Farm Protection In Manitoba ' Safe Harbour Or A Trap For The Unwary?

• Published date: 01 July 2022
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Financial Services, Insolvency/Bankruptcy, Arbitration & Dispute Resolution
• Law Firm: Taylor McCaffrey
• Author: Mr David R.M. Jackson

The Farm Protection Regime in Manitoba is built upon a disjointed combination of Federal and Provincial Statutes. Through multiple notice requirements, various administrative stays, Federal and Provincial Mediation Boards and, in some cases, Court supervision, farmers in financial difficulty are afforded a generously wide safety net against the actions of their creditors. While this provides a more than reasonable opportunity to restructure and negotiate settlements through mediation, creditors must read carefully or risk the hardship of starting the entire process over again in accordance with the statutory requirements.

Background

Before delving into the legislative abyss that governs farm protection in this province, it must not be forgotten that there is also a co-existing regime governing relations between debtors in financial difficulty and their creditors. Pursuant to the Federal Governments' jurisdiction over insolvency, there are two major statutes pursuant to which creditors can seek protection and endeavor to effect arrangements with their creditors: the Bankruptcy and Insolvency Act R.S.C. 1985 c.B-3 as amended ("BIA") and the Companies Creditors Arrangements Act R.S.C. 1985 C-36 ("CCAA"). While a detailed discussion of these statutes is beyond the scope of this paper, it must not be forgotten that they exist and are available to farmers and farm corporations to restructure their affairs. It should also not be forgotten that once the various farm protection mechanisms have been exhausted secured creditors must still proceed to affect their realization in accordance with the applicable legislation that governs realization of the respective security including The Real Property Act, when dealing with mortgage sale and foreclosure, The Personal Property Security Act and/or Bank Act when dealing with the personal property security realizations and The Farm Machinery and Equipment Act when endeavouring to repossess farm machinery and equipment under the jurisdiction of that Act.

The two major pieces of legislation that specifically govern farm protection in Manitoba are the Farm Debt Mediation Act S.C. 1997, c.21 ("FDMA")(this is the 1997, successor to the original Farm Debt Review Act) and The Family Farm Protection Act C.C.S.M. c. F-15 ("FFPA"). These are two separate and distinct statutes which arose in response to the farm crisis in the mid 1980's. During the recession of the 1980's unusually large numbers of farmers were unable to meet their debt obligations. Consequently there was a disproportionate number of farm foreclosures and receiverships which forced many farm families off the land. While some major farm lenders such as Farm Credit Corporation voluntarily adopted a temporary moratorium on farm foreclosures, that provided only limited relief. The deepening farm crisis and the inadequacy of existing farm aid created pressure on the Federal and Provincial Governments for a legislative solution. In response, both levels of government enacted separate farm protection statutes.

On January 26, 1986 the House of Commons passed the Farm Debt Review Act S.C. 1984-85-86, C33 ("FDRA"). It came into force on August 5, 1986. This Act established Farm Debt Review Boards in each province to assist farmers in financial crisis to obtain third party assistance to review their affairs and negotiate with creditors. It did not impose mandatory obligations upon creditors to compromise but, it did provide for a stay of proceedings for up to 120 days. It also provided an obligation on secured creditors to give notice of their intention to realize on security and to inform the farmers of their right to seek the assistance of the Farm Debt Review Boards. If the secured creditors were unwilling to compromise by the end of the stay, they were free to continue realization proceedings. The stated purpose of this legislation was to assist those farmers who were financially viable in the long term whose difficulties could be overcome with the cooperation of the creditors. In 1997 the FDRA was replaced with the FDMA which firmly imbedded mediation into the process.

The Province of Manitoba's response to the farm crisis was the FFPA which received Royal Assent on September 10, 1986. This legislation prevented creditors from realizing against farm land without first obtaining Court approval. The Court has discretion to grant leave only where it was "just and equitable" to do so after the creditor and the farmer had the opportunity to mediate their differences before the Manitoba Farm Mediation Board (subsequently renamed the Manitoba Farm Industry Board). Initially, this legislation contemplated the application process to apply to farmland, machinery and equipment, and in certain circumstances, livestock. While the provision in the FFPA dealing with farmland were proclaimed in force in December 1986, those dealing with machinery and equipment and livestock have never been proclaimed. Accordingly, the FFPA only applied where the lender's security includes farm land.

Current Regime

The practical effect of the farm protection legislation in tandem with other related statues is that before a secured creditor can commence enforcement of its security, it must overcome a series of hurdles including statutory notices, administrative stays and at least one level of Mediation. If the security involves farmland, it is also necessary to proceed with the Court application process under FFPA though on June 1, 2021 the previous requirement to involve the Manitoba Farm Industry Board in an additional round of mediation was abolished.¹

Notice Requirements

While the specific statutory notices will vary depending on circumstances, at least two, and sometimes three, separate forms of notice may have to be given by a secured creditor along with the traditional demand letter before even considering moving on to the next stage of the enforcement process. These are as follows:

1. Notice of Intention to Enforce Security under Section 244 of the BIA

This Act applied to secured creditors who intend to realize on security on any insolvent person, not just farmers. This is a prescribed form (BIA Form 86). This notice must be utilized where the secured creditor contemplates taking possession or control of "all or substantially all" of: the "inventory", "accounts receivables" or the "other property" of an insolvent person.

What that means is that the secured creditor cannot take any steps to realize on that security until either expiry of 10 calendar days following service of the notice or once the debtor waives the notice in writing after service. If the debtor has not sought protection under the proposal provisions of the BIA within that 10 day period (and thereby obtained a stay against the creditors) the secured creditor may proceed with its remedies. The BIA has specific provisions for the creditor to seek the appointment of an interim receiver prior to expiry of the 10 day period in the event that it is necessary for the protection of the interests of the creditor or the debtor's estate.

2. Section 21 FDMA Notice of Intent by Secured Creditor

Any creditor who seeks to enforce its security as against any property of a farmer must serve the prescribed form of Notice of Intent to Realize on Security under this...