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Commercial Debt Disputes and Recovery Claims In Quebec (Legal Considerations)

Are you looking for more information on commercial debt disputes and recovery claims in Quebec?

Perhaps you are trying to assess if you’ve done everything in your power to collect your money before going to a commercial debt recovery law firm?

What are the legal considerations in a commercial debt dispute or a recovery claim?

Well, don’t go too far!

We have the answers for you!

In this article, we will look at commercial debt disputes and recovery claims in detail. We will discuss what is a hypothec, a secured commercial debt or an unsecured commercial debt, we will discuss typical dispute arguments like an investment vs loan commercial debt dispute or a loan vs gift commercial debt dispute, cross-border commercial debt and more.

This article is divided as follows;

Let’s dive right in.

Secured Commercial Debt Disputes

If you are a creditor to a commercial claim and the other contracting party has granted you a security on either real estate property or movable assets, you’ll have the ability to execute your claim against security given to you.

In this case, you are granted a hypothec on either real estate property or movable assets as a security in case your contracting party defaults on your payment.

For example, if you lent money to a business partner or you extended credit to a client in exchange for a security on their account receivable, equipment or some movable property, you can exercise your hypothecary rights if certain conditions have been met.

You can exercise your hypothecary rights when the following conditions are met:

  1. Your business partner is in default of paying you
  2. Your claim is due and in arrears 
  3. The value of your claim is clearly defined

With these conditions, you can kick-start the process to exercise your security in reimbursement of your claim.

Unsecured Commercial Debt Disputes

In commercial debt dispute cases where you do not have a security or a hypothec to guarantee your claim, then if your contracting party defaults, your recourse will be to file a lawsuit and get a judgment from the court.

Without a security or a hypothec, you will not have any priority of claim against any of the debtor’s property.

In these types of cases, most often, time will be of the essence.

You will want to evaluate the financial situation of your debtor and move quickly to get a judgment.

The longer you wait, the more chances you’ll give to your debtor to transfer assets and property out of its patrimony to frustrate you in your claim.

By moving quickly in the context of an unsecured commercial debt dispute, you can evaluate the possibility of filing a seizure before judgment.

Speak with your debt recovery lawyer to get a better sense of the timelines and potential steps you may need to take.

If you are able to get a seizure before judgment, you can get some legal protection at least to freeze the defendant’s assets until the final judgment is rendered. 

What Is a Hypothec As A Security?

Conventional Hypothec

A hypothec is a right granted by one party, or through the operation of the law, to another party as a security to ensure the fulfillment of a contractual or legal obligation.

If your contracting party does not respect its share of the bargain, you may exercise your hypothec and exercise your legal rights against the underlying property given as security.

For example, a business borrows money from the bank.

To secure the loan, the business will grant the bank a hypothec on a real estate property it owns.

In this case, the bank’s loan will be a secured loan as it’s guaranteed by the borrower’s real estate property.

A security against a real estate property having enough equity to cover the total value of your claim is the best type of security you can get to protect yourself against a potential default in getting paid.

Legal Hypothec

In some other cases, through the operation of the law, you may register a lien against a property.

A legal hypothec will not require the consent of the property owner as it’s the law authorizing the registration of a hypothec.

When the hypothec is authorized by law, we say “legal” hypothec. 

To be entitled to a legal hypothec, the law must expressly grant you this right.

In the Province of Quebec, only the following claims may give rise to a legal hypothec:

  1. claims of the government for sums due under fiscal laws
  2. claims of persons having taken part in the construction or renovation of an immovable
  3. the claim of a syndicate of co-owners for payment of the common expenses
  4. claims under a judgment

Let’s take the case of a contractor who has done renovation work in a property and where the property owner does not pay for the said renovations.

In such a case, the contractor may register a legal hypothec against the property to protect its claim until a final judgment is rendered.

This can be done as the law states that “claims of persons having taken part in the construction or renovation of an immovable” may register a legal hypothec.

The advantage is that once the contractor gets a judgment, he or she can exercise the judgment against the property to recover the sums awarded.

Having a legal hypothec also gives the contractor a payment priority over other creditors who may have a security on the same priority. 

Validity of A Real Estate Hypothec 

If a real estate property or land is given to you as a security or guarantee in a contract or a commercial debt, then you’ll need to ensure that the hypothec is signed before a notary and registered in the Quebec land registry.

These formalities are crucial for the hypothec to have full legal effect in Quebec.

In the Province of Quebec, all hypothecs registered against land or real estate property are done through the Registre foncier du Québec.

Validity of A Movable Property Hypothec 

When a security is registered against equipment or movable property we could refer to it as a lien or hypothec.

In many commercial transactions, a lien may be granted by one party to the contract against its movable assets.

The lien on movable assets does not have the same stringent formalities as that of a real estate hypothecary registration but you must ensure you respect the formalities to properly register your lien against the movable assets. 

For example, in the context of a commercial lease, the commercial tenant may grant a lien on movable assets placed in the commercial leased premises.

Another business may grant a lien or hypothec on its account receivables which is considered to be a movable property.

Movable hypothecs in Quebec are registered at the Register of Personal and Movable Real Rights.

Investment vs Loan Commercial Debt Disputes

In some commercial debt recovery disputes, one party may allege that the money claimed by the creditor is not due as the parties had agreed upon an investment and not a loan.

In these types of investment vs loan disputes, the facts of the case are very important.

We’ll need to assess if you had a contract specifically qualifying the loan or investment?

If there was no contract, are there documentary trails hinting to the intention of the parties?

A debt recovery lawyer will need to uncover clues and evidence in support of your claim as the creditor.

What’s important in court is that you prove with the “balance of probability” that the money given was a loan for the court to rule in your favor.

As a result, a commercial debt dispute of the type investment vs loan will depend extensively on circumstantial evidence and documentary trails to help you qualify the transaction as a loan.

Loan vs Gift Commercial Debt Disputes

In some other cases, the debtor will claim that the money is not due as it was a gift.

The debtor will further claim that there was no intention to reimburse the money at all and so the creditor’s demand is entirely unfounded. 

A gift by definition is a payment made by one party without having an expectation to get the money back.

This is different from a non-interest bearing loan payable on demand or payable at a certain point in time.

When there is a loan vs gift type of dispute, the invention of the parties may be discovered through documentary trails like emails, text messages, payment records, correspondence or other documents.

If a party invokes that the payment was a gift, the burden of proof will rest on that person.

The court will look at several factors to judge whether a payment was indeed a loan or a gift:

  1. The nature of the relationship of the parties
  2. The amount of money in dispute
  3. The value of the money in dispute in relation to the parties’ overall financial situation
  4. Documentary trail and evidence 
  5. Was there any evidence or suggestion of repayment
  6. Was there any promises given in exchange for the loan
  7. Was there any demands for payment by the creditor
  8. Did the borrower pay anything back or feel obligated towards the creditor

Each case will have its own unique set of facts and circumstances.

A collections lawyer will have a keen eye to probe and uncover important pieces of evidence in support of your position. 

Cross-Border Commercial Transaction Disputes

You may be party to a commercial transaction where the contract has a choice of forum and a choice of governing law.

By filing a lawsuit in your local jurisdiction, you may be subject to the rules relating to conflict of laws, jurisdictional challenges along with the potential application of a foreign law before your local court. 

If you are a party to a cross-border commercial transaction, it is important to consult with your collection lawyer to assess the legal foundation application to your case.

Where can you try the case?

What is the governing law applicable to your case?

Are there local laws of public order that will take precedence over the terms of your contract?

What are possible preliminary actions that could be filed against your case such as application for dismissal? 

These are important considerations that should be analyzed prior to filing a lawsuit.

Once these parameters are checked, then you can institute legal proceedings in a manner that will result in the greatest possible chance of success for you.

Services By Our Commercial Debt Recovery Law Firm

Our commercial debt recovery law firm provides holistic legal services to individuals and businesses with respect to secured and unsecured commercial debt and recovery.

Our law firm has a unique focus on finding creative and cost-efficient ways to recover your commercial debt.

Our debt recovery lawyers have the street-smarts and know-how to assess, strategize, structure and define the best possible commercial debt recovery claim.

We’ll look at the defendant’s behavior, your budget, the timelines, the type of recoverable assets and securities along with any other case variable to fine-tune our collection and litigation strategy.

We are happy to assist you should you need services from our commercial debt recovery law firm.

Contact us for any commercial debt and recovery services.

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