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Secured creditors must give ten days' notice

When a borrower defaults on its loan, the lender or other secured creditor may decide that the time has come to take action and exercise its rights against the borrower's assets. One of those rights is to appoint a receiver to take possession of the debtor's assets and liquidate them to satisfy the debt owed.

But while secured creditors enjoy a favourable position in the pecking order of creditors, there are still limits on their rights, and certain procedures they must follow in pursuing those rights. One such procedure is the requirement to provide advance notice under section 244 of Canada's Bankruptcy and Insolvency Act.

Under all but a handful of circumstances, a secured creditor must provide their debtor with ten days' notice of their intention to take action through receivership. Unless the debtor voluntarily consents, a secured creditor is barred from acting against the debtor's assets any earlier than at the expiration of this ten-day period.

There are exceptions to this notice requirement. For example, a secured creditor may suspect that the debtor's assets are in danger during the ten-day period. In such a case, the creditor can seek court appointment of an interim receiver to preserve and protect the assets, perhaps even without notice to the debtor.

Unless such an exception applies, secured creditors who fail to provide the mandatory advance notice and observe the ten-day period leave themselves at risk of significant liability, possibly including any damage or loss caused to the debtor or its business. While a few exceptions exist, determining their applicability requires pointed analysis with the help of a legal professional.

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