As the assets are sold, each class of creditor will receive
a percentage of the proceeds according to the security in place. Because
Revenue Canada is a creditor, bankruptcy removes all tax liabilities.
Because nonsecured creditors are identified and paid off (even if only
10 cents on the dollar), the former farmer will not be pursued for future
earnings.
Debts Not Erased
The following debts are not erased by bankruptcy:
-
debts for necessities of life like clothing and heating
fuel
-
support payments for a child or spouse
-
fines or penalties imposed by a court
-
debts obtained by fraudulent means
-
student loans.
Bankruptcy Discharge
There is an automatic discharge for first-time bankrupts 9 months after
they become bankrupt. This occurs unless the trustee recommends a discharge
with conditions or if a creditor or the trustee of the Superintendent
of Bankruptcy opposes it.
Moving Forward
Bankruptcy in itself is a stressful event. Although most farmers consider
it only as a last resort, its purpose is to relieve honest debtors from
financial situations that have become unmanageable. This relief can
in turn allow them to move forward and pursue other career paths and
opportunities.
What Does the Trustee Do?
The debtor must:
-
turn over all of his assets to a trustee
-
provide the trustee with all financial records
-
disclose all liabilities, and
-
provide details of recently disposed assets.
The trustee becomes a steward of the assets. The debtor
must work closely with the trustee, gain clearance for any payments,
keep him advised of place of residence and employment, refrain from
acquiring more debts, turn over any gifts, inheritances or windfalls,
etc. Ontario's Execution Act allows the bankrupt person to maintain
a few personal and household items and tools of the trade.
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Implications Of Loan Guarantees
A guarantee is an agreement between a lender and an individual (called
a guarantor) in which the guarantor promises the lender, that the guarantor
will pay the money that a particular borrower owes the lender if the
borrower defaults on the debt. The guarantee may also give the lender
security over some or all of the property of the person providing the
guarantee.
Most guarantees do not require a lender to first pursue the debtor
or other individuals who have given guarantees. This means a lender
can decide to collect from the guarantor without ever attempting to
do so from the borrower who defaulted on the loan. If this occurs, the
only recourse for the guarantor is to try to collect from the borrower
they signed the guarantee for. In that situation the guarantor has now
become a creditor to the person who defaulted on the loan. They can,
in some cases, take over the lender's security and attempt to realize
on it in order to recover their money. It is usually safe to assume
however, that if realizing on security had been a reasonable method
for recovering the debt, the lender would have pursued it.
If a government agency has guaranteed a loan as part of a program and
the borrower defaults, the government could then become a creditor.
These debts owed to guarantors must be dealt with in the same manner
as any other creditor. If the borrower exits from farming and does not
declare bankruptcy, the guarantor must be contacted and a deal struck
to liquidate the guarantee. If there is no equity remaining, the guarantor
may be prepared to write off the guaranteed amount.
If the borrower fails to contact the guarantor to make arrangements,
s/he may face legal actions from the guarantor. The bankrupt party must
list the guarantor as a creditor when working with the Trustee in Bankruptcy.
The guarantor will accept the proportion of the guarantee that can be
realized from the liquidation of assets.
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Limited or Unlimited Guarantees
A guarantee may be limited or unlimited. An unlimited
guarantee might have wording that states the guarantee is responsible
for all present and future debts of the debtor. The wording may also be
broad enough to allow the lender to change the terms and amounts of the
original loan without needing the consent of the guarantor.
A limited guarantee would state how much the guarantor would owe the
lender in the event of a default.
References
Financial Stress - Legal Issues, G. Edward Oldfield, Law Firm of Hobson,
Wellhauser, Taylor & Oldfield, Waterloo, prepared for the 1999 Farm
Tax and Business Seminar.
Legal Aspects of Farm Finance, OMAFRA publication written by Lynn Paul,
Barrister and Solicitor, Hamilton.
Section 4 - Other Sources Of Information
All OMAFRA products are available through Service Ontario General Inquiry
416-325-3408 or Toll Free 800-267-8097 or the Service
Ontario web site.
Electronic tools and forms are available on the OMAFRA
website.
Ontario Farm Management Analysis Project (OFMAP) and computer spreadsheets
Ontario Enterprise Budgets for Crop and Livestock Enterprises
Farm Management Computer Tools, including a loan calculator and capital
investment analyser
Publication 37, Farm Financial Analysis and Planning Workbook, Ontario
Ministry of Agriculture, Food and Rural Affairs.
Rural Business Planner CD ROM, Canadian Farm Business Management Council
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Other OMAFRA Business Factsheets
A Guide to Agricultural Security Agreements, Order No. 03-069
Budgeting Farm Machinery Costs, Order No. 01-075
Canada Pension Plan, Order No. 06-065
Cash Lease Agreements for Cropland, Order No. 01-071
Diagnosing and Managing Cash Flow Problems, Order No. 06-085
Farm Business Insurance, Order No. 00-041
Farm Business Joint Ventures, Order No. 02-069
Farm Corporations, Order No. 01-057
Farm Partnerships, Order No. 02-047
Flexible Cash Lease Agreements, Order No. 01-069
Forming a Cooperative, Order No. 02-019
Land Lease Arrangements, Order No. 01-065
Lease Agreements for Farm Buildings, Order No. 03-095
Leasing Farm Equipment, Order No. 01-003
New Generation Cooperatives, Order No. 02-017
Ontario Farm Record Book - Pub 540
Pasture Lease Agreements, Order No. 03-091
Programs and Services for Ontario Farmers, Order No. 07-021
Taxation on the Sale of Farm Business Assets, Order No. 03-021
Taxation on the Transfer of Farm Business Assets to Family Members, Order
No. 03-023
Cash Lease for Cropland, Order No. 03-097
Crop Share Lease, Order No. 03-101
Farm Building Lease, Order No. 03-093
Flexible Cash Lease for Cropland, Order No. 03-099
Pasture Lease, Order No. 03-089
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Section 5 - Legal And Financial
Terms
accelerate - to accelerate a debt means to speed up
the date(s) the debt was originally intended to be paid so that the whole
thing is due immediately.
accrual statement - a financial statement which matches
expenses incurred and income earned for a specific time period, although
these expenses and income may not have been actually paid or received
in cash within that time period.
assign - to transfer to someone else.
assignee - a person to whom an assignment is made; a
grantee.
assignor - a person who assigns or transfers, whether
or not he is the original owner.
assignment of account - transfer to assignee giving
the assignee the right to apply collected proceeds against an outstanding
debt.
bailiff - a public officer whose job is to collect judgment
debts; sheriff.
bankruptcy - the legal process by which assets of the
debtor are liquidated to pay off creditors and relieve the debtor of the
unpaid balance of his liabilities.
bond - a certificate of indebtedness issued by a government
or corporation; an obligation in writing, sometimes supported by collateral,
given by an individual or corporation to pay damages, or to protect against
losses caused by a third party through non-performance or a contract or
other duties.
book value of assets - the value of an asset at the
date it was acquired as reported on financial statements prepared using
generally accepted accounting principles.
capitalization of interest - the process in which interest
arrears are consolidated into the principal amount; similar to compounded
interest.
cash flow statement - a financial statement showing
the net effect on cash of the inflows and outflows of cash from operations
and other types of transactions over a given period of time.
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Cash statement - a statement showing the opening and
closing balances of cash on hand in the bank, summarizing the cash received
and money paid out for a stated period.
chattel mortgage - a charge or lien on personal property,
typically used for the purchase of equipment.
collateral - property charged or pledged to ensure that
the terms of a contract are met or the payment of a debt is made.
common law - the name for the rules that Canadian and
foreign courts have developed over centuries of lawsuits.
consignment - a shipment of goods made under an agreement
whereby the receiver (the consignee) agrees to sell or otherwise dispose
of the goods as agent on behalf of the shipper (the consignor).
creditor - a creditor is a person who lends money to
another person to be paid back later, or who supplies goods or services
to another person to be paid for later.
debt - what is owed.
debt restructuring - a change in the repayment terms
of a loan agreement.
debt servicing - the ability to make payments of money
owned.
debtor - a debtor is a person who owes money to a creditor
to repay a loan or to pay for goods or services supplied.
default - a person is "in default" or "defaults"
by not doing something as promised in the agreement (like making a payment)
or doing something s/he promised in the agreement not to do (like selling
some property without a creditor's permission) or when some other thing
happens which the agreement said would be a default (like a sheriff seizing
some of the person's property).
deferral of interest or principal payments - the postponement
of payments on a debt for a period of time (this happens only if the creditor
agrees).
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demand note - an agreement between the creditor and
the debtor that the creditor can demand payment of the money owed at any
time.
discharge - to release from obligation.
discovery -a meeting before trial of both sides involved
in a legal action when the lawyer for each side involved in the legal
action may question the other party (called examination for discovery).
The purpose of "discovery" is to evaluate the strength of one's
position.
encumbrance - an encumbrance is an interest one person
(the "encumbrancer") has in another person's property. The interest
may be a security like a mortgage on land) or it may be another sort of
interest, such as the lien the garage has on a tractor for the cost of
repairing it.
equity - an interest in property, the monetary value
of the property less any outstanding liabilities.
foreclosure - a termination of all rights of the mortgagor
in the property, the result of a final order of foreclosure will be the
transfer of title to the mortgagee; such action usually results from substantial
arrears in mortgage payments and is usually pursued by the mortgagee as
a last resort.
garnishment -an action whereby a person's wages or some
other money coming to that person is withheld from the person and applied
to debt. This action must be authorized by a court order.
general security agreement -a financial contract between
a debtor and a creditor in which personal property of the debtor is provided
as security for repayment of a debt.
guarantee, guarantor - a "guarantor" is someone
who gives a creditor a guarantee. A guarantee is an agreement between
the guarantor and the creditor in which the guarantor promises to pay
money owed to the creditor by the debtor identified in the guarantee and,
sometimes, to perform the debtor's other promises to the creditor if the
debtor defaults. Parents are often asked to guarantee loans a bank or
other creditor is making to one of their children.
insolvency - the condition of a person who is unable
to pay his debts as they become due.
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lien - the right given by law or contract to a person
to have a debt repaid out of the property belonging to the person owing
the debt.
liquidation value - the price that might be expected
to be realized on an asset upon a forced sale or on the winding up of
the business.
market value -current cost to replace something, price
paid by a willing buyer to a willing seller.
mortgage - charge or lien on real or personal property;
encumbrance.
mortgagee - a person who lends money and received a
mortgage as security.
mortgagor - a person who pledges property as security
for a debt.
Ontario Personal Property Security Act (PPSA) - this
Act sets out the law governing contracts in which personal property is
provided as security for repayment of debts.
person - person generally means not just individuals,
but also corporations, partnerships, associations, and other entities.
personal property - our law divides all property into
two classes: property that is land or is considered as part of the land
where it is located (called real property) and personal property, which
is everything else. Some examples of personal property are furniture,
clothing, vehicles, cows, crops and debts people owe you.
purchase money security interest (PMSI) - a special
type of security interest under the PPSA, when a loan agreement is taken
for the purchase of an item of personal property, and is secured by that
item being purchased .
power of sale - the right of the mortgagee to advertise
and sell real or personal property should the mortgagor default in payment
of the debt.
prior encumbrances - an encumbrance that precedes another,
an encumbrance securing a debt, which must be paid first upon sale of
the property.
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promissory note - a written promise to pay a certain
sum at a particular time, or on demand.
property - property is anything that a person can own.
Property is either real property or personal property.
quit claim deed - a deed that releases or relinquishes
a claim against real property.
real property - real property is land and things that
the law says become part of it once they are put there, such as most buildings,
trees, and some crops. For example, Revenue Canada defines it to include
buildings in the definition of qualified farm property that is eligible
for the $500,000 capital gains exemption.
realize - when a debtor is in default, a secured creditor
may recover some of the loss that default cost by realizing, that is,
selling or keeping, the debtor's property covered by the security agreement.
realization - conversion of any kind of property into
money.
receivable - an outstanding amount that someone owes
you, but has not yet been paid. Often associated with product and market
sales.
receiver - a person appointed by a court or by a creditor
to take charge of property.
receivership - the legal status of a debtor for whom
a receiver has been appointed.
search of title - an examination (at the registry office
or land titles office) of the official books and documents relating to
land for the purpose of discovering if there are any encumbrances registered
against it, and/or to ascertain the title holder(s) of the property.
secured claim - a claim to a creditor that is secured
by a mortgage of real property or chattel mortgage. If the asset is of
less value than the claim the creditor may also claim as an unsecured
creditor for the balance of the claim.
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secured property - property in which an interest is
held by the lender as assurance of payment of a debt.
security - security is an interest in a debtor's property
that the debtor gives to a creditor to protect the creditor from loss
if there is a default by the debtor.
security agreement - a security agreement is the document
or combination of documents a debtor signs (sometimes the secured creditor
signs too) to give the secured creditor security in the debtor's property
described there. Security agreements can give security in real property,
personal property or both.
seizure - to take physical possession, by process of
law.
sheriff - a public officer whose function is to collect
on judgment debts; bailiff.
solvency - the ability of a person to pay debts as they
become due.
statement of adjustments - a statement prepared at the
time land is sold which reflects any addition or subtraction to be made
to or from the purchase price as agreed by contract (i.e. credit for taxes
paid).
statement of realization and liquidation - a financial
statement drawn up by a trustee or liquidator to account for the winding
up of a business, showing the amounts received on the sale of the assets
and the amounts given out to liquidate the liabilities.
tenure - the act or right of holding property.
transfer deed - a document that conveys land; a document
signed by the owner whereby title to land is transferred to another person.
trustee - a person who holds title to property for the
benefit of another.
trust - a structure that allows an individual (called
a settlor) to transfer the legal title of assets to a another person (called
a trustee) with instructions on how the property is to be used for the
benefit of the named persons (called the beneficiaries).
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trustee in bankruptcy -a person appointed by the court
to administer the estate of a bankrupt and distribute available assets
to creditors.
unsecured creditor - an unsecured creditor is a person
who gives a debtor credit without taking any security. If the debtor does
not pay, the unsecured creditor must sue him or her in court to get the
right to have the sheriff seize and sell the debtor's property.
write-off - term meaning a farmer's account considered
uncollectible is closed by transferring its balance to reserve for bad
debts.
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For more information:
Toll Free: 1-877-424-1300
Local: (519) 826-4047
E-mail: ag.info.omafra@ontario.ca
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