Debt collection in Canada

The debt collection process in Canada begins with an analysis of the debtor’s solvency, his industry, his corporate history, evidence supporting the debt, the presence of current court cases and open enforcement proceedings, and the likelihood of the debt being contested. This analysis determines the strategy that will be used on behalf of the client in the debt collection process.

Because Canada has a federal legal system, debt recovery strategy should also identify the relevant province or territory, the competent court, the location of the debtor’s assets in Canada, and whether the case falls under federal or provincial jurisdiction. In many commercial debt cases, the applicable procedural rules, limitation periods and enforcement tools depend on the province or territory connected with the claim, while Federal Court procedure applies only where the court has jurisdiction over the dispute.

If there are no current court cases or outstanding court decisions regarding debt collection against the debtor, and he is active, then it is advisable to use the stage of pretrial debt collection.

This stage is based on intensive negotiations with the debtor in order to reach agreement on payment of the creditor’s claims or other settlement options (for example, return of goods, assignment of debt to a third party, mutual exchange of services or goods).

Interaction with the debtor may begin after sending a formal notification by mail, email, telephone or other available communication channels. This stage may involve intensive but lawful communication with the debtor, aimed at establishing contact with key decision makers and discussing payment, settlement or restructuring options. At the same time, communication with the debtor must not involve harassment, misleading statements, threats, abusive language, or excessive or unreasonable pressure, especially where consumer debt collection rules or provincial debt collection regulations apply.

The average period for pre-trial collection may be up to 60 days, except where an installment plan or another settlement arrangement has been agreed with the debtor. This period should be treated as a practical estimate rather than a statutory deadline. If pre-trial collection does not bring the expected result, or if the initial analysis shows that negotiation is not suitable, the creditor should consider judicial recovery before the applicable limitation period expires.

Before going to court, the creditor should determine the applicable limitation period. In Canada, limitation periods for debt claims usually depend on the province or territory connected with the claim, the type of obligation and the applicable court procedure. The Federal Courts Act provides a separate six-year rule for proceedings in the Federal Court of Appeal or the Federal Court where the cause of action arises otherwise than in a province, but this should not be treated as a universal limitation period for all debt claims in Canada. At the provincial and territorial level, limitation periods may vary and generally range from 2 to 6 years. For example, in Ontario, Alberta, Nova Scotia, British Columbia, New Brunswick, Saskatchewan – 2 years, in Quebec – 3 years, in Manitoba, Nunavut, Yukon, Newfoundland and Labrador, Prince Edward Island and the Northwest Territories – 6 years.

If the applicable limitation period has expired, the claim may become time-barred and the debtor may be able to rely on a limitation defence. A partial payment, written acknowledgment of the debt, promise to repay, or agreed repayment schedule may affect the limitation period, but the legal effect depends on the applicable provincial or territorial law and the form of acknowledgment. Therefore, before filing a claim, it is important to check not only the calendar period, but also any documents or debtor actions that may have renewed or affected the limitation analysis.

In cross-border debt collection, the creditor may already have a court judgment obtained outside Canada. In that case, the practical task is not to sue the debtor again on the original debt, but to determine whether the foreign judgment can be recognized and enforced against assets located in Canada. Canadian courts generally assess foreign judgments through conflict-of-laws principles, including whether the foreign court had a real and substantial connection with the dispute or the defendant, and whether any recognized defence to enforcement may apply.

A foreign judgment should be reviewed before enforcement steps are started in Canada. The creditor should check whether the judgment is final and conclusive, whether the debtor was properly notified of the foreign proceedings, whether the foreign court had jurisdiction, whether recognition may be challenged on grounds such as fraud, denial of natural justice or public policy, and where the debtor’s assets are located. The recognition and enforcement process is usually connected with the province where enforcement is sought, so the choice of Canadian jurisdiction is a practical part of the recovery strategy.

Judicial debt recovery in Canada usually begins by filing a claim or other originating document with the competent court. The exact form of the document, the method of service and the procedural deadlines depend on the court and the province or territory. Where Federal Court procedure applies, an action may be commenced by a statement of claim, which must set out the material facts relied on by the claimant without pleading the evidence by which those facts will be proven.

If the debtor disputes the claim, the debtor may be required to file and serve a defence or response within the period set by the applicable procedural rules. Under the Federal Courts Rules, a defendant served in Canada or the United States generally has 30 days to serve and file a statement of defence, while a defendant served outside Canada and the United States generally has 60 days. These deadlines should be checked against the rules of the specific court handling the case.

Where the applicable rules allow or require a reply, the creditor may file a reply to the defence within the procedural period set by the relevant court rules. Under the Federal Courts Rules, a plaintiff’s reply to a statement of defence must be served and filed within 10 days after service of the statement of defence.

If the defendant does not serve and file a statement of defence or other required response within the applicable time limit, the creditor may ask the court to enter a default judgment, provided that the procedural requirements for default judgment are met.

If the claim is defended, the case may proceed through further litigation stages such as document disclosure, discovery, examination of witnesses, procedural motions, settlement discussions, case management or pre-trial conferences. The availability and sequence of these stages depend on the court, the amount and complexity of the claim, and the applicable provincial, territorial or federal rules.

Discovery can be one of the most time-consuming stages of a defended debt claim, because the parties may have to disclose relevant documents, answer questions and clarify the factual basis of their positions. However, simplified procedures, written discovery limits or other procedural restrictions may apply depending on the court and the value of the claim.

Where the applicable rules permit it, a party may bring a motion for summary judgment or summary trial to resolve all or some issues without a full trial. In Federal Court proceedings, such a motion may generally be brought after the defendant has filed a defence and before the time and place for trial have been fixed, unless the action is subject to rules that restrict this procedure.

After completion of these stages, the trial begins, during which the parties appear before the court and provide their evidence substantiating their claims or objections. Unless the court orders otherwise, pleadings shall be heard after all parties have been given a full opportunity to present their cases in the order in which they presented evidence. After the final arguments of the parties, the court makes a decision, which comes into force after the period for appealing has expired.

For Federal Court matters, an associate judge may hear certain monetary claims where no amount claimed by a party exceeds $100,000, exclusive of interest and costs. The Federal Courts Rules also provide a simplified action procedure for certain monetary claims not exceeding $100,000, unless the Court orders otherwise. This federal threshold should not be confused with provincial court or small claims limits, which vary by province and territory. An order of an associate judge may be appealed by motion to a judge of the Federal Court within the period set by the Federal Courts Rules.

If a party is not satisfied with a decision of the court of first instance, it may have a right to appeal, but the appeal route, deadline and required documents depend on the court that issued the decision, the type of order and the applicable procedural rules. In some proceedings, leave to appeal may be required. Therefore, before relying on a specific deadline, the creditor should check the rules of the court and province or territory involved in the case.

After the procedural steps for an appeal are completed, the appeal may be scheduled or placed on a list for hearing in accordance with the rules and practice of the relevant court. There is no single universal six-month appeal period for all debt collection cases in Canada; timing depends on the court, province or territory, complexity of the case, availability of hearing dates and whether any procedural motions are filed.

A decision of a court of appeal may be brought before the Supreme Court of Canada only where the Supreme Court has jurisdiction and, in most civil cases, only if leave to appeal is granted. An application for leave to appeal must generally be served and filed within 60 days after the date of the judgment appealed from, and the month of July is excluded from the computation of this period. Filing an application for leave or an appeal does not automatically suspend enforcement unless a stay is granted under the applicable rules. The judgment of the Supreme Court of Canada is final and conclusive.

After the court decision becomes enforceable, the creditor should identify the debtor’s assets and initiate the appropriate enforcement procedure in the jurisdiction where those assets are located. Depending on the court order and the applicable provincial, territorial or federal rules, enforcement may include a writ of execution, seizure and sale of property, garnishment of debts owed to the debtor, or other court-authorized measures. In Federal Court proceedings, the Federal Courts Rules expressly regulate writs of execution, writs of seizure and sale, garnishment proceedings and charging orders, while execution against property is also affected by the law of the province where the property is seized.

If the debtor has signs of insolvency, the creditor may consider whether bankruptcy or insolvency proceedings are commercially and legally justified. Under the Bankruptcy and Insolvency Act, an insolvent person includes a person who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims amount to at least $1,000, and who is unable to meet obligations as they generally become due or whose property is insufficient to satisfy obligations. Bankruptcy should be assessed as a strategic remedy, not as an automatic step in every debt collection case.

At this stage, if the debtor’s assets are insufficient to satisfy creditors’ claims, certain pre-bankruptcy transactions may need to be reviewed. Under the Bankruptcy and Insolvency Act, preferences and transfers at undervalue may be challenged in the insolvency process where the statutory conditions are met. This may include transactions that prefer one creditor over others, transfers of property, provision of services, granting of security or other dealings where the debtor received no consideration or consideration conspicuously below fair market value.

Personal liability of directors, officers or shareholders should not be assumed automatically. It may arise only in specific circumstances under applicable corporate, insolvency, fiduciary duty, oppression remedy or other legal rules, depending on the facts of the case and the governing law of the corporation. If the creditor suspects asset stripping, related-party transactions or abuse of corporate control, this issue should be assessed separately before making claims against controlling persons.

If a trustee or another authorized party successfully challenges a preference, transfer at undervalue or other recoverable transaction, the result may increase the estate available for distribution to creditors and for covering insolvency administration costs. However, such recovery depends on the statutory grounds, evidence, timing of the transaction, relationship between the parties and the court’s assessment of the case.

If you need support with international debt collection in Canada, our legal team can assess the debtor’s status, available evidence, applicable jurisdiction, limitation issues and the most appropriate recovery strategy. We assist creditors with pre-trial negotiations, preparation for court proceedings, enforcement planning, insolvency-related recovery options and cross-border debt collection involving Canadian debtors or assets located in Canada.

# DEBT COLLECTION AGENCY CANADA

16.08.2024

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