Presentation: Realizing on a Loan

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Overview

Loan Realization Process

  • A borrower is in Default when he fails to comply with a material condition of the loan.
  • A notice of default may be forwarded to the Borrower asking him to comply to the loan agreement within a specified period of time.
  • The formal Demand for Repayment indicates when the actual realization process starts.

Claim Submission Deadline

  • 36 months after date specified in the notice of default.
  • Before submitting a final claim, the lender must realize on the assets and the guarantees.
  • Lender must take all necessary measures to minimize the loss:
    • Assets of the business: 100%
    • Corporate Guarantees: 100%
    • Personal Unsecured Guarantees: 25%
    • Personal liabilities: 25%
  • If realization < costs. Abandon the assets.
  • The lender may negotiate a compromise settlement in order to minimize the potential loss.
  • Submitting a Claim for Loss: Regular, interim or incremental claim.

Sharing of Realization Proceeds and Costs

Applicable when realization proceeds and cost apply to several loans:

  • If clearly identified, then apply to specific loan.
  • If not clearly identified, then prorate according to the outstanding loan balance.
  • If specific costs for guarantees and sole proprietor, then prorate base on lesser amount of the guarantee or principal outstanding on the loan.

Non-Compliance Remedies

  • Payment of a claim is permitted, provided that the non-compliance is remedied as stipulated in the Regulations
  • Non-compliance must be inadvertent
  • Minister's liability must not be affected by the non-compliance

Submitting a Claim

A claim can be submitted if:

  • Borrower is in default
  • Notice of default was sent
  • Lender realized on security
  • 36 month deadline (or approved extension) not surpassed

Claim Submission Deadline:

  • 36 months after date specified in the notice of default or, if no notice of default, period begins on day after final regular payment is received from borrower
  • Lender can request an extension of the claim submission date

Submitting an Interim Claim:

  • Purpose:
    • Expedite payment
    • Allow lender sufficient time for compromise settlements
    • Allow lenders to fully realize on guarantees and suretyship
  • Realization of assets completed
  • Holdback for the personal guarantee or personal obligation
  • Lender can request an extension of the claim finalization date

When submitting a claim, the lender must provide the following documents

  • Completed claim for loss form
  • Copy of the initial loan registration document
  • Loan authorization document
  • Promissory note/Loan agreement (Credit bureau/Ability to repay confirmation)
  • Loan statement
  • Project cost (proof of purchase and payments)
  • Security documents
  • Personal and corporate guarantees or Suretyships
  • Justification supporting realization actions taken or not taken (i.e. appraisal, personal net worth statements, etc)
  • Realization of security
  • Realization of guarantees
  • Realization costs
  • Other documents (incorporation papers of the company, lease, franchise agreement, etc.)

Establishing the Loss

In case of default by a borrower, Industry Canada will reimburse a maximum of 85% of the lender's eligible loss up to the maximum Minister's Liability towards the lender.

Unpaid principal amount of the CSBF

  • Less: realization, insurance proceeds, taxes reimbursed
  • Plus: legal costs and fees, interest

Minister's Liability Ceiling

  • 90% of 1st $250K
  • 50% of following $250K
  • 12% on balance (for loans made after March 31, 2009)
  • 10% on balance (for loans made prior to April 1, 2009)

Subrogation and post-claim proceeds

  • Once a claim is final, the Minister is subrogated to all the rights of the lender up to the amount paid.
  • When a final claim is paid, no further collection measures are to be initiated/pursued by a lender. However, a lender can execute judgments obtained before the final claim was submitted. The lender must forward to the CSBFP Directorate 85% of any money it receives after the payment of the final claim.

Principal Reasons for Adjustments & Rejects

Adjustments

  • Insufficient evidence of purchase or proof of payment
  • Sharing of realization proceeds or costs
  • Costs claimed twice
  • Ineligible items added to loan (property taxes, nsf charges)

Rejects

  • No evidence of purchase or proof of payment
  • An independent appraisal was required and not obtained
  • Security requirements not met (V&E, mortgages)

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