Rent Distraint

All the provinces have laws that provide for a landlord's remedy if commercial rent is in arrears. The following is how the system works in B.C.:

Commercial tenants who are behind in their rent payments are subject to having the landlord seize their inventory and other assets and selling the assets to pay the rent arrears. The landlord will appoint a bailiff to seize the assets on the landlord's behalf.

The bailiff is required to inventory the assets and have the assets appraised. After five days the assets can be sold. All assets can be sold except assets belonging to third parties, and assets subject to security held by a bank pursuant to the Bank Act (Section 427 security) or a PMSI. The bailiff takes his fees and pays the balance of the funds to the landlord to pay rent arrears.

STOPPING A RENT DISTRAINT

A rent distraint can only be stopped in three ways:

1) Pay the arrears;

2) Assign the company into bankruptcy.

3) File a Proposal or an Intention to File a Proposal.

A proposal is a way of saving an insolvent company when the company is viable but can pay only part of its debt.

A bankruptcy is often more attractive than having the bailiff sell the assets because the trustee will commonly sell the assets for more than the bailiff will and also because the proceeds will be distributed in accordance with the Bankruptcy and Insolvency Act as follows:

1) Revenue Canada Source deductions (deemed trust);

2) Secured creditor(s);

3) employees.