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Assignments and Preferences Act, R.S.O. 1990, c. A.33

Assignments and Preferences Act

R.S.O. 1990, CHAPTER A.33

Consolidation Period: From March 1, 2022 to the e-Laws currency date .

Last amendment: 2021, c. 4, Sched. 3, s. 19 .

Legislative History: 1993, c. 27, Sched.; 2001, c. 9, Sched. D, s. 14 ; 2007, c. 7, Sched. 7, s. 180 ; 2010, c. 16, Sched. 4, s. 23 ; 2020, c. 11, Sched. 5, s. 13 ; 2020, c. 36, Sched. 7, s. 294 ; 2021, c. 4, Sched. 3, s. 19 .

1 In this Act,

“judges” means a judge of the Superior Court of Justice.  R.S.O. 1990, c. A.33, s. 1; 2001, c. 9, Sched. D, s. 14.

Section Amendments with date in force (d/m/y)

2001, c. 9, Sched. D, s. 14 - 29/06/2001

If judge disqualified

2 If a judge is disqualified to act in a matter under this Act, another judge may do so.  R.S.O. 1990, c. A.33, s. 2.

Nullity of certain confessions of judgment, etc.

3 Every confession of judgment, cognovit actionem or warrant of attorney to confess judgment given by a person, being at the time in insolvent circumstances or unable to pay his, her or its debts in full or knowing himself, herself or itself to be on the eve of insolvency, voluntarily or by collusion with a creditor with intent thereby to defeat, hinder, delay or prejudice creditors wholly or in part, or to give one or more creditors a preference over other creditors or over any one or more of them, is void as against the creditors of the person giving the same and is ineffectual to support any judgment or execution.  R.S.O. 1990, c. A.33, s. 3.

Nullity of gifts, transfers, etc., made with intent to defeat or prejudice creditors

4 (1) Subject to section 5, every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels or effects, or of bills, bonds, notes or securities, or of shares, dividends, premiums or bonus in any bank, company or corporation, or of any other property, real or personal, made by a person when insolvent or unable to pay the person’s debts in full or when the person knows that he, she or it is on the eve of insolvency, with intent to defeat, hinder, delay or prejudice creditors, or any one or more of them, is void as against the creditor or creditors injured, delayed or prejudiced.  R.S.O. 1990, c. A.33, s. 4 (1).

Unjust preferences

(2) Subject to section 5, every such gift, conveyance, assignment or transfer, delivery over or payment made by a person being at the time in insolvent circumstances, or unable to pay his, her or its debts in full, or knowing himself, herself or itself to be on the eve of insolvency, to or for a creditor with the intent to give such creditor an unjust preference over other creditors or over any one or more of them is void as against the creditor or creditors injured, delayed, prejudiced or postponed.  R.S.O. 1990, c. A.33, s. 4 (2).

When there is presumption of intention if transaction has effect of unjust preference

(3) Subject to section 5, if such a transaction with or for a creditor has the effect of giving that creditor a preference over the other creditors of the debtor or over any one or more of them, it shall, in and with respect to any action or proceeding that, within sixty days thereafter, is brought, had or taken to impeach or set aside such transaction, be presumed, in the absence of evidence to the contrary, to have been made with the intent mentioned in subsection (2), and to be an unjust preference within the meaning of this Act whether it be made voluntarily or under pressure.  R.S.O. 1990, c. A.33, s. 4 (3).

(4) Subject to section 5, if such a transaction with or for a creditor has the effect of giving that creditor a preference over the other creditors of the debtor or over any one or more of them, it shall, if the debtor within sixty days after the transaction makes an assignment for the benefit of the creditors, be presumed, in the absence of evidence to the contrary, to have been made with the intent mentioned in subsection (2), and to be an unjust preference within the meaning of this Act whether it be made voluntarily or under pressure.  R.S.O. 1990, c. A.33, s. 4 (4); 1993, c. 27, Sched.

“Creditor” for certain purposes to include surety and endorser

(5) The word “creditor” when used in the singular in subsections (2), (3) and (4) includes any surety and the endorser of any promissory note or bill of exchange who would upon paying the debt, promissory note or bill of exchange, in respect of which the suretyship was entered into or the endorsement was given, become a creditor of the person giving the preference within the meaning of those subsections.  R.S.O. 1990, c. A.33, s. 4 (5).

1993, c. 27, Sched. - 31/12/1991

Assignments for benefit of creditors and good faith sales, etc., protected

5 (1) Nothing in section 4 applies to an assignment made to the sheriff for the area in which the debtor resides or carries on business or, with the consent of a majority of the creditors having claims of $100 and upwards computed according to section 24, to another assignee resident in Ontario, for the purpose of paying rateably and proportionately and without preference or priority all the creditors of the debtor their just debts, nor to any sale or payment made in good faith in the ordinary course of trade or calling to an innocent purchaser or person, nor to any payment of money to a creditor, nor to any conveyance, assignment, transfer or delivery over of any goods or property of any kind, that is made in good faith in consideration of a present actual payment in money, or by way of security for a present actual advance of money, or that is made in consideration of a present actual sale or delivery of goods or other property where the money paid or the goods or other property sold or delivered bear a fair and reasonable relative value to the consideration therefor.  R.S.O. 1990, c. A.33, s. 5 (1).

Transfer to creditor of consideration for sale invalid

(2) In case of a valid sale of goods or other property and payment or transfer of the consideration or part thereof by the purchaser to a creditor of the vendor under circumstances that would render void such a payment or transfer by the debtor personally and directly, the payment or transfer, even though valid as respects the purchaser, is void as respects the creditor to whom it is made.  R.S.O. 1990, c. A.33, s. 5 (2).

Effect of assignment not in accordance with Act

(3) Every assignment for the general benefit of creditors that is not void under section 4, but is not made to the sheriff nor to any other person with the prescribed consent of creditors, is void as against a subsequent assignment that is in conformity with this Act, and is subject in other respects to the provisions thereof until and unless a subsequent assignment is executed in accordance therewith.  R.S.O. 1990, c. A.33, s. 5 (3).

Security given up upon void payment to be returned

(4) Where a payment has been made that is void under this Act and any valuable security was given up in consideration of the payment, the creditor is entitled to have the security restored or its value made good to him before, or as a condition of, the return of the payment.  R.S.O. 1990, c. A.33, s. 5 (4).

Exceptions:

(5) Nothing in this Act,

(a)  affects the Wages Act or prevents a debtor providing for payment of wages due by him or her in accordance with that Act;

surrender of securities

(b)  affects any payment of money to a creditor where the creditor, by reason or on account of the payment, has lost or been deprived of, or has in good faith given up, any valid security held for the payment of the debt so paid unless the security is restored or its value made good to the creditor;

exchange of securities

(c)  applies to the substitution in good faith of one security for another security for the same debt so far as the debtor’s estate is not thereby lessened in value to the other creditors; or

certain securities to be valid

(d)  invalidates a security given to a creditor for a pre-existing debt where, by reason or on account of the giving of the security, an advance in money is made to the debtor by the creditor in the belief that the advance will enable the debtor to continue the debtor’s trade or business and to pay the debts in full.  R.S.O. 1990, c. A.33, s. 5 (5).

Residence of assignee

6 No person, other than a permanent resident of Ontario, shall be assignee under an assignment within this Act, nor shall any assignee delegate the duties as assignee to or appoint as deputy any person who is not a permanent resident of Ontario, and no charge shall be made or recoverable against the assignor or his estate for any services or other expenses of any such assignee, deputy or delegate of any assignee who is not a permanent resident of Ontario.  R.S.O. 1990, c. A.33, s. 6.

Form of assignment for general benefit of creditors

7 Every assignment made under this Act for the general benefit of creditors, if the property is described in the words “all my personal property that may be seized and sold under execution and all my real estate, credits and effects”, or in words to the like effect, vests in the assignee all the real and personal estate, rights, property, credits and effects, whether vested or contingent, belonging to the assignor at the time of the assignment, except such as are by law exempt from seizure or sale under execution, subject, however, as regards land, to the Registry Act and the Land Titles Act .  R.S.O. 1990, c. A.33, s. 7.

All assignments for general benefit of creditors to be subject to this Act

8 Every assignment for the general benefit of creditors, whether it is or is not expressed to be made under or in pursuance of this Act and whether the assignment does or does not include all the real and personal estate of the assignor, vests the estate, whether real or personal or partly real and partly personal, thereby assigned in the assignee therein named for the general benefit of creditors, and the assignment and the property thereby assigned is subject to all the provisions of this Act, and the same applies to the assignee named in the assignment.  R.S.O. 1990, c. A.33, s. 8.

How claims are to rank where different estates

9 If an assignor executing an assignment under this Act for the general benefit of creditors owes debts both individually and as a member of a partnership or as a member of different partnerships, the claims rank first upon the estate by which the debts they represent were contracted and only rank upon the other or others after all the creditors of such other estate or estates have been paid in full.  R.S.O. 1990, c. A.33, s. 9.

Appointment of substituted assignee

10 (1) A majority in number and value of the creditors who have proved claims to the amount of $100 or upwards may substitute for the sheriff, or for an assignee under an assignment to which subsection 5 (3) applies, a person residing in the area in which the assignor resided or carried on business at the time of the assignment.  R.S.O. 1990, c. A.33, s. 10 (1).

Removal, substitution or addition

(2) An assignee may be removed and another substituted or an additional assignee appointed by the judge.  R.S.O. 1990, c. A.33, s. 10 (2).

Death of assignee

(3) Where an assignee dies, a new assignee may be appointed in the manner provided by subsection (2).  R.S.O. 1990, c. A.33, s. 10 (3).

Effect on estate

(4) Where a new or additional assignee is appointed, the estate vests in the new or additional assignee alone or jointly with the co-assignee without a conveyance or transfer, and the new or additional assignee shall register a verified copy of the resolution of the creditors or of the order of appointment in the office in which the assignment was registered.  R.S.O. 1990, c. A.33, s. 10 (4).

Registration

(5) A verified copy of the resolution or of the order may be registered in the proper land registry office and the registration thereof has the same effect as the registration of a conveyance.  R.S.O. 1990, c. A.33, s. 10 (5).

Rights of assignee

11 (1) Except as otherwise provided in this section, the assignee has the exclusive right of suing for the rescission of agreements, deeds and instruments or other transactions made or entered into in fraud of creditors or in violation of this Act.  R.S.O. 1990, c. A.33, s. 11 (1).

Right of creditor in certain cases if assignee refuses

(2) Where a creditor desires to cause any proceeding to be taken that, in the creditor’s opinion, would be for the benefit of the estate and the assignee under the authority of the creditors or inspectors refuses or neglects to take such proceeding after being required so to do, the creditor has the right to obtain an order of the judge authorizing the creditor to take the proceeding in the name of the assignee, but at the creditor’s own expense and risk, upon such terms and conditions as to indemnity to the assignee as the judge prescribes, and thereupon any benefit derived from the proceeding, to the extent of the claim and full costs, belongs exclusively to the creditor instituting the proceeding for his, her or its benefit, but, if before such order is obtained the assignee signifies to the judge a readiness to institute the proceeding for the benefit of the creditors, the order shall prescribe the time within which to do so, and in that case the advantage derived from the proceeding, if instituted within such time, belongs to the estate.  R.S.O. 1990, c. A.33, s. 11 (2).

Following proceeds of property fraudulently transferred

12 (1) In the case of a gift, conveyance, assignment or transfer of any property, real or personal, that is invalid against creditors, if the person to whom the gift, conveyance, assignment or transfer was made has sold or disposed of, realized or collected the property or any part thereof, the money or other proceeds may be seized or recovered in an action by a person who would be entitled to seize and recover the property if it had remained in the possession or control of the debtor or of the person to whom the gift, conveyance, transfer, delivery or payment was made, and such right to seize and recover belongs not only to an assignee for the general benefit of the creditors of the debtor but, where there is no such assignment, to all creditors of the debtor.  R.S.O. 1990, c. A.33, s. 12 (1).

Taking proceeds under execution

(2) Where there is no assignment for the benefit of creditors and the proceeds are of such a character as to be seizable under execution, they may be seized under the execution of any creditor and are subject to the Creditors’ Relief Act, 2010 .  R.S.O. 1990, c. A.33, s. 12 (2); 2010, c. 16, Sched. 4, s. 23 (1).

Creditor suing on behalf of the creditor and other creditors

(3) Where there is no assignment for the benefit of creditors and whether the proceeds are or are not of such a character as to be seizable under execution, an action may be brought therefor by a creditor, whether an execution creditor or not, on behalf of the creditor and all other creditors, or such other proceedings may be taken as are necessary to render the proceeds available for the general benefit of the creditors.  R.S.O. 1990, c. A.33, s. 12 (3).

Protection of innocent purchasers

(4) This section does not apply as against innocent purchasers of the property.  R.S.O. 1990, c. A.33, s. 12 (4).

2010, c. 16, Sched. 4, s. 23 (1) - 25/10/2010

Assignments take precedence over attachments, etc.

13 An assignment for the general benefit of creditors under this Act takes precedence over attachments, garnishee orders, judgments, executions not completely executed by payment, and orders appointing receivers by way of equitable execution subject to the lien, if any, of an execution creditor for costs where there is but one execution in the sheriff’s hands or to the lien, if any, for the costs of the creditor who has the first execution in the sheriff’s hands.  R.S.O. 1990, c. A.33, s. 13.

Waiver of claims by Crown

14 Where the Crown has a claim in respect of estreated bail against the estate of a person who makes an assignment for the benefit of creditors, the Lieutenant Governor in Council may waive any preference in respect of the claim that the Crown has against the estate by virtue of its prerogative right.  R.S.O. 1990, c. A.33, s. 14.

Amendment by judge

15 No advantage shall be obtained by any creditor by reason of any mistake, defect or imperfection in an assignment under this Act for the general benefit of creditors if the assignment can be amended or corrected, and any such mistake, defect or imperfection shall be amended by the judge on the application of the assignee or of any creditor of the assignor, and on such notice to other parties concerned as the judge thinks reasonable, and the amendment, when made, shall be related back to the date of the assignment, but not so as to prejudice the rights of innocent purchasers.  R.S.O. 1990, c. A.33, s. 15.

Publishing notice of assignment

16 (1) A notice of the assignment shall, forthwith after the delivery thereof to the assignee or assent thereto by the assignee, be published by the assignee at least once in The Ontario Gazette and not less than twice in a newspaper having a general circulation in the area in which the property assigned is situate.  R.S.O. 1990, c. A.33, s. 16 (1).

Registering assignment

(2) The assignment or a copy thereof shall also, within five days from the execution thereof, be registered by the assignee, together with an affidavit of a witness thereto of the due execution of the assignment, in the office of the local registrar of the Superior Court of Justice for the area in which the assignor, if a resident in Ontario, resided at the time of the execution thereof, or if not a resident then in the office of the local registrar of the Superior Court of Justice for the area in which the personal property so assigned or where the principal part thereof is at the time of the execution of the assignment, and the local registrar shall number and enter the assignments and endorse thereon the time of receiving them, and they shall be open for the inspection of all persons desiring to inspect them.  R.S.O. 1990, c. A.33, s. 16 (2); 2001, c. 9, Sched. D, s. 14.

Fees of clerk

(3) The local registrar is entitled to the same fees for services as if the assignment had been registered under the Personal Property Security Act .  R.S.O. 1990, c. A.33, s. 16 (3).

Penalty for neglecting publication or registration

17 (1) If the notice is not published as provided by section 16 or if the assignment is not registered within five days from the delivery thereof to the assignee or assent thereto by the assignee, the assignee is liable to a penalty of $10 for each day during which the default continues.  R.S.O. 1990, c. A.33, s. 17 (1).

Onus of proof

(2) The burden of proving the time of the delivery or assent is upon the assignee.  R.S.O. 1990, c. A.33, s. 17 (2).

Liability of sheriff

(3) Where the assignment is made to a sheriff, the sheriff shall not incur the penalty unless he or she has been paid or tendered the cost of advertising and of registering the assignment, nor is the sheriff bound to act under the assignment until the costs in that behalf are paid or tendered to him or her.  R.S.O. 1990, c. A.33, s. 17 (3).

Compelling publication and registration

18 If the assignment is not registered or notice thereof is not published, the judge may, upon the application of any person interested in the assignment, by order enforce the registration of the assignment or the publication of the notice.  R.S.O. 1990, c. A.33, s. 18.

Omission to publish, etc.

19 The omission to publish or register as required by section 16 does not, nor does any irregularity in the publication of registration, invalidate the assignment.  R.S.O. 1990, c. A.33, s. 19.

Duty to call meeting of creditors

20 (1) It is the duty of the assignee immediately to become informed, by reference to the assignor and the assignor’s records of account, of the names and residences of the assignor’s creditors, and, within five days from the date of the assignment, to call a meeting of the creditors for the appointment of inspectors and the giving of directions with reference to the disposal of the estate by sending by registered mail to every creditor known to the assignee a notice calling the meeting to be held in the assignee’s office or some other convenient place to be named in the notice not later than twelve days after the mailing thereof, and by advertisement in The Ontario Gazette .  R.S.O. 1990, c. A.33, s. 20 (1).

Other meetings

(2) All other meetings to be held shall be called in like manner.  R.S.O. 1990, c. A.33, s. 20 (2).

Appointment of inspectors

21 (1) The creditors at any meeting may appoint one or more inspectors who shall superintend and direct the proceedings of the assignee in the management and winding up of the estate, and the creditors may also at any subsequent meeting for that purpose revoke the appointment of any inspector.  R.S.O. 1990, c. A.33, s. 21 (1).

Appointment of another inspector

(2) Where the appointment of an inspector is revoked or where an inspector dies, resigns from office or leaves Ontario, the creditors at any meeting may appoint another inspector to take the inspector’s place.  R.S.O. 1990, c. A.33, s. 21 (2).

Inspector not to purchase assets

(3) An inspector shall not directly or indirectly purchase any part of the stock in trade, debts or other assets of the assignor.  R.S.O. 1990, c. A.33, s. 21 (3).

Meeting of creditors by request of majority thereof

22 (1) In the case of a request in writing signed by a majority of the creditors having claims duly proved of $100 and upwards, computed according to section 24, it is the duty of the assignee, within two days after receiving the request, to call a meeting of the creditors for a day not later than twelve days after receiving the request, and in case of default the assignee shall incur a penalty of $25 for every day after the expiration of the time limited for calling the meeting until it is called.  R.S.O. 1990, c. A.33, s. 22 (1).

Power of judge

(2) In case a sufficient number of creditors do not attend the meeting mentioned in section 20 or fail to give directions with reference to the disposal of the estate, the judge may give such directions as he or she considers necessary for that purpose.  R.S.O. 1990, c. A.33, s. 22 (2).

Voting at meeting

23 At any meeting of creditors, the creditors may vote in person or by proxy authorized in writing, but no creditor whose vote is disputed is entitled to vote until after filing with the assignee an affidavit in proof of the claim, stating the amount and nature thereof.  R.S.O. 1990, c. A.33, s. 23.

Scale of votes

24 (1) Subject to section 10, all questions at meetings of creditors shall be decided by the majority of votes, and for such purpose the votes of creditors shall be calculated as follows:

1.  For every claim of or over $100 and not exceeding $200, one vote.

2.  For every claim over $200 and not exceeding $500, two votes.

3.  For every claim over $500 and not exceeding $1,000, three votes.

4.  For every additional $1,000 or fraction thereof, one vote.  R.S.O. 1990, c. A.33, s. 24 (1).

Upon claims acquired after assignment

(2) No person is entitled to vote on a claim acquired after the assignment unless the entire claim is acquired, but this does not apply to persons acquiring notes, bills or other securities upon which they are liable.  R.S.O. 1990, c. A.33, s. 24 (2).

Casting vote

(3) In the case of a tie, the assignee or, if there are two assignees, the assignee nominated for that purpose by the creditors or by the judge, if none has been nominated by the creditors, has a casting vote.  R.S.O. 1990, c. A.33, s. 24 (3).

Valuing securities

(4) Every creditor in the proof of claim shall state whether the creditor holds any security for the claim or any part thereof, and if such security is on the estate of the assignor or on the estate of a third person for whom the assignor is only secondarily liable, the creditor shall put a specified value thereon and the assignee, under the authority of the creditors, may either consent to the creditor ranking for the claim after deducting such valuation or may require from the creditor an assignment of the security at an advance of 10 per cent upon the specified value to be paid out of the estate as soon as the assignee has realized the security, and in such case the difference between the value at which the security is retained and the amount of the gross claim of the creditor is the amount for which the creditor shall rank and vote in respect of the estate.  R.S.O. 1990, c. A.33, s. 24 (4).

Right to revalue in certain cases

(5) If a creditor’s claim is based upon a negotiable instrument upon which the assignor is only indirectly or secondarily liable and that is not mature or exigible, the creditor shall be considered to hold security within the meaning of this section and shall put a value on the liability of the person primarily liable thereon as being the security for the payment thereof, but after the maturity of such liability and its non-payment the creditor is entitled to amend the claim and revalue the security.  R.S.O. 1990, c. A.33, s. 24 (5).

Where creditor holding security fails to value it

(6) Where a person claiming to be entitled to rank on the estate holds security for the claim, or any part thereof, of such a nature that the person is required by this Act to value the security and fails to value it, the judge, upon summary application by the assignee or by any other person interested in the estate, of which application at least three days notice shall be given to the claimant, may order that, unless a specified value be placed on the security and the assignee is notified in writing within a time to be limited by the order, the claimant is, in respect of the claim, or the part thereof for which the security is held in case the security is held for part only of the claim, wholly barred of any right to share in the proceeds of the estate.  R.S.O. 1990, c. A.33, s. 24 (6).

Consequences of neglect of order

(7) If a specified value is not placed on the security or the assignee is not notified in writing according to the exigency of the order or within such further time as the judge by subsequent order allows, the claim, or the part, as the case may be, is wholly barred as against the estate, but without prejudice to the liability of the assignor therefor.  R.S.O. 1990, c. A.33, s. 24 (7).

Proof of claim

25 (1) All persons claiming to be entitled to rank on the estate shall furnish to the assignee particulars of their claim proved by affidavit and such vouchers as the nature of the case admits.  R.S.O. 1990, c. A.33, s. 25 (1).

Limiting time for proof of claim

(2) Where a person claiming to be entitled to rank on the estate does not, within a reasonable time after receiving notice of the assignment and of the name and address of the assignee, furnish to the assignee satisfactory proofs of claim as provided by this and the preceding sections, the judge upon summary application by the assignee or by any other person interested in the estate, of which application at least three days notice shall be given to the claimant, may order that unless the claim is proved to the satisfaction of the judge within a time to be limited by the order, the claimant shall be deemed to be no longer a creditor of the estate and is wholly barred of any right to share in the proceeds thereof.  R.S.O. 1990, c. A.33, s. 25 (2).

Consequences of neglect to prove claim

(3) If the claim is not so proved within the time so limited or within such further time as the judge by subsequent order allows, it is wholly barred and the assignee is at liberty to distribute the proceeds of the estate as if no such claim existed, but without prejudice to the liability of the assignor therefor.  R.S.O. 1990, c. A.33, s. 25 (3).

Not to interfere with assignees

(4) Subsections (2) and (3) do not interfere with the protection afforded to assignees by section 53 of the Trustee Act .  R.S.O. 1990, c. A.33, s. 25 (4).

Creditor may prove claim not due

(5) A person whose claim has not accrued due is nevertheless entitled to prove under the assignment and to vote at meetings of creditors, but in ascertaining the amount of any such claim a deduction for interest shall be made for the time that has to run until the claim becomes due.  R.S.O. 1990, c. A.33, s. 25 (5).

Contestation of claim

26 (1) At any time after the assignee receives from any person claiming to be entitled to rank on the estate proof of the person’s claim, notice of contestation of the claim may be served by the assignee upon the claimant.  R.S.O. 1990, c. A.33, s. 26 (1).

(2) Within thirty days after the receipt of the notice, or within such further time as the judge allows, an action shall be brought by the claimant against the assignee to establish the claim, and a copy of the statement of claim in the action, or of the claim in case the action is brought in the Small Claims Court, shall be served on the assignee, and in default of such action being brought and statement of claim or claim served within the time limited the claim to rank on the estate is forever barred.  R.S.O. 1990, c. A.33, s. 26 (2).

Service on solicitor of assignee

(3) The notice by the assignee shall contain the name and place of business of a solicitor upon whom service of the statement of claim or claim may be made, and service upon the solicitor shall be deemed sufficient service.  R.S.O. 1990, c. A.33, s. 26 (3).

Right of assignee to compel plaintiff to proceed with action against assignor

(4) Where prior to the assignment an action has been commenced against the assignor and is pending at the time of the assignment, the assignee may, by notice served upon the plaintiff in the action, require the plaintiff to proceed, and the plaintiff is bound to proceed in that action to establish the claim, instead of bringing an action against the assignee as provided for by subsection (2), and the plaintiff may thereupon apply to the court in which the action is brought for an order adding the assignee as a party defendant in the action, and the assignee may be so added upon such terms as to the costs that may be subsequently incurred as the court or a judge thereof, or the judge making the order, directs.  R.S.O. 1990, c. A.33, s. 26 (4).

Procedure where assignee is satisfied but assignor desires to dispute

27 (1) If the assignee is satisfied with the proof adduced in support of a claim but the assignor disputes it, the assignor shall do so by notice in writing to the assignee, stating the grounds of dispute, and the notice shall be given within ten days after the assignor is notified in writing by the assignee that the assignee is satisfied with the proof adduced and not afterwards unless by leave of the judge.  R.S.O. 1990, c. A.33, s. 27 (1).

Where assignee does not require action to be brought

(2) If upon receiving the notice of dispute the assignee does not consider it proper to require the claimant to bring an action to establish the claim, the assignee shall notify the assignor in writing of the fact, and the assignor may thereupon, and within ten days of receiving the notice, apply to the judge for an order requiring the assignee to serve a notice of contestation.  R.S.O. 1990, c. A.33, s. 27 (2).

(3) The order shall be made only if, after notice to the assignee, the judge is of opinion that there are good grounds for contesting the claim.  R.S.O. 1990, c. A.33, s. 27 (3).

Where decision of assignee final

(4) If the assignor does not make such an application, the decision of the assignee is, as against the assignor, final and conclusive.  R.S.O. 1990, c. A.33, s. 27 (4).

Decision of judge on validity of claim

(5) If upon the application the claimant consents in writing, the judge may in a summary manner decide the question of the validity of the claim.  R.S.O. 1990, c. A.33, s. 27 (5).

Intervention by assignor at trial

(6) If an action is brought by the claimant against the assignee, the assignor may intervene at the trial either personally or by counsel for the purpose of calling and examining or cross-questioning witnesses.  R.S.O. 1990, c. A.33, s. 27 (6).

Retention of assets in Ontario and deposit of money

28 (1) No property or assets of an estate assigned under this Act shall be removed out of Ontario without the order of the judge, and the proceeds of the sale of any such property or assets and all money received on account of any estate shall be deposited by the assignee in a financial institution described in subsection (1.1) and shall not be withdrawn or removed without the order of the judge, except in payment of dividends and charges incidental to winding up the estate. 2007, c. 7, Sched. 7, s. 180.

Financial institutions

(1.1) A financial institution referred to in subsection (1) is,

(a)  a bank or authorized foreign bank within the meaning of section 2 of the Bank Act (Canada);

(b)  a corporation registered under the Loan and Trust Corporations Act ;

(c)  a credit union within the meaning of the Credit Unions and Caisses Populaires Act, 2020 ; or

(d)  a retail association as defined under the Cooperative Credit Associations Act (Canada). 2007, c. 7, Sched. 7, s. 180; 2020, c. 36, Sched. 7, s. 294.

(2) An assignee or any person acting in the assignee’s place who contravenes this section is liable to a penalty of $500. R.S.O. 1990, c. A.33, s. 28 (2).

Application of penalty

(3) One-half of the penalty goes to the person suing therefor and the other half belongs to the estate. R.S.O. 1990, c. A.33, s. 28 (3).

Imprisonment in default of payment of penalty

(4) In default of payment of the penalty and all costs incurred in an action or proceeding for the recovery thereof within the time limited by the judgment, the court in which the action is brought may order that the assignee or person may be imprisoned for any period not exceeding thirty days, and the assignee or person is disqualified from acting as assignee of any estate while the default continues. R.S.O. 1990, c. A.33, s. 28 (4).

2007, c. 7, Sched. 7, s. 180 - 01/10/2009

2020, c. 36, Sched. 7, s. 294 - 01/03/2022

Accounts to be kept accessible

29 Upon the expiration of one month from the first meeting of creditors or as soon as may be thereafter and afterwards from time to time at intervals of not more than three months, the assignee shall prepare, and keep constantly accessible to the creditors, accounts and statements of the doings as assignee and of the position of the estate.  R.S.O. 1990, c. A.33, s. 29.

30 The law of set-off applies to all claims made against the estate, and also to all actions instituted by the assignee for the recovery of debts due to the assignor, in the same manner and to the same extent as if the assignor were plaintiff or defendant, as the case may be, except in so far as any claim for set-off is affected by this or any other Act respecting frauds or fraudulent preferences.  R.S.O. 1990, c. A.33, s. 30.

Dividends, when to be paid

31 As large a dividend as can be paid with safety shall be paid by every assignee within twelve months from the date of the assignment, and earlier if required by the inspectors, and thereafter a further dividend shall be paid every six months and more frequently if required by the inspectors, until the estate is wound up and disposed of.  R.S.O. 1990, c. A.33, s. 31.

Notice of dividend sheet

32 As soon as a dividend sheet is prepared, notice thereof shall be given by registered mail to each creditor, enclosing an abstract of receipts and disbursements, showing what interest has been received by the assignee for money in the assignee’s hands, together with a copy of the dividend sheet, noting thereon the claims objected to, and stating whether any reservation has or has not been made therefor, and after the expiry of eight days from the date of mailing the notice, abstract and dividend sheet, dividends on all claims not objected to within that period shall be paid.  R.S.O. 1990, c. A.33, s. 32.

Distributing money and determining claims

33 (1) The assignee may take the proceedings authorized by subsections 11 (2), (3), (6) and (7) and 12 (7) and (8) and section 14 of the Creditors’ Relief Act, 2010 to be taken by a sheriff and, in that case, sections 11, 12, 13 and 14 of that Act apply with necessary modifications to proceedings for the distribution of money and determination of claims arising under an assignment made under this Act, with the substitution of “assignee” for “sheriff”, but this section does not relieve the assignee from mailing to each creditor the abstract and other information required by section 32 of this Act to be sent to creditors so far as the same is not contained in the list sent by the assignee under section 11 of the Creditors’ Relief Act, 2010 .  2010, c. 16, Sched. 4, s. 23 (2).

To what court application to be made

(2) Applications under this section shall be made to the Superior Court of Justice.  R.S.O. 1990, c. A.33, s. 33 (2); 2001, c. 9, Sched. D, s. 14.

2010, c. 16, Sched. 4, s. 23 (2) - 25/10/2010

Remuneration of assignee

34 The assignee shall receive such remuneration as is voted to the assignee by the creditors at a meeting called for the purpose after the first dividend sheet has been prepared, or by the inspectors, in case the creditors fail to provide therefor, subject to review by the judge upon complaint of the assignee or of any creditor.  R.S.O. 1990, c. A.33, s. 34.

Where remuneration not fixed before the final dividend

35 Where the remuneration of the assignee has not been fixed under section 34 before the final dividend, the assignee may insert in the final dividend sheet, and retain as remuneration, a sum not exceeding 5 per cent of the cash receipts, subject to review by the judge, but no application by the assignee to review the allowance shall be entertained unless the question of the assignee’s remuneration has been brought before a meeting of creditors competent to decide the same before the preparation of the final dividend sheet.  R.S.O. 1990, c. A.33, s. 35.

Remuneration of inspectors

36 (1) An assignee shall not make any payment or allowance to an inspector beyond actual and necessary travelling expenses in and about the assignee’s duties as inspector except under the authority of a resolution of the creditors passed at a meeting regularly called fixing the amount thereof, and in the notice calling the meeting the fixing of the remuneration of the inspectors shall be specially mentioned as one of the subjects to be brought before the meeting.  R.S.O. 1990, c. A.33, s. 36 (1).

Limit of allowance

(2) An inspector shall not be allowed more than $4 a day besides the inspector’s actual travelling expenses.  R.S.O. 1990, c. A.33, s. 36 (2).

Examination of assignor or employees

37 (1) Upon a resolution passed by a majority vote of the creditors present or represented at a meeting of creditors regularly called, or upon the written request of a majority of the inspectors, or upon an order made by the judge, the assignee may examine upon oath before an associate judge, local registrar, judge of the Superior Court of Justice, official examiner, official referee or any other person named in the order, the assignor or any person who is or has been the assignor’s agent, clerk, servant, officer or employee of any kind, touching the estate and effects of the assignor, and as to the property and means the assignor had when the earliest of the assignor’s debts or liabilities existing at the date of the assignment was incurred, and as to the property and means the assignor still has of discharging debts and liabilities, and as to the disposal made of any property since contracting the debt or incurring the liability, and as to any and what debts are owing to the assignor, and the person examined may be required by the assignee to produce upon such examination any property, book, document or paper in the person’s custody, power or control. R.S.O. 1990, c. A.33, s. 37 (1); 2001, c. 9, Sched. D, s. 14; 2020, c. 11, Sched. 5, s. 13; 2021, c. 4, Sched. 3, s. 19.

Where examination to take place

(2) Unless otherwise ordered, the examination shall take place in the area in which the person to be examined resides. R.S.O. 1990, c. A.33, s. 37 (2).

Procedure on examination

(3) The rules and procedure of the Superior Court of Justice as to the examination of a judgment debtor, or any clerk or employee or former clerk or employee of a judgment debtor, so far as may be, apply to an examination held under subsection (1). R.S.O. 1990, c. A.33, s. 37 (3); 2001, c. 9, Sched. D, s. 14.

2020, c. 11, Sched. 5, s. 13 - 08/01/2021

2021, c. 4, Sched. 3, s. 19 - 01/09/2021

Examination of persons having custody of property of assignor

38 Any person who has or is believed or suspected of having in the person’s possession or power any book, document or paper of any kind relating in whole or in part to the assignor, the assignor’s dealings or property and who refuses or fails to produce the book, document or paper for the inspection of the assignee within four days after demand in writing by the assignee may by order of the judge be examined before the judge or any of the officers mentioned in section 37 touching the book, document or paper, and is subject to the same consequences in the case of neglect to attend or refusal to disclose the matters in respect of which the person may be examined or to make such production as is mentioned in section 40.  R.S.O. 1990, c. A.33, s. 38.

When assignor does not attend or refuses to answer questions

39 If the assignor does not attend for examination and does not allege a sufficient excuse for not attending or, if attending, refuses to disclose the assignor’s property or transactions respecting the property or does not make satisfactory answers respecting the property or if it appears from the examination that the assignor has concealed or made away with property in order to defeat or defraud the assignor’s creditors or any of them, the judge may order the assignor to be committed to a correctional institution in the area in which the assignor resides for any period not exceeding twelve months.  R.S.O. 1990, c. A.33, s. 39.

Compelling attendance and production of books

40 Any person, other than the assignor, liable to be examined is subject to the same consequences in case of neglect to attend or refusal to disclose the matters in respect of which the person may be examined or to make production as a witness in an action in the Superior Court of Justice.  R.S.O. 1990, c. A.33, s. 40; 2001, c. 9, Sched. D, s. 14.

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The Assignment of Commercial Contracts in Legal Practice

Contracts are a prime example of intangible property. Parties to commercial contracts, like other property owners, frequently want to transfer their property to a third party. The transfer of a contract refers to the assignment of some or all of a party’s rights or the delegation of some or all of a party’s performance, or both, to a non-party to the agreement.

Some common instances in which a contracting party in a commercial context may desire to assign contractual rights, performance responsibilities, or both are as follows:

  • In an asset sale, a corporation sells parts or all of its company.
  • A contractor who subcontracts its work under certain projects.
  • A business conglomerate that is going through an internal corporate reorganization.
  • The borrower who offers its lender a security interest in its assets.
  • A manufacturer who sells its receivables to a third party.

In any of these cases, the non-transferring party may object to assignment or delegation for a variety of grounds, including:

  • The desire to choose the party with whom it does business.
  • Concern that a different obligor or obligee may jeopardize the non-transferring party’s capacity to benefit from the contractual deal

To decide whether the transferring party (also known as the transferor) can execute the proposed transfer without gaining the non-transferring party’s approval, the transferring party must turn to relevant legislation and the plain text of the contract. If consent is necessary and not obtained, the transferring party faces the following risks:

  • Violation of the contract.
  • Making an ineffective and invalid transfer.

The Definitions of Assignment and Delegation

Each party to a contract is an:

  • Obligee in terms of its contractual rights; and
  • Obligor in terms of its contractual performance responsibilities.

Contract “assignability” is a term frequently used by contracting parties and practitioners. While they may expressly address the assignment of a party’s rights under the contract in some contexts, they frequently use the term “assignment” to refer to both:

  • The delegation of duty to perform.
  • The assignment of rights to obtain performance.

However, assignment and delegation are two distinct legal concepts that must be treated individually due to the fact that they might have different outcomes.

What is an Assignment?

Assignment is the transfer of some or all of an obligee’s (assignor’s) rights to receive performance under a contract, generally but not always to a non-party (assignee). A contract benefit is a right (a chose in action) that, in theory, may be delegated by the benefiting party to a non-party. For clarity purposes, this informative piece will assume that the assignee is a non-party, although the rights and responsibilities of the parties addressed apply equally to an assignee who is also a party to the agreement. When these rights are assigned, the assignor no longer has any claim to the advantages of the given rights, which are completely passed to the assignee.

Technically, a contract’s burden cannot be assigned under the law (see National Trust Co. v. Mead [i] and Irving Oil Ltd. v. Canada [ii] ). Transferring performance responsibilities under a contract requires the approval of all parties, making such a transfer a novation.

In practice, parties frequently refer to “assigning a contract” or “allowing the assignment of a contract,” which is actually an inaccurate representation of their intentions. For example, the parties may plan for some or all of the following:

  • The contract’s rights or benefits may be assigned.
  • The contract’s burdens or performance duties may be transferred.
  • Rights and burdens may be transferred.

The Effects of Assignment

The assignor is no longer entitled to any benefits from the assigned rights, which have all been passed to the assignee; nonetheless, even if the assignor is stripped of its contractual rights, assignment does not decrease or remove the assignor’s duties to the non-assigning party. As previously stated, a contract’s burden may only be assigned to a third party with the approval of all parties. As a result, the assignor is still obligated to fulfill its contractual commitments. The non-assigning party retains the following:

  • Its entitlement to get performance from the assignor; and
  • Its remedies against the assignor in the event of non-performance.

The ordinary rule is that a party can only assign its benefits without the consent of the other party to the contract and will remain liable to the other party for its performance obligations (see National Trust Co. v. Mead [iii] and Rodaro v. Royal Bank [iv] ). If the assignor intends to transfer its obligations and both the non-transferring party and the potential assignee agree, the parties should enter into a novation agreement, which results in a new contract between the assignee and the old contract’s remaining (non-transferring) party. In practice, the assignee often undertakes the contract’s performance responsibilities as of the date of assignment, and the assignor gets an indemnity from the assignee in the event of a breach or failure to perform.

A clear, present, purpose to transfer the assigned rights without needing any additional action by the assignee is required for an assignment to be effective, which means that a promise to assign in the future is ineffective as an actual transfer. Otherwise, no special terminology is necessary to draft an effective assignment.

What is Delegation?

Delegation is the transfer of some or all of an obligor’s (delegating party’s) performance responsibilities (or conditions demanding performance) under a contract to a non-party (delegatee). To be effective, a delegation requires the delegatee to agree to take on the delegated performance; however, unless the non-delegating party has consented to a novation, the delegating party remains accountable for the delegated performance, whether or not it has also transferred its contractual rights.

This is distinct from an assignment of rights, in which the assignor relinquishes its contractual claims upon assignment. As a result, even if the delegating party can effectively delegate its actual performance to the delegatee (such that the delegatee’s actual performance discharges the delegating party’s duty), the delegating party cannot be relieved of its obligation to perform and liability for non-performance unless the non-delegating party agrees to a novation.

There is no precise wording necessary to create an effective delegation, just as there is not for the assignment of rights. When performance is effectively delegated, the delegatee assumes liability for the delegating party’s performance obligations (under an assumption agreement), even if the delegating party retains liability to the non-delegating party for the delegatee’s failure to adequately perform the delegated obligations in the absence of a novation. Under an assumed agreement, the delegating party may have recourse against the delegatee, which is frequently addressed through a contractual indemnity right.

If the delegating party wishes to entirely exclude itself from liability for non-performance, it must get the non-delegating party’s approval to the contract (novation). In the majority of novations, the delegating party, the delegatee, and the non-delegating party all agree on the following:

  • The delegatee replaces the delegating party as a party to the contract.
  • The delegating party is no longer liable for contract performance.
  • The delegatee is directly and solely liable for the delegating party’s contract fulfillment.

Types of Assignment – Legal (Statutory) Assignment vs. Equitable Assignment

  • Legal (Statutory) Assignment: An assignment that satisfies the provisions of the appropriate province or territory laws (for example, the Conveyancing and Law of Property Act [v] )
  • Equitable Assignment: An equitable assignment may be enforced even if it does not fulfill the statutory requirements for a legal assignment.

Requirements for a Legal (Statutory) Assignment

All of Canada’s common law provinces have enacted legislation allowing the transfer of contract rights. Notably, the legislation for Ontario is the Conveyancing and Law of Property Act .

These statutory assignments are enforceable if the parties comply with the following procedures:

  • The assignment is absolute.
  • The assignment is in writing, signed by the assignor
  • the non-assigning obligor is given express written notice.

A statutory assignment does not need consideration, and no precise words or form are necessary. They can be made as gifts and be valid.

Requirements for an Equitable Assignment

An assignment may be enforceable as an equitable assignment even if it does not fulfill the formality criteria of a statutory assignment. An equitable assignment does not necessitate the use of any specific terms or form. However, in order to comply with any provincial statutes of frauds regulations, the assignment must be in writing. The phrasing must clearly indicate that the assignee is to benefit from the rights being assigned. In contrast to a statutory assignment, consideration is required until there is a full transfer, such as a gift. It is not necessary to provide the non-assigning obligor with express written notification (except in the case of a transfer of land). However, notification is often given largely to assure that:

  • The obligor ceases to pay the assignor.
  • The assignee has priority over subsequent encumbrances.

Contractual Anti-Assignment & Anti-Delegation Clauses

Rather than relying on relatively uncertain legal rules, most commercial contract parties handle transferability issues in the written agreement. As a result, most commercial contracts include a negative covenant that restricts one or both parties’ rights to assign.

These clauses frequently include specific exceptions that allow one or more of the parties to assign and delegate rights and duties, often to designated non-parties such as affiliates and successors-in-interest to the transferring party’s business.

Courts frequently uphold provisions that prevent assignment because they favor the rights of parties to freely contract. However, subject to specific limitations, there is a broad assumption that contractual rights are assignable. As a result, the case law on anti-assignment provisions is a little erratic. Some courts have upheld anti-assignment clauses and declared the agreement unenforceable. Others have argued that an anti-assignment provision cannot preclude assignment.

Overall, contractual anti-assignment and anti-delegation provisions are commonly included in many types of business contracts. If not, transferability is determined by the contract’s subject matter and the nature of the rights and obligations to be transferred. It is important to stay knowledgeable the existence of such contractual terms when dealing with various commercial contracts…such as contracts for the sale of goods, personal service contracts, commercial real estate leases and various other types of contracts.

If you have any questions about your business’s contractual assignment or delegation needs, contact Cactus Law today to speak with a lawyer specializing in commercial law.

Disclaimer:

The information presented above is solely for general educational and informational purposes. It is not intended to be, and should not be taken as, legal advice. The information given above may not be applicable in all cases and may not even reflect the most recent authority after the date of its publication. As a result, please refer to all updated legislation, statutes, and amendments. Nothing in this article should be relied on or acted upon without the benefit of legal advice based on the specific facts and circumstances described, and nothing in this article should be interpreted otherwise.

About the Author:

Kanwar Gujral is entering his third year at Osgoode Hall Law School in Toronto, Ontario. He has a dedicated interest in real estate, business, and corporate law.

[i] National Trust Co. v. Mead , 1990 CarswellSask 165 (S.C.C.).

[ii] Irving Oil Ltd. v. Canada , 1984 CarswellNat 137 (Fed. C.A.).

[iii] Supra note 1.

[iv] Rodaro v. Royal Bank , 2002 CarswellOnt 1047 (Ont. C.A.).

[v] Conveyancing and Law of Property Act , R.S.O. 1990, c. C.34.

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Anti-Assignment Provisions and Assignments by ‘Operation of Law’: What Do I Have to Do? What Should I Do?

Introduction.

One of the key roles of legal due diligence in mergers and acquisitions (M&A) is to assist in the efficient and successful completion of any proposed M&A transaction. Due diligence is not merely a procedural formality but can serve as a proactive shield against unforeseen challenges and risks. One essential aspect of the legal due diligence process is reviewing third-party contracts to which the target entity is party, in order to better understand the scope of its commercial relationships and to anticipate any issues that may arise via the underlying contractual relationships as a result of completing the proposed M&A transaction.

A frequent reality in many M&A transactions is the requirement to obtain consents from third parties upon the “change of control” of the target entity and/or the transfer or assignment of a third-party contract to which the target is party. Notwithstanding the wording of such contracts, in many instances, the business team from the purchaser will often ask the question: “When is consent actually required?” While anti-assignment and change of control provisions are fairly ubiquitous in commercial contracts, the same cannot be said for when the requirement to obtain consent is actually triggered. The specifics of the proposed transaction’s structure will often dictate the purchaser’s next steps when deciding whether the sometimes-cumbersome process of obtaining consents with one or multiple third parties is actually needed.

This article examines what anti-assignment provisions are and how to approach them, depending on the situation at hand, including in the context of transactions where a change of control event may be triggered. This article also discusses how to interpret whether consent is required when faced with an anti-assignment provision which states that an assignment, including an assignment by operation of law , which requires consent from the non-assigning party.

Understanding Anti-Assignment Provisions

Generally, an anti-assignment provision prohibits the transfer or assignment of some or all of the assigning party’s rights and obligations under the contract in question to another person without the non-assigning party’s prior written consent. By way of example, a standard anti-assignment provision in a contract may read as follows:

Company ABC shall not assign or transfer this agreement, in whole or in part, without the prior written consent of Company XYZ.

In this case, Company ABC requires Company XYZ’s prior written consent to assign the contract. Seems simple enough. However, not all anti-assignment provisions are cut from the same cloth. For example, some anti-assignment provisions expand on the prohibition against general contractual assignment by including a prohibition against assignment by operation of law or otherwise . As is discussed in greater detail below, the nuanced meaning of this phrase can capture transactions that typically would not trigger a general anti-assignment provision and can also trigger the requirement to get consent from the non-assigning party for practical business reasons.

To explore this further, it is helpful to consider anti-assignment provisions in the two main structures of M&A transactions: (i) asset purchases and (ii) share purchases.

Context of M&A Transactions: Asset Purchases and Share Purchases

There are key differences between what triggers an anti-assignment provision in an asset purchase transaction versus a share purchase transaction.

i) Asset Purchases

An anti-assignment provision in a contract that forms part of the “purchased assets” in an asset deal will normally be triggered in an asset purchase transaction pursuant to which the purchaser acquires some or all of the assets of the target entity, including some or all of its contracts. Because the target entity is no longer the contracting party once the transaction ultimately closes (since it is assigning its rights and obligations under the contract to the purchaser), consent from the non-assigning party will be required to avoid any potential liability, recourse or termination of said contract as a result of the completion of the transaction.

ii) Share Purchases

Provisions which prohibit the assignment or transfer of a contract without the prior approval of the non-assigning party will not normally, under Canadian law, be captured in a share purchase transaction pursuant to which the purchaser acquires a portion or all of the shares of the target entity. In other words, no new entity is becoming party to that same contract. General anti-assignment provisions are not typically triggered by a share purchase because the contracts are not assigned or transferred to another entity and instead there is usually a “change of control” of the target entity. In such cases, the target entity remains the contracting party under the contract and the consent analysis will be premised on whether the contract requires consent of the third party for a “direct” or “indirect” change of control of the target entity and not the assignment of the contract.

Importantly, some anti-assignment provisions include prohibitions against change of control without prior written consent. For example, the provision might state the following:

Company ABC shall not assign or transfer this agreement, in whole or in part, without the prior written approval of Company XYZ. For the purposes of this agreement, any change of control of Company ABC resulting from an amalgamation, corporate reorganization, arrangement, business sale or asset shall be deemed an assignment or transfer.

In that case, a change of control as a result of a share purchase will be deemed an assignment or transfer, and prior written consent will be required.

A step in many share purchase transactions where the target is a Canadian corporation that often occurs on or soon after closing is the amalgamation of the purchasing entity and the target entity. So, what about anti-assignment provisions containing by operation of law language – do amalgamations trigger an assignment by operation of law? The short answer: It depends on the jurisdiction in which the anti-assignment provision is being scrutinized (typically, the governing law of the contract in question).

Assignments by Operation of Law

In Canada, the assignment of a contract as part of an asset sale, or the change of control of a party to a contract pursuant to a share sale – situations not normally effected via legal statute or court-ordered proceeding in M&A transactions – will not in and of itself effect an assignment of that contract by operation of law . [1]

Still, one must consider the implications of amalgamations, especially in the context of a proposed transaction when interpreting whether consent is required when an anti-assignment provision contains by operation of law language. Under Canadian law, where nuances often blur the lines within the jurisprudence, an amalgamation will not normally effect the assignment of a contract by operation of law . The same does not necessarily hold true for a Canadian amalgamation scrutinized under U.S. legal doctrines or interpreted by U.S. courts. [2]

Difference Between Mergers and Amalgamations

As noted above, after the closing of a share purchase transaction, the purchasing entity will often amalgamate with the target entity ( click here to read more about amalgamations generally). When two companies “merge” in the U.S., we understand that one corporation survives the merger and one ceases to exist which is why, under U.S. law, a merger can result in an assignment by operation of law . While the “merger” concept is commonly used in the U.S., Canadian corporations combine through a process called “amalgamation,” a situation where two corporations amalgamate and combine with neither corporation ceasing to exist. For all of our Canadian lawyer readers, you will remember the Supreme Court of Canada’s description of an amalgamation as “a river formed by the confluence of two streams, or the creation of a single rope through the intertwining of strands.” [3] Generally, each entity survives and shares the pre-existing rights and liabilities of the other, including contractual relationships, as one corporation. [4]

MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V.

As a practical note and for the reasons below, particularly in cross-border M&A transactions, it would be wise to consider seeking consent where a contract prohibits assignment by operation of law without the prior consent of the other contracting party when your proposed transaction contemplates an amalgamation.

In MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V. (a Superior Court of Delaware decision), the court interpreted a Canadian (British Columbia) amalgamation as an assignment by operation of law , irrespective of the fact that the amalgamation was effected via Canadian governing legislation. In essence, the Delaware court applied U.S. merger jurisprudence to a contract involving a Canadian amalgamation because the contract in question was governed by Delaware law. This is despite the fact that, generally, an amalgamation effected under Canadian common law jurisdictions would not constitute an assignment by operation of law if considered by a Canadian court. As previously mentioned, under Canadian law, unlike in Delaware, neither of the amalgamating entities cease to exist and, technically, there is no “surviving” entity as there would be with a U.S.-style merger. That being said, we bring this to your attention to show that it is possible that a U.S. court (if the applicable third-party contract is governed by U.S. law or other foreign laws) or other U.S. counterparties could interpret a Canadian amalgamation to effect an assignment by operation of law . In this case, as prior consent was not obtained as required by the anti-assignment provision of the contract in question, the Delaware court held that the parties to that agreement were bound by the anti-assignment provision’s express prohibition against all assignments without the other side’s consent. [5]

To avoid the same circumstances that resulted from the decision in MTA Canada Royalty Corp. , seeking consent where an anti-assignment provision includes a prohibition against assignment by operation of law without prior consent can be a practical and strategic option when considering transactions involving amalgamations. It is generally further recommended to do so in order to avoid any confusion for all contracting parties post-closing.

Practical Considerations

The consequences of violating anti-assignment provisions can vary. In some cases, the party attempting to complete the assignment is simply required to continue its obligations under the contract but, in others, assignment without prior consent constitutes default under the contract resulting in significant liability for the defaulting party, including potential termination of the contract. This is especially noteworthy for contracts with third parties that are essential to the target entity’s revenue and general business functions, as the purchaser would run the risk of losing key contractual relationships that contributed to the success of the target business. As such, identifying assignment provisions and considering whether they are triggered by a change of control and require consent is an important element when reviewing the contracts of a target entity and completing legal due diligence as part of an M&A transaction.

There can be a strategic and/or legal imperative to seek consent in many situations when confronted with contractual clauses that prohibit an assignment, either by operation of law or through other means, absent the explicit approval of the non-assigning party. However, the structure of the proposed transaction will often dictate whether consent is even required in the first place. Without considering this nuanced area of M&A transactions, purchasers not only potentially expose themselves to liability but also risk losing key contractual relationships that significantly drive the value of the transaction.

The  Capital Markets Group  at Aird & Berlis will continue to monitor developments in cross-border and domestic Canadian M&A transactions, including developments related to anti-assignment provisions and commercial contracts generally. Please contact a member of the group if you have questions or require assistance with any matter related to anti-assignment provisions and commercial contracts generally, or any of your cross-border or domestic M&A needs.

[1] An assignment by operation of law can be interpreted as an involuntary assignment required by legal statute or certain court-ordered proceedings. For instance, an assignment of a contract by operation of law may occur in, among other situations: (i) testamentary dispositions; (ii) court-ordered asset transfers in bankruptcy proceedings; or (iii) court-ordered asset transfers in divorce proceedings.

[2] MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V ., C. A. No. N19C-11-228 AML, 2020 WL 5554161 (Del. Super. Sept. 16, 2020) [ MTA Canada Royalty Corp. ].

[3] R. v. Black & Decker Manufacturing Co. , [1975] 1 S.C.R. 411.

[4] Certain Canadian jurisdictions, such as the Business Corporations Act (British Columbia), explicitly state that an amalgamation does not constitute an assignment by operation of law (subsection 282(2)).

[5] MTA Canada Royalty Corp .

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Canada: Novation Or Assignment, That Is The Question

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In the context of asset acquisition, and assuming that the target's contracts are assets being transferred to the purchaser, the transfer of contracts typically requires the parties to the transaction to go through either the novation process or assignment of the contract from the seller to the purchaser.

Novation is a trilateral agreement between the original parties to a contract and the purchaser seeking to replace the seller to the contract. Novation transfers not only the rights and benefits under the original contract to the purchaser, but also the obligations, thus releasing the seller from all obligations under the original contract. All parties to the original agreement need to consent to the new agreement.

Novation has been referred to as the "Hail Mary" defence for parties seeking to avoid contractual liability, however, the standard of establishing novation is quite high. The Supreme Court of Canada (the SCC ) has established a three-factor test for establishing novation. The party asserting novation must prove:

  • the purchaser assumes complete liability;
  • the creditor (one of the existing party to the original contract) must accept the purchaser as principal debtor and not merely as an agent or guarantor of the seller; and
  • the creditor (one of the existing party to the original contract) must accept the new contract in full satisfaction of, and as substitution for, the old contract. [1]

The SCC also stated that in the absence of an express new agreement, a court should not find novation unless the circumstances are especially compelling. [2]

Assignment and assumption, on the other hand, transfer the contractual rights and benefits held by the assignor/seller to the assignee/purchaser, but not the assignor/seller's obligations under the contract. The burden under the original contract remains with the assignor/seller, thus the assignor/seller can be held liable if the assignee/purchaser fails to perform under the contract. The assignor/seller can protect itself from potential liability by obtaining an indemnity from the assignee/purchaser.

Unlike novation, an assignment does not extinguish the original agreement and does not create a new and separate agreement. The original contract remains in force. Also, unlike novation, depending on the terms of the subject contract, an assignment of the contract may not require the consent of all parties to the agreement. Depending on the terms of the agreement, the assignor/seller usually only needs to provide a notice to the non-assigning party.

If the contract is silent as to its assignability, then the courts have held that the contract is generally assignable, except for personal services contract, where consent must be obtained. [3] The SCC has held that personal services contracts are contracts based on confidences, skills or special personal characteristics such as to implicitly limit the agreement to the original parties, [4] and the determination of whether a contract is personal services contract is often made by the courts.

Assignment and assumption may be more convenient for the seller than novation given that the seller may not need to ask for consent from a third party to assign its interest in an agreement to the purchaser, however, the seller needs to be aware of the potential liabilities if the purchaser fails to perform under the assigned contract. Although novation can protect the seller from such future liabilities, it is a more cumbersome process for all parties involved, and may not be feasible if the third party refuses to provide consent. Therefore, it is essential for parties to assess their relationship with the third party before proceeding with novation.

[1] National Trust Co. v Mead et al. [1990] 2 SCR 410 (SCC).

[3] Canadian Encyclopedic Digest, 4 th ed , ( Thomson Reuters Canada, 2016) at Title 35, Contracts, XIII 1(d)(i).

[4] Rodaro v. Royal Bank of Canada , 2002 CanLII 41834 (ONCA).

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assignment law canada

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10 Essential Things to Know About Real Estate Assignment Sales (for Sellers)

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assignment law canada

What’s an assignment?

An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract.  The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.

The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.

Do assignments only happen with pre-construction condos?

It’s possible to assign any type of property, pre-construction or resale, provided there aren’t restrictions against assignment in the original contract. An assignment allows a Buyer of a any kind of home to sell their interest in that property before they take possession of it.

Why would someone want to assign a condo?

Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.

Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.

What can be negotiated in an assignment sale?

Because the Assignee is taking over the original purchaser’s contract, they can’t renegotiate the price or terms of the contract with the Builder – they are simply taking over the contract as it already exists, and as you negotiated it.

In most cases, the Assignee will mirror the deposit that you made to the Builder…so if you made a 20% deposit, you can expect the new purchaser to do the same.

Most Sellers of assignments are looking to make a profit, and part of an assignment sale negotiation is agreeing on price. Your real estate agent can guide you on price, which will determine your profit (or loss).

Builder Approval and Fees

Remember that huge legal document you signed when you made an offer to buy a pre-construction condo? It’s time to take it out and actually read it.

Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (we’ve seen everything from $750 to $7,000).

There may be additional requirements as well, the most common being that the Builder has to approve the assignment.

Marketing Restrictions

Most pre-construction Agreements of Purchase & Sale from Toronto Builders do not allow the marketing of an assignment…so while the Builder may give you the right to assign your contract, they restrict you from posting it to the MLS or advertising it online. This makes selling an assignment extremely difficult…if people don’t know it’s available for sale, how they can possibly buy it?

While it may be very tempting to flout the no-marketing rule, BE VERY CAREFUL. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.

We don’t recommend advertising an assignment for sale if it’s against the rules in your contract.

So how the heck can I find a Buyer?

There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch…we know some of the best assignment agents in Toronto.

What are the tax implications of real estate assignment?

Always get tax advice from a certified accountant, not from the internet (lol).

But in general, any profit made from an assignment is taxable (and any loss can be written off). The new Buyer or Assignee will be responsible for paying land transfer taxes and any HST that might be due.

How much does it cost to assign a pre-construction condo?

In addition to the Builder assignment fees, you will likely have to pay a real estate commission (unless you find the Buyer yourself) and legal fees. Because assignments are more complicated, you can expect to pay higher legal fees than you would for a resale property.

How does the closing of an assignment work?

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually with the help of a mortgage), and pays land transfer taxes. Title of the property transfers from the Builder to the Assignee at this point.

I suppose it could be said that there is a third closing too, when the Buyer takes possession of the property but doesn’t yet own it…this is known as the interim occupancy period. The interim occupancy occurs when the unit is ready to be occupied, but not ready to be registered with the city. Interim occupancy periods in Toronto range from a few months to a few years. During the interim occupancy period, the Buyer occupies the unit and pays the Builder an amount roughly equal to what their mortgage payment + condo fees + taxes would be. The timing of the assignment will dictate who completes the interim occupancy.

Assignments vs. Resale: Which is Better?

We often get calls from people who are debating whether they should assign a condo they bought, or wait for the building to register and then sell it as a typical resale condo.

Pros of Assigning vs. Waiting

  • Get your deposit back and lock in your profit sooner
  • Avoid paying land transfer taxes
  • Avoid paying HST
  • Maximize your return if prices are declining and you expect them to continue to decline
  • Lifestyle – sometimes it just makes sense to move on

Cons of Assigning vs Waiting

  • The pool of Buyers for assignment sales is much smaller than the pool of Buyers for resale properties, which could result in the sale taking a long time, getting a lower price than you would if you waited, or both.
  • Marketing restrictions are annoying and reduce the chances of finding a Buyer
  • Price – What is market value? If the condo building hasn’t registered and there haven’t been any resales yet, it can be difficult to determine how much the property is now worth. Assignment sales tend to sell for less than resale.
  • Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.

Still thinking of assignment your condo or house ? Get in touch and we’ll connect you with someone who specializes in assignment sales and can take you through the process.

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assignment law canada

Raj Singh says:

What can be things to look for, especially determining market value for an assigned condo? I’m the assignee.

assignment law canada

Sydonia Moton says:

Y would u need a lawyer when u buy a assignment property

assignment law canada

Gideon Gyohannes says:

Good clear information!

Who pays the assignment fee to the developer? Assignor or Assignee?

Thanks Gideon 416 4591919

assignment law canada

Melanie Piche says:

It’s almost always the Seller (though I suppose could be a point of negotiation).

assignment law canada

Fiona Rourke says:

If there are 2 names on the agreement and 1 wants to leave and the other wants to remain… does the removing of 1 purchaser constitute an assignment

assignment law canada

Brendan Powell says:

An assignment is one way to add or remove people from a contract, but not the only way…and not the simplest. Speak to your lawyer for advice on what makes the most sense for your specific situation. For a straightforward resale purchase you could probably just do an amendment signed by all parties. If it’s a preconstruction purchase with various deposits paid, etc it could be more complicated.

assignment law canada

Katerina says:

Depends on the Developer. Some of them remove names via assignments only.

assignment law canada

Haroon says:

Is there any difference in transaction process If assigner or seller of a pre constructio condo is a non resident ? Is seller required to get a clearance certificate from cRA to complete the transaction ?

assignment law canada

Nathalie says:

Hello , i would like to know the exact steps for reassignment property please.

assignment law canada

Amazing info. Thanks team. I may just touch base with you when my property in Stoney Creek is completed in. 2020. I may need to reassign it to someone Thanks

assignment law canada

Victoria Bachlowa says:

If an assignor renegs on the deal and refuses to close because they figured out they could get more money and the assignment was already approved by the builder and all conditions fulfilled what can the Assignee do. I have $33,000 dollars in trust in the real estate’s trust fund. They sent me a mutual release which I have not signed. The interim occupancy is Feb. 1 and the closing is schedule for Mar. 1, 2019. I have financing in place, was ready to move in Feb. 1 and I have no where to live.

Definitely talk to your lawyer right away. They’ll want to look at your agreement of purchase and sale and will be able to advise you.

assignment law canada

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. Can I assume that these closing happen at the same time? I’m not sure how and when I would be paid as the Assignor.

assignment law canada

What happens to the deposits or any profits already paid if the developer cancels the project after an assignment?

assignment law canada

Hi, Did you get answer to this? I did an assignment sale last year and now the builder is not completing apparently and they are asking for their money back. Can they do that? After legal transactions, the lawyer simply said “the deal didn’t go through”. Apparently builder and the person who assumed the assignment agreed on taking out the deal. What do I have to pay back after it was done a year ago

This is definitely a question for your lawyer – as realtors we are not involved in that part of the transaction. I would expect that just as the builder would have to refund your deposits, you would likely need to do the same…but talk to your lawyer. As to whether the builder can cancel a project, yes they always reserve that right (but the details of how and under what circumstances would be in your original purchase agreement). It’s one of the annoying risks in buying preconstruction!

assignment law canada

I completed the sale of my assignment in Dec 2015 however the CRA says I should be reporting the capital income in 2016 when the assignee closed his deal with the developer in July 2016. That makes no sense to me since I got all my money in Dec 2015. Can you supply any clarification on that CRA policy please?

You’d have to talk to the CRA or an accountant – we’re real estate agents,so we can’t give tax advice.

assignment law canada

Hassan says:

Hello, You said that there are two closings. The first one between the assignor and the assignee and the second one between the builder and the new buyer (assignee). My question is that in the first closing does the assignee have to pay the assignor the deposit they have paid and any profit in cash or will the bank add this to the assignee’s mortgage?

The person doing the assigning usually gets their money at the first closing.

assignment law canada

Kathy says:

What is the typical real estate free to assign your contract with the builder ?

Hi Kathy While we do few assignments (as they are rarely successful, and builders do not make it easy), in past we have charged more or less the same as we do for a typical resale listing. While there are elements to assignments that should be easier than a resale (eg staging), many other aspects of assignments are much MORE time-consuming, and the risk much higher since attempts to find a buyer for assignments are often unsuccessful. It’s also important to note that due to the extra complication, lawyer’s fees to assign are typically higher than resale as well–although more $ for the purchase side vs the sale side.

assignment law canada

Mitul Patel says:

If assignee has paid small amount of deposit plus the original 25% deposit that the assignor has paid to the builder and gets the Keys to the unit since interim possession has been completed, when the condo registration is done and assignee is getting mortgage from the Bank or Pays the remaining balance to the Builder using his savings and decides not to pay the Balance of the Profit amount to Assignor, what are the possibilities in this kind of scenario?

You’d need to talk to a lawyer to find out the options.

assignment law canada

David says:

How much exactly do brokers get paid at sale of Assignment? i.e. Would the broker’s fee be a % of your assignment selling price or your home’s selling price? I’m really looking for a clear answer.

I am using this website’s calculator associated with selling your home in Ontario. But there is no information on selling assignments. https://wowa.ca/calculators/commission-calculator-ontario

Realtors set their own commission, so there is no set fee- that website is likely the commission that that agent offers. We often see commissions of 4-5% for assignments. The fee is a % of the price of the assignment – for example, you originally bought for $500K; you’re now assigning for $600K – commission would be payable on the $600K.

assignment law canada

Candace says:

Question: if i bought a pre construction condo, can i sell it as soon as it closes or do i have to live in it for 1 year after closing in order to avoid capital gains taxes?

Or does the 1 year start as soon as you move in?

I would suggest you talk to your accountant re: HST credit implications and capital gains, but if you sell it for more than you paid for it, capital gains usually apply.

assignment law canada

You mention avoid paying HST when you assign your property. What is the HST based on? It’s not a commercial property that you would pay HST. Explain. Thanks.

HST and assignments are complex and this question is best answered specific to your situation by your accountant and real estate lawyer. In some cases HST is applicable on assignment profits – more details can be found on the CRA website here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html

If you are a podcast listener, the true condos podcast is also a great resource.

https://truecondos.com/cra-cracking-down-on-assignments/

assignment law canada

heres one for your comment, purchase pre construction from builder beginning of 2021, to be finished end of 2021, (semi detached) here we are end of 2022, both units are now ready. Had one assigned but because builder didnt accept within certain time frame(they also had a 90 day clause wherein we couldnt assign prior to 90 less firm closing date (WHICH MOVED 4 TIMES). Anyrate now we have a new assinor but the builder says we are in default from the first one and wants 50k to do the assignment (the agreement lists the possibility of assigning for 12k) Also this deal would include us loosing our whole deposit and paying the 12k(plus fees) would be in addition too the 130k we are already loosing. The second property we are trying to close but interest rates are riducous, together with closing costs(currently mortgage company is asking that my wife be added to that one, afraid to even ask this builder. Any advice on how to deal with this asshole greedy builder? We are simply asking for assignment as per contract and a small extension for the new buyer(week or two) Appreciate any advice. Thank you

Dealing with builders/developers can be extremely painful, much worse than resale transactions in our experience. Their contracts are written to protect THEM. Unfortunately all I can say is follow the advice of your lawyer.

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assignment law canada

assignment law canada

Assignment Involves Transfer of Rights to Collect Outstanding Debts

What is an assignment of debt, the law allows a creditor to whom a debtor owes money to transfer the right to collect the outstanding monies to another person who then becomes the assignee creditor., understanding what constitutes as a legally binding assignment of creditor rights to collect a debt.

Loan Application Document

Right to Collect on Debts

In Ontario, the Court of Appeal case of Clark v. Werden , 2011 ONCA 619 confirmed the right to assign debts per the Conveyancing and Law of Property Act , R.S.O. 1990, c. C.34 , whereas such statute prescribes the conditions and requirements for the transfer of rights involving monies, among other things, whereas it was said:

Clark v. Werden , 2011 ONCA 619 at paragraph 13

[13]   The ability to assign a debt or legal chose in action is codified in s. 53 of the  Conveyancing and Law of Property Act , which provides that a debt is assignable subject to the equities between the original debtor and creditor and reads as follows:
53 (1) Any absolute assignment made on or after the 31st day of December, 1897, by writing under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action is effectual in law, subject to all equities that would have been entitled to priority over the right of the assignee if this section had not been enacted, to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor.

Partially Assigned

Interestingly, it should be noted that the statute law refers to an " absolute assignment "; however, such reference is made without fully defining the rights and duties of creditors and assignees in regards to concerns for the partial assignment of a debt.  However, in such circumstances as where a partial assignment of debt occurs, and therefore where there is more one assignee who assumes various rights of the original creditor, the assignee must include all assignees, or the original creditor if the original creditor retained a portion of the debt, when legal action is brought against debtor.  This requirement was stated by the Court of Appeal within the case of DiGuilo v. Boland , 1958 CanLII 92 wherein it was stated:

DiGuilo v. Boland , 1958 CanLII 92

The main reason why an assignee of a part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him is in my opinion because the Court cannot adjudicate completely and finally without having such parties before it.  The absence of such parties might result in the debtor being subjected to future actions in respect of the same debt, and moreover might result in conflicting decisions being arrived at concerning such debt.

Failed Notice

Of potentially grave concern to creditors, and potentially with great relief to debtors, for an assignee to retain the right to pursue the debtor, express written notice of the assignment is required.  This requirement was stated in 1124980 Ontario Inc. v. Liberty Mutual Insurance Company and Inco Ltd. , 2003 CanLII 45266  as part of the four part test to establish the right to pursue an assigned debt:

1124980 Ontario Inc.  v. Liberty Mutual , 2003 CanLII 45266 at paragraph 44

[44]   Accordingly, for there to be a valid legal assignment under  section 53(1) of the  CLPA , four requirements must be met:
a)  there must be debt or chose in action;
b)  the assignment must be absolute;
c)  the assignment must be written; and
d)  written notice of the assignment must be given to the debtor.

Where there is a failure of notice, and therefore failure to comply with the Conveyancing and Law of Property Act , it is said that the right to assign fails in law; however, relief in equity, via an equitable assignment may be available to an assignee affected by failure of notice.  Generally, in equity, when failure of notice occurs, the assignee is unable, in law, to bring an action in the name of the assignee and may do so only in the name of the creditor; however, even in the absence of proper notice as results in failure of assignment in law, and failure ot enjoin the creditor in an action pursued as an equitable assignment, the court may remain prepared to waive such a requirement whereas such occurred in the matter of  Landmark Vehicle Leasing Corporation v. Mister Twister Inc. , 2015 ONCA 545 wherein it was stated:

Landmark v. Mister Twister , 2015 ONCA 545 at paragraphs 10 to 16

[10]    Section 53(1) requires “ express notice in writing ” to the debtor.  Although there is some ambiguity in her reasons, it would appear that the trial judge found that Mr.  Blazys had express notice of the assignment, but not notice in writing.  Ross Wemp Leasing therefore did not assign the leases to Landmark in law: see  80 Mornelle Properties Inc.  v. Malla Properties Ltd. , 2010 ONCA 850 (CanLII) , 327 D.L.R.  (4th) 361, at para.  22 .  Ross Wemp Leasing did, however, assign the leases to Landmark in equity.  An equitable assignment does not require any notice, let alone written notice:  Bercovitz Estate v. Avigdor , [1961] O.J.  No.  20 (C.A.), at paras.  16, 25.
[11]   The appellants, relying on  DiGuilo v. Boland , 1958 CanLII 92 (ON CA), [1958] O.R.  384 (C.A.), aff’d, [1961] S.C.C.A.  vii, argue that as the appellants did not have written notice of the assignment, Landmark could not sue on its own.  Instead, Landmark had to join Ross Wemp Leasing in the action.  The appellants argue that the failure to join Ross Wemp Leasing requires that the judgment below be set aside.
[12]    DiGuilo does in fact require that the assignor of a chose in action be joined in the assignee’s claim against the debtor when the debtor has not received written notice of the assignment.  The holding in DiGuilo tracks rule 5.03(3) of the  Rules of Civil Procedure , R.R.O.  1990, Reg.  194 : In a proceeding by the assignee of a debt or other chose in action, the assignor shall be joined as a party unless,
(a) the assignment is absolute and not by way of charge only; and
(b) notice in writing has been given to the person liable in respect of the debt or chose in action that it has been assigned to the assignee.  [Emphasis added.]
[13]   Yet the assignee’s failure to join the assignor does not affect the validity of the assignment or necessarily vitiate a judgment obtained by the assignee against the debtor.  Rule 5.03(6) reads:
The court may by order relieve against the requirement of joinder under this rule.
[14]   The joinder requirement is intended to guard the debtor against a possible second action by the assignor and to permit the debtor to pursue any remedies it may have against the assignor without initiating another action:  DiGuilo , at p.  395.  Where the assignee’s failure to join the assignor does not prejudice the debtor, the court may grant the relief in rule 5.03(6) : see  Gentra Canada Investments Inc.  v. Lipson , 2011 ONCA 331 (CanLII), 106 O.R.  (3d) 261, at paras.  59 - 65 , leave to appeal refused, [2011] S.C.C.A.  No.  327.
[15]   In this case, the trial judge found that Mr.  Blazys, and effectively all of the appellants, gained actual notice of the lease assignments very shortly after the assignments were made and well before Landmark sued.  Armed with actual, albeit not written, notice of the assignment, the appellants could fully protect themselves against any prejudice from Landmark’s failure to join Ross Wemp Leasing.  Had the appellants seen any advantage in joining Ross Wemp Leasing, either to defend against Landmark’s claim or to advance a claim against Ross Wemp Leasing, the appellants could have moved for joinder under rule 5.03(4).  The appellants’ failure to bring a motion to add Ross Wemp Leasing speaks loudly to the absence of any prejudice caused by Landmark’s failure to join the assignor.
[16]   Ross Wemp Leasing perhaps should have been a party to the proceeding.  Landmark’s failure to join Ross Wemp Leasing, however, did not prejudice the appellants and should have had no impact on the trial judgment.  If requested, this court will make a  nunc pro tunc order relieving Landmark from the requirement of joining Ross Wemp Leasing in the action.

Summary Comment

The rights to collect on a debt can be sold and transferred from the original creditor to a substitute creditor or assignee who then takes on the rights of the original creditor.  Indeed, the selling and buying of individual debts, or debts within an entire portfolio debts is common within business.  The entire collection services industry is based on the concept of buying outstanding debt and then standing in the shoes of the original creditor and pursuing the payment of the debt.  Other forms of buying and selling debt includes mortgage swaps, among other things.

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  • assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

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Equitable Assignment

Practical law canada glossary 7-621-0060  (approx. 2 pages).

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Ontario family receives massive hospital bill as part of LTC law, refuses to pay

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A southwestern Ontario woman has received an $8,400 bill from a hospital in Windsor, Ont., after she refused to put her mother in a nursing home she hated – and she says she has no intention of paying it.

assignment law canada

Michele Campeau and her 83-year-old mother, Ruth Poupard, are caught up in a relatively new law that allows hospitals to place discharged patients into nursing homes not of their choosing in order to free up beds. If patients refuse to move, they face a fine of $400 per day as they remain at the hospital.

The bill came from Hôtel-Dieu Grace Healthcare, where Campeau’s mother remains, with instructions to pay at the cashier’s office or by phone or online. The hospital charged the family for 21 days in March.

“I’m never paying it because the law is wrong,” Campeau said. “It’s unfair what they’re trying to do to seniors.”

Campeau is expecting an even bigger bill to land in the coming weeks to account for all the daily fines that have racked up for April.

“We’re expecting another bill for $12,000 soon,” she said.

On Thursday afternoon, Campeau found out her mom was accepted into the nursing home that was her top choice. She is set to move next week.

“Then we’ll get another bill for $6,000 for May,” she said.

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The law that allows hospitals to issue such fines – known as the More Beds, Better Care Act, or Bill 7 – was passed by the Doug Ford government in the fall of 2022 in an effort to open up much-needed hospital space.

It is aimed at so-called alternate level of care patients who are discharged from hospital, but need a long-term care bed and don’t have one yet.

Hospitals can send patients to nursing homes not of their choosing up to 70 kilometres away, or up to 150 kilometres away in northern Ontario, if spaces open up there first.

Hôtel-Dieu Grace Healthcare said it cannot comment on Poupard’s case due to patient confidentiality.

The last few years have been tough for Poupard. Dementia set in, she underwent a heart valve transplant and survived cancer. She moved in with her daughter, who took care of her and became her power of attorney.

Poupard’s most recent health-care journey began shortly after Christmas when she hallucinated during the night, fell and broke her hip. Campeau rushed her to hospital, where she had surgery. As part of her recovery, Poupard moved to Hôtel-Dieu Grace Healthcare for rehabilitation.

By Feb. 21, Poupard recovered to a point where her physician determined she no longer needed the hospital’s specialized care and discharged her.

Campeau and her brother decided that they alone would not be able to manage their mother’s needs if she returned to live in her daughter’s home.

So the family worked with a placement co-ordinator at the hospital and put five long-term care homes on Poupard’s list. But those were full. Discussions about adding more nursing homes to Poupard’s list then began, under the provisions of the new law.

Campeau agreed to put more nursing homes on her mother’s list and the co-ordinator added homes until one that had a spot available came up. Campeau then had 24 hours to visit the nursing home and make a decision.

If she refused to move her mom into that long-term care home in downtown Windsor, the hospital said they’d begin charging her $400 a day. Campeau said she visited the home and found it “disgusting,” refusing to place her mother there.

Several weeks later, the first bill landed.

The hospital also charged Poupard a co-pay rate – the rate she would pay in a long-term care home – of $653.20 for 10 days in March before she refused the move into that one nursing home.

“I paid it like I did the one in February, which I’m more than happy to do,” Campeau said of the co-pay. “But I’m not paying $400 a day because I didn’t go along with their plan to put her in a disgusting home.”

The province said it believes only seven people have been fined under the law and that hospitals are responsible for the administration of fines. Health Minister

Sylvia Jones said the government cannot disclose how much those patients were charged due to patient confidentiality.

Liberal parliamentary leader John Fraser said he supports Poupard and Campeau’s refusal to pay the bill.

“It’s the right thing to do,” he said. “I think that the minister should intervene and try to find a solution.”

The family also has the support of the NDP.

“This is a tragedy,” said NDP Leader Marit Stiles.

Stiles said she is also worried about all the patients who have already been moved to nursing homes not of their choosing.

“I’m hearing increasingly about vulnerable people having to leave their communities to go far away to find long-term care beds,” she said. “It’s sad.”

Some 300 patients have been moved into new homes not of their choosing.

Campeau is now in limbo, unclear on what will happen with her unpaid bill.

“I have no idea what happens next,” she said. “I really just want my mom in a decent spot, that’s all.”

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Canadian officials announced new rules for international students who work off campus.

‌Key Points:

  • As  BAL previously reported , officials announced an increase in the cost-of-living financial requirement for study permit applications Jan. 1.
  • As part of that effort, the government also waived the 20-hour-per-week limit on the number of hours international students are allowed to work off campus, extending the policy to April 30.
  • Officials have now announced that the temporary policy allowing students to work more than 20 hours per week off campus will not be extended further.

Additional Information:  The Canadian government stated their intention to change the number of hours students may work off campus per week to 24 hours this fall. Officials cited the needs of students and appropriate work-study balance in making the change.

BAL Analysis:  These important changes coincide with additional reforms by the Canadian government recently to raise the cost-of-living financial requirement for study permit applications and establish an intake cap on international student permit applications for a period of two years. Employers should be aware of these policy updates and consider them in their employment strategies and recruitment efforts.

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Canada to introduce new rules around off-campus work hours for international students

From: Immigration, Refugees and Citizenship Canada

News release

International students enrich Canada’s social, cultural and economic fabric. That is why, in recent months, Immigration, Refugees and Citizenship Canada has introduced reforms to the International Students Program, to ensure system integrity while protecting students from fraud and financial vulnerability.

April 29, 2024—Ottawa— International students enrich Canada’s social, cultural and economic fabric. That is why, in recent months, Immigration, Refugees and Citizenship Canada has introduced reforms to the International Student Program, to ensure system integrity while protecting students from fraud and financial vulnerability.

The Honourable Marc Miller, Minister of Immigration, Refugees and Citizenship, announced today that the temporary policy allowing students to work more than 20 hours per week off campus will come to an end on April 30, 2024, and it will not be extended. This fall, we intend to change the number of hours students may work off campus per week to 24 hours.

Students who come to Canada must be here to study. As such, allowing students to work up to 24 hours per week will ensure they focus primarily on their studies, while having the option to work, if necessary.

As we head into the summer session, students who have a scheduled academic break can continue working unlimited hours.

In developing this change, we looked at the needs of students, policies in other countries, as well as research that has shown that academic outcomes suffer the more a student works while studying. It also strikes the appropriate balance so students have the option to work without compromising academic outcomes. More details will be shared in due course.

We also continue to develop the new Recognized Institutions Framework to reward post­secondary institutions that set high standards for selecting, supporting and retaining international students. We will continue to support and protect international students from financial vulnerability and keep protecting the integrity of the International Student Program.

“Working off campus helps international students gain work experience and offset some of their expenses. As international students arrive in Canada, we want them to be prepared for life here and have the support they need to succeed. However, first and foremost, people coming to Canada as students must be here to study, not work. We will continue working to protect the integrity of our student program.” – The Honourable Marc Miller, Minister of Immigration, Refugees and Citizenship

Quick facts

Recent studies conducted in the US and Canada have shown that there is a considerable decline in academic performance for students working more than 28 hours per week, and that working more than 24 hours per week increases the chances that a student will drop out of their program.

Most countries that welcome international students set limits on the number of hours they may work while they study. Australia recently changed its policy to allow a student to work 48 hours every 2 weeks. In the US, students must meet additional criteria before being permitted to work off campus at all.

In December 2023, the Government of Canada raised the cost-of-living threshold that students must meet to be approved for a study permit so they are financially prepared for life in Canada and are not as dependent on working.

International students who begin a college program delivered through a public-private curriculum licensing arrangement on or after May 15, 2024, will not be eligible for a post-graduation work permit when they graduate. Those who already started this type of program prior to May 15, 2024, will still be able to access a post-graduation work permit, provided they meet all other criteria .

The new letter of acceptance (LOA) verification process has been a success. Since its launch on December 1, 2023, through April 1, 2024, IRCC has

  •  received almost 162,000 LOAs for verification
  • confirmed nearly 142,000 LOAs as valid directly with designated learning institutions (DLIs)
  • identified almost 9,000 LOAs that didn’t match any LOA issued by a DLI or that the DLI had already cancelled before the foreign national applied for a study permit

Associated links

  • Statement: Minister Miller issues statement on international student allocations for provinces and territories
  • Notice: Update on public-private college partnership programs for international students
  • Notice: Additional information about International Student Program reforms
  • News release: Canada to stabilize growth and decrease number of new study permits issued
  • News release: Revised requirements to better protect international students
  • News release: Changes to International Student Program aim to protect students
  • Website: Work off campus as an international student

Aissa Diop Director of Communications Minister’s Office Immigration, Refugees and Citizenship Canada [email protected]

Media Relations Communications Sector Immigration, Refugees and Citizenship Canada 613-952-1650 [email protected]

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