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Guidelines
Section C: Realization and Claim Submission
4 Non Compliance Remedies
In certain specified cases of non compliance, payment of a claim is permitted, provided that the non compliance is remedied as stipulated in the Regulations. In each instance of non-compliance, the non-compliance must be inadvertent. The specific instances and the remedial action the lender must take are as follows:
| Inadvertent Non-Compliance Issue(s) | Remedies and Conditions for Claim Payment |
|---|---|
50% rule requirement The 3 year rule requirement Decontamination costs requirement Incidental costs (other than non-refundable taxes and customs duties) included in the loan. |
If the lender is able to provide documented evidence that the non-compliance is the result of inaccurate information provided by the borrower, the claim will be paid as if the non-compliance had not occurred. |
Missing proof of purchase and payment documents in the claim for loss Ineligible assets financed Expenditures made more than180 days before approval date Assets previously secured by a term loan Ineligible decontamination costs |
Loan is adjusted to 90% of the eligible expenditures Eligible loan amount is adjusted downward by invoices or costs not in compliance, and claims are paid for the portion of loan for which documentation is satisfactory. Realization costs and proceeds are prorated as per the percentage of the eligible loan to the total loan disbursed. However, costs and proceeds that pertain only to the eligible or ineligible portion of the loan, are applied 100% to the respective portion. |
Security requirements have not been met, making the security unenforceable |
If non-compliance relates to additional security, claim will be paid as if the security had never been taken. If non-compliance relates to all the primary security, claim will be rejected. If non-compliance relates only to some of the primary security, claim will be paid on that portion of the loan for which the security is valid and enforceable. |
Appraisal requirements not met |
In the case of equipment loan and leasehold improvement loan, the lender must provide documentation substantiating the value of the asset during the period of 180 days before the date of loan approval. This documentation may be dated before the date of loan approval (maximum 180 days) or may be dated at any time after the date of loan approval. The documentation from the person setting out the value of the assets must attest that the assets were examined through a site visit. A letter which states that the value was based roughly on the description in the purchase invoice will not be accepted. This provision does not apply in the case of real property loans. The lender is still required to provide an appraisal that is made within 180 days before the loan is approved. |
Loan agreement does not contain all of the terms |
In the event the loan agreement signed by the borrower and the lender does not contain all of the loan terms, the lender can provide documentation substantiating those terms (e.g. any documentation signed or acknowledgment by the borrower). |
Requirements for guarantees or suretyships not satisfied |
Claim will be paid if the loss was not affected by the non-compliance and Lender has reimbursed amounts realized on guarantees or suretyships in excess of 25% of the loan amount disbursed, exclusive of interest and costs |
Non allowable fee or charge Interest rate in excess of maximum Insurance premium and charge for taking the security is combined with the rate of interest under the loan and not set out separately in the loan agreement. |
Claim will be paid if the loss was not affected by the non compliance, and Borrower is reimbursed for overcharges, or If the lender is unable to reimburse the borrower (e.g. borrower is bankrupt, borrower corporation is dissolved, sole proprietor is deceased, borrower cannot be located), the lender must submit evidence, with the claim for loss, that it attempted to reimburse the borrower but was unable to do so. In this case the total of the overcharge will be deducted from the loss payable to the lender. |
Non payment of the administration fee |
Claim will be paid if the lender pays the fee within 90 days from the day the lender's head office receives the notice of non-payment. Payment cannot be deducted from the claim for loss payments and must be paid separately from a quarterly payment. A letter indicating the purpose of the cheque and the method of calculation is to accompany the payment. |
Failure to file the Outstanding Loan Balance Report |
Claims will only be paid when report is received |
10 year repayment term exceeded |
In the event the 10 year term is exceeded (whether on the original loan agreement, any amendments or renewals), the claim will be paid only if the default occurred before the expiry of the 10 years calculated from the date of the first payment of principal and interest |
4.1 Inadvertent Errors
Upon discovery of its error, a lender must take immediate corrective action wherever possible.
| Inadvertent Error | Remedies and Conditions for Claim Payment |
|---|---|
| Renewal of fixed rate loan term not made when scheduled. | In the absence of any documentation to the contrary, it will be deemed that the interest rate for the interim period remains the same as the previous interest rate. |
| Loan financed at 100% instead of 90% | The loan will be adjusted to 90% of the eligible project documentation and the claim paid. |
| Lender error increased the loss on a loan | Claim for loss will be adjusted to negate the effects of the error. For example, if a lender neglects to program automatic loan payments, the claim will be paid as if the payments had been made. |
| Proof of claim not filed with the Trustee before the final distribution of dividends. | The amount of dividends which would have been received by the lender had a proof of claim been filed on time will be applied against the loan. |
4.2 Uncorrectable Non-Compliances
If a lender does not comply with the requirements of the Act and Regulations, a claim for loss cannot be paid.
Examples of such situations include:
- a loan made to an ineligible borrower (e.g., farming under the Standard Industrial Classification, 1980 of Statistics Canada, Major Group 01);
- a loan made to a borrower with gross annual revenues exceeding $5,000,000 at the time the loan was approved;
- all the loan proceeds were used for an ineligible purpose (e.g., financing inventory or goodwill);
- an independent appraisal that was required for all the financed assets was not obtained when approving a loan and no other documentation was obtained to corroborate the value of the equipment and leasehold improvements;
- all assets were purchased more than 180 days prior to the loan approval date;
- a claim or a final claim after an interim claim was paid (or request for extension) not submitted within the required time frame.
- Date modified:
