A supplier takes an order, delivers goods, issues an invoice and waits to be paid. The purchaser subsequently goes into bankruptcy or receivership. What chance does the supplier have to recoup the loss?
The Bankruptcy and Insolvency Act provides that a supplier may repossess goods that were delivered but which remain unpaid, even if those goods were sold on credit. The caveats: suppliers bear the expense incurred to do so, and they must assiduously follow the applicable rules and conditions.
Meet the time limits
The only goods eligible for repossession are those that were delivered within 30 days preceding the bankruptcy or the appointment of a receiver.
So long as this first condition has been met, the supplier must submit a demand within 15 days from the time the debtor goes into bankruptcy or that a receiver is appointed. Extensions may possibly be arranged through the Licensed Insolvency Trustee (the “LIT”), the receiver or the Court.
Repossess only eligible goods
When the demand is presented, the goods must be:
- Already in possession of the purchaser, the LIT or the receiver;
- Identifiable as the goods delivered by the supplier and not fully paid for;
- In the same state as when they were delivered;
- Unsold and not subject to an agreement for sale at arm’s length; and
- Part of a balance owing.
Goods partially paid
In the case of goods that the purchaser had already paid for in part, the supplier has the choice to either:
- Repossess only the portion of the goods that remain unpaid; or
- Repossess all of the goods and reimburse the purchaser for any amount already paid.
Observe the formalities
The demand for repossession must be detailed in a Form 75 and presented to the LIT or the receiver.
Future action forfeited
Once a supplier exercises the right to repossess goods, they retain no right to seek future payment for those same goods.
Suppliers must be aware and mindful of the conditions surrounding available creditor remedies. Acting quickly to seek legal advice before taking action is the course of wisdom and good business sense.