Posts in category: Death Penalty

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

Background

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

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

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

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

Current Regime

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

Notice Requirements

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

An interesting question is whether any or all of these notices
can be served concurrently. My own view is that notwithstanding the
different time/notice periods, the secured creditor can serve all
three at the same time. I am not aware of any case which
specifically addressed this issue, but I do know of several counsel
in this province who take the position that a more prudent practice
is to serve the FDMA Notice of Intention and await expiry of the 15
business days before serving any other notices. The concern is
whether or not these other notices could be construed as a step in
a proceeding and thereby trigger the possibly devastating
consequences of Section 22 of the FDMA². My view is that
as all of these notices are conditions precedent to either
enforcement or commencing proceedings and therefore can be issued
concurrently without violating the FDMA.

Please note the holder of a guarantee is not considered a
secured creditor nor obliged to give a FDMA notice, unless that
guarantor is a farmer and has provided collateral security in
support of the guarantee: CIBC v.
Verbrugshe (2006) Carswell Ont 3502 and 4461
(Ont.S.C.J.).

Stays of Proceeding Under the FDMA

An insolvent farmer may apply for a stay of proceedings as well
as financial review and mediation through the Farm Debt Mediation
board. The full nature and extent of this stay is set out in
Section 12:

As was the case with the FDMA notice referred to above, any act
done in contravention of this stay is deemed to be “null and
void”. The consequences of such contravention cannot be any
more clearly set out than in the unfortunate situation
of M & D Farms Ltd. v. MACC 1999 CanLii 648
(S.C.C.). This case arose under the similar provisions of the FDMA.
Clearwater, J. at first instance identified the farmers’
conduct in abusing the system and multiple utilization of FDMA
stays as “almost unconscionable” and “almost
inexcusable”. Notwithstanding the farmers’ conduct, when
MACC proceeded with the application for leave under FFPA
notwithstanding the FDMA stay, the Supreme Court of Canada held all
of the subsequent steps in the proceedings to be a nullity. It set
aside eight years of mortgage sale proceedings and related
litigation (not to mention untold legal fees and administrative
costs) and forced MACC to transfer back the lands which had been
foreclosed upon to the farmer before it could then start the entire
farm mediation process all over again.

Upon a farmer’s application, the Farm Debt Mediation Board
will grant an immediate 30 day stay and has the power to grant
three additional 30 day stays for a total of 120 days. Furthermore,
under Section 20(1) the farmer may re-apply every two years to go
through the process again.

During the stay the Farm Debt Mediation Board will conduct a
financial review and appoint a mediator for the purposes of
endeavouring to reach a mutually acceptable arrangement. There are
provision dealing with earlier termination of the stay where an
arrangement is not possible or where the farmer jeopardizes the
assets. In most situations the affected farmer will be appointed
guardian of his own assets although the administrator of the board
can nominate another qualified person selected by the secured
creditors or the administrator.

Applications under the FFPA

Except for farm machinery and equipment finance through dealers
under The Farm Machinery and Equipment Act, once the
applicable notices and/or any FDMA stay has expired, secured
creditors may proceed with enforcement remedies against the
personal property charged under the security. In other words, the
secured creditor can seize, sell, appoint a receiver or take any
other relief provided under the security without the need for any
further application. This is not the case with farm land.

The FFPA prevents a creditor from pursuing mortgage and other
remedies on farmland including proceeding for sale, possession,
receivership or foreclosure unless leave has been granted by the
Court of Queen’s Bench. By virtue of Section 22 of the FDMA
this FFPA application cannot be filed concurrently with service of
the Section 21 FDMA Notice.

To satisfy the requirement of the FFPA, a Notice of Application
must be filed in the Queen’s Bench. While the Applicant can
file the initial Application in any Judicial Centre the affected
farm may seek to transfer the proceedings to a more convenient
Judicial Centre. Once the application has been filed it must be
served upon the affected farmer within 30 days.

Prior to May 20, 2021 a statutorily prescribed application form
was required to initiate the Court application which has to be
served upon the Manitoba Farm Industry Board which was then obliged
to mediate and provide a report to the Court within 90 days. This
mediation process was not unlike what would have already been
pursued under the FDMA. The involvement of the Manitoba Farm
Industry Board, the additional mediation and the requirement for a
Court Report were abolished in 2021 with the proclamation
of The Reducing Red Tape and Improving Services
Act S.M. 2021 c.48 ss. 8 to 10. However, the FFPA
Regulations have not kept up with the 2021 amendments and the Court
of Queen’s Bench is currently (Summer 2022) requiring that the
prescribed application form be appended to the Notice of
Application with appropriate deletion of the Manitoba Farm Industry
Board references.

With the 2021 amendments the creditor can simply set the hearing
date at the time of filing the Notice of Application together with
supporting Affidavit material detailing the history of the
relationship, difficulties between the parties and related
financial information to enable the Judge hearing the matter to
determine if the Leave Order under FFPA should be granted.

The farmer must receive at least 15 days’ notice of the
hearing unless the Court can be persuaded to abridge the notice
period.

The decision on whether or not to grant the creditor leave to
proceed with its remedies are at the “discretion” of the
presiding Judge. Section 9(8)(b) does say that a Judge can grant
the relief sought if he or she is “satisfied that it is just
and equitable to do so”. That said, FFPA s. 9(4) sets out the
factors the Judge may consider:

Existing jurisprudence  highlights four
factors for consideration before exercising the Judge’s
discretion on whether or not it is “just and equitable”
to grant relief:

Typically the Court is fairly swift in dealing with otherwise
hopeless situations. However, if there is a substantive issue, such
as an interest rate dispute or a question as to the validity of the
security, the FFPA haring may be adjourned pending a determination
of the issue.

Once the Judge has made an Order there is a right of appeal to
the Manitoba Court of Appeal on question of law only.

Assuming that the Leave Order has been granted, the creditor can
then commence the legal proceedings necessary to commence mortgage
sale, foreclosure, receivership or other relief available under the
security.

Some counsel have endeavoured to shoe-horn into their FFPA leave
motions requests for substantive enforcement relief such as an
Order for Possession. My own view is that this is not appropriate
as FFPA Section 8 mandates that a Leave Order must be granted
before a creditor can “commence or continue” enforcement
activities. Recently, however, a mortgage lender was able to obtain
an Order for Possession without commencing a separate action or
application: Triple D Land & Cattle Inc. v. Dyrda et
al 2009 MBQB 270, affirmed 2010 MBCA 5. It is
respectfully submitted that the facts
in Dyrda were unique insofar as that at the time
of the initial hearing, Menzies, J. was only prepared to grant the
FFPA Leave Order and then adjourned the balance of the relief
sought under the Notice of Motion. Almost a year later, the motion
was brought back on before Schulman, J. where counsel for the
farmer candidly admitted that his client was deliberately stalling
and that there was no defence to the relief sought. Needless to
say, Schulman, J. granted the Order for Possession. Subsequently,
Dyrda retained and instructed new counsel who brought the matter
back on before Schulman, J. on the grounds that the Order for
Possession should have been brought on by way of a separate
proceeding i.e. a separate Notice of Application or Statement of
Claim. Schulman, J. was not prepared to set aside his previous
Order nor grant a stay pending appeal as any procedural concern was
effectively waived by counsel’s candid admissions at the
previous hearings. The Court of Appeal acknowledge that the
Appellant’s position on the procedural defect was
“technically correct” but it still refused the appeal.
The point being that separate proceedings should be still taken for
enforcement relief aft eh Leave Order is granted.

It is also important to note that pursuant to Section 31 of the
FFPA any agreement to waive the provisions of that Act or to modify
or abrogate its effects are void. Furthermore, contravention of the
Act may leave the culprit susceptible to prosecution with a fine
not exceeding $50,000.00 or imprisonment for a term not exceeding
two year or both.

Commentary

What all this means is that any creditor which finds it
necessary to realize on its security from a farmer in financial
difficulty must be patient and prepared to slavishly follow the
notice requirements and participate in the mediation process. For
example, with personal property security the creditor could be
delayed four to five months after service of the Section 21 Notice
if the full extent of the FDMA stay were granted. If that creditor
also had a real property security it would likely be necessary to
tack an additional time to complete the provincial Leave
Application process under FFPA – and longer if the court
proceedings are contested.

These legislative hurdles have at least in part accomplished the
original objective of restraining secured creditors from enforcing
their security before the affected farmer has an opportunity to
mediate and/or restructure the farm operations. Prior to the
mid-1980’s a secured creditor who had lost patience with a
farmer could have appointed a Receiver over the farm with a few
days’ notice and liquidated the assets as quickly as local
market conditions permitted. The current statutory regime prevents
this from occurring.

Interestingly, the statutory delays have not in my experience
prompted creditors to expedite the statutory notices and mediation
in an attempt to jump start the process. Over the decades since
this farm protection regime was enacted, creditors have become more
pragmatic and will typically afford farms significant time in which
to try to overcome their difficulties. There may be other causes
for this but most financial institutions have learned that a bad
settlement may well be preferable to an otherwise successful
liquidation. They are prepared to do what it take to get a deal
done and to do so wherever possible with and without resort to the
various mediation boards. Accordingly, a great deal of the
“farm realization” work tend to result in voluntary
forbearance agreements and other negotiated arrangements long
before the creditors see fit to issue the formal notices. In other
words, our farm protection regime has created a temporary safe
harbor for farmers to weather the storm of financial difficulty and
negotiate mutually acceptable arrangements with creditors.

That being said, there are situations where the existing regime
poses serious and practical difficulties. For example:

What can a secured creditor do when the farm assets are
disappearing rapidly, whether by virtue of the aggressive
enforcement tactics of other stakeholders or in the admittedly rare
situation where the farmer is dishonest? What if the farmer has
effectively abandoned the farm operations but is not prepared to
consent to the lender taking control? The immediate reaction of
creditors and their lawyers is to try to “close the barn doors
before the horse gets away”. But how can you do that if the
section 21 Notice has not yet been sent, let along the 15 business
days expired under the FDMA?

At one time it was possible to distinguish between “the
stay” under Section 12 where a farmer has applied for relief
under the FDMA and the “stay” under Section 21 pending
expiry of the statutory notice period. A careful reading of the
distinctive language of the  two sections suggested that:

However, more recent jurisprudence 
involving The Saskatchewan Farm Security
Act calls into question such attempts to circumvent
provincial farm protection regimes. For example, in HCI
Ventures Ltd. v. S.O.L. Acres  2020 SKCA 24 the
Saskatchewan Court of Appeal upheld a decision where the secured
creditor who had not satisfied the FDMA notice requirement was
effectively stayed from exercising unsecured debt remedies and
rendered its civil action a nullity. More significantly, the
Supreme Court of Canada in Saskatchewan v. Lemare Lake
Logging 2015 SCC 53 did not accept that the provincial
farm protection regime constituted an operational conflict with the
Receiver appointment provisions of the BIA.

If the farmer has already been able to apply for protection
under the FDMA and a Section 12 stay in effect, I do not believe it
is possible to utilize any of the extraordinary remedies referred
to above. Certainly, once that stay has been issued it is clear
that no step in any proceedings can be taken without risking
violation of Section 22 of the FDMA and certainly no bankruptcy
application can be issued or proceeded with until the stay
expires: Re North 40 Farms  (1999) 11 CBR
(4^th) 82 (Registrar); (affirmed) Unreported Manitoba
court of Queen’s Bench, March 10, 199 (Steele, J. as she then
was). However, if a Receiver has already been appointed prior to
issuance of the stay, the Court might not interfere with the
existing appointment.

If the Section 21 stay is in place before the creditor obtains
adequate protection there are several options. Firstly, once the
farmer applies for a stay under Section 21 he is prevented from
disposing of any assets except with express consent of the
creditors. If the farmer’s conduct is jeopardizing the
security, the Farm Debt mediation Board is obliged to terminate the
stay. Secondly, it is possible to apply to the Board to substitute
guardians. As mentioned previously, ordinarily when a farmer make
application under this legislation the board leave the farmer as
the “guardian” of the farm assets. Pursuant to Section 16
of the FDMA the board can instead appoint “any other qualified
person” whether chosen by the board or by a secured creditor.
If the secured creditor selects a different guardian it would
likely be obliged to pay its costs. It is important to note that
the guardian’s duties are fairly limited and include preparing
an inventory, periodically checking on the existence and conditions
of the assets and advising the board of anything that would
jeopardize those assets.

What can you do if the FDMA notice period or stay has expired
but there is also farm land to be dealt with under the FFPA? In
those circumstances there is case law to support the proposition
that the creditor may appoint a Receiver and/or Receiver Manager
over all of the assets and undertaking of the
debtor excluding the farm land:

Another problem deals with settlement or Forbearance Agreements.
One downside of creditors preferring to negotiate settlements is
that certain aspects of our farm protection regime may limit or in
fact undermine the parties’ abilities to negotiate an
enforceable forbearance or arrangement. While you would assume that
the spirit and intention of the law would be complied with where a
voluntary settlement had been negotiated between the parties, this
may not necessary be the case.

For example, when negotiating with ordinary debtors on an
arrangement, the creditor is typically being asked to afford
additional time and perhaps even more credit in return for which
the debtor will provide a consent to enforcement on default thus
giving the creditor a “hammer” or leverage to enforce the
settlement. Similarly, in many civil litigation matters it is not
uncommon for Consent Judgments and Orders to be entered into
between the parties and held in trust until default. These I
believe to be generally accepted in practice and should be
supported and encouraged by the Courts in most circumstances on
public policy grounds as reasonably acceptable means of promoting
settlement.

Unfortunately, difficulties arise when the debtor happens to be
a farmer. As noted previously, a secured creditor must still serve
the FDMA s. 21 notice before taking any enforcement action even
though the farmer may have already consented to it under the terms
of a Mediation Agreement: Intec Holding v. Grisnick,
Supra. Also, it does not matter that the farmer has
acknowledge service of the FDMA s. 21 notice and the 15 day period
expired, the farmer may still apply to the Farm Debt Mediation
Board for a stay provided that one has not been issued at least in
the last two years. Accordingly, even if the parties had agreed to
forebear for one or two years in return for a quit claim or
voluntary transfer of land, there is nothing to stop the farmer
from applying for a stay under the FDMA and delay enforcement of
the agreement. Just how long the Farm Debt Mediation Board would
let the stay continue in the face of a formal forbearance or
settlement agreement may be a matter of debate but it does not give
creditors a great deal of certainty that their willingness to
extend deadlines will be reciprocated with a clear cut remedy on
default. This can certainly be a fly in the ointment when
endeavouring to negotiate settlements and may be cause in some
circumstances for the creditor to not only issue all notice but
also require as a condition of forbearance that the farmer actually
apply for and exhaust its stay rights under the FDMA during the
forbearance period.

It is also tricky to deal with the FFPA when endeavouring to
negotiate settlements on farm land security. For instance, if at
the end of the forbearance period there is a default, the creditor
wishing to proceed with mortgage sale or appointing a Receiver
would still have to obtain a Leave Order from the Court of
Queen’s Bench. To expedite this process some settlement
agreement include a Consent for Leave from the affects farmer to be
held in trust by the secured creditor’s counsel. Unfortunately,
enforcement of such consent might be problematic: the
anti-avoidance provision of the FFPA are a concern. Section 31 of
that Act provides as follows:

It might be possible to argue that the Consent Leave should be
characterized as limiting, modifying or abrogating the benefit of
the FFPA. That said, it is clearly not a waiver and these devices
have been frequently used without objection in our Courts.

Fortunately, notwithstanding these difficulties, the overall
effect of the farm protection legislation in Manitoba has been
positive. Creditors are generally able to reach practical solutions
with farmers without the need for adversarial proceedings. While
they must still tread carefully with the procedural requirements of
the farm protection legislation, creditors should still be able to
protect and enforce their rights in the event a negotiated solution
can not be reached – it may just take more time.

Footnotes

1 The Reducing Red Tape and Improving Services
Act S.M. 2021 c.48 ss. 8-10

2 In Saskatchewan, the concurrent service of the
prescribed notice under the Provincial Farm Security
Act S.S. 1988-89, c.S-17 and the FDMA s. 21 notice was
found to be a nullity under FDMA s. 22: Chmil v. National
Leasing Group (2006) 29 C.B.R. (5^th) 205
(Sask.C.A.). I am not aware of any case which suggests service of
the BIA 244 notice and the FDMA s. 21 notice concurrently would be
defective.

Originally presented at the Manitoba Bar Association
Mid-Winter Conference, January, 2003. It was updated and revised
for the 2011 Pitblado Lectures and again updated in June,
2022.]

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.