Default

How BC law treats it

In contracts, default means failing to perform an obligation. Whether the innocent party can end the contract or only claim damages depends on the agreement and on how serious the breach is. Many contracts require written notice and a cure period before termination. In commercial leases, a tenant default can allow the landlord to terminate or exercise other remedies under the lease, and the court has power to grant relief from forfeiture under the Law and Equity Act. In lending, a loan or security agreement lists events of default, such as non-payment, breach of covenants, insolvency or a change of control. On default the lender can accelerate the loan and enforce its security. Enforcement against personal property follows Part 5 of the Personal Property Security Act, which requires notice before disposing of collateral. If the borrower is an insolvent business and the lender intends to enforce against all or substantially all of its inventory, receivables or other property, s. 244 of the Bankruptcy and Insolvency Act requires a notice of intention to enforce security, and the lender generally must wait 10 days unless the debtor consents to earlier enforcement. In litigation, a defendant served in Canada with a notice of civil claim in the BC Supreme Court generally has 21 days to file a response to civil claim. If it does not, the claimant can apply for default judgment under Rule 3-8 of the Supreme Court Civil Rules. A defendant can apply to set aside a default judgment, but must act promptly and show a defence worth trying.

What it means for your business

Default clauses decide how quickly a lender, landlord or customer can act against the business, and how much warning it gets. Borrowers should negotiate notice and cure periods and watch financial covenants. Creditors should follow notice rules exactly, because a defective notice can delay enforcement or create liability. A business served with a claim must diary the response deadline the same day. Example: A Kamloops manufacturer breaches a debt service covenant. Its bank sends a demand and a section 244 notice, and the manufacturer uses the 10 day period to negotiate a forbearance agreement.

Risks and common mistakes

Ignoring a notice of civil claim and allowing default judgment to be entered. Terminating a contract for a minor default without following the notice and cure provisions. Enforcing security without giving the BIA s. 244 notice where it is required. Signing a loan agreement with cross-default or material adverse change clauses that are not understood. Accepting late payments for months and then trying to rely strictly on the default clause without warning.