Debt Collection in Canada

No, there is no minimum amount required to commence a legal action.* However, the fees at Small Claims Court may make claims for very small amounts uneconomical. Although these costs can be recovered through cost awards after the action has been decided, recovery is not guaranteed and therefore, may present a cost barrier for some prospective plaintiffs.

*Please note that each province has its own rules for debt collection in Canada. Accordingly, these questions are answered from an Ontario perspective. However, the principles are broadly applicable.

Yes. In Ontario, there are several different routes that a creditor can follow in the collection of an account. For debts under $35,000, the creditor will commence their action in Small Claims Court (Courts of Justice Act, RSO 1990, c C.43, s 23(1); Small Claims Court Jurisdiction and Appeal Limit, O Reg 626/00, s 1(1)). The rules of Small Claims Court provide for a more streamlined procedure so that cases can be determined at a lower cost, without a lawyer and in less time than cases commenced under ordinary procedure.

For an action to collect debts greater than $35,000 but less than $200,000 (Rules of Civil Procedure, RRO 1990, Reg 194, s 76.02(1)), the plaintiff can commence their action in simplified procedure. Parties can also elect to use simplified procedure for claims over $200,000 if both parties consent (Rules of Civil Procedure, RRO 1990, Reg 194, s 76.02(3)). The purpose of this different set of rules is to reduce the cost of litigating claims of relatively modest amounts as parties will have fewer procedures available to them and will spend less time bringing the matter to trial.

For claims that have a value of $200,000 or greater and the parties do not elect to use simplified procedure, ordinary procedure is used.

The Ontario Rules of Civil Procedure do not require special treatment for pre-judgment debts in comparison to any other claim. All that is required is the proper service of a statement of claim. However, some contracts may require that a demand or notice be given before the creditor can take legal action to enforce its claim. In these cases, it would be a breach of contract to refrain from sending a warning letter before taking legal action to collect a debt.

Regardless of contractual requirements, it may still be beneficial to make a demand prior to taking legal action to collect a debt as making a demand gives the lawyer more time to review the relevant documents as well as conduct a number of searches in the interim. A demand letter should be short and to the point. It informs the debtor that the account is now in the hands of a lawyer and that legal proceedings will be commenced if payment is not made within a short period of time.

Try to maintain as much documentation as possible both before and throughout the debt collection process. Maintaining proper invoices, keeping track of contracts with the debtor, and filing away any correspondence are important for creating an evidentiary record when/if litigation is commenced.

If the plaintiff (the creditor) is not resident in Ontario or has insufficient assets to cover any costs award (i.e., it is a shell corporation), defendants can slow down litigation by bringing a motion for security of costs. Accordingly, creditors that are not resident in Ontario should ensure that they have sufficient assets to cover cost awards and have the proper documentation readily available to prove this in order to keep the action moving forward at a steady pace.

Even if the creditor receives a judgment in their favour to recover a debt, they still might have to enforce those judgments to receive compensation. It may be helpful for creditors to have someone on staff that is comfortable with the Ontario Sheriff’s office in the event that enforcement is necessary to ensure an easier enforcement process.

Foreign creditors can start a procedure for international debt collection in Canada much the same as any Canadian creditor: through issuing a Statement of Claim. However, they will need to meet the “real and substantial connection” test from Club Resorts v Van Breda, 2012 SCC 17 to continue the action in the Ontario courts. This test requires an analysis of the real and substantial connection between the forum and the claim, which is guided by a non-exhaustive list of presumptive factors. These presumptive factors that prima facie connect a claim to a jurisdiction include: (i) the defendant is domiciled or resident in the province; (ii) the defendant carries on business in the province; (iii) the tort was committed in the province; or (iv) a contract connected with the debt was made in the province. Once the real and substantial connection test has been proven, the onus then shifts to the party challenging the jurisdiction to rebut the presumptive factors.

A statement of claim (or Small Claims Court form 7A) is necessary to commence an action for debt collection in Ontario. In addition, an evidentiary record is also required and may include: contracts between the debtor and creditor; any invoices or general correspondence; and any acknowledgements of the debt. In the event that enforcement of the judgment is necessary, additional documents (such as Sheriff’s office enforcement forms) may be required depending on the type of enforcement mechanism that is used by the creditor.

In Ontario, the statute of limitations for unsecured debt is two years (Limitations Act, SO 2002, c. 24, s 4). However, if the debtor acknowledges the debt in response to a demand letter, the limitation period restarts and the creditor now has two years from the date the debt it acknowledged (Limitations Act, SO 2002, c. 24, s 13(1)).

Yes. In some cases, the creditor may be able to obtain temporary relief pending the hearing of the claim before a judge by bringing a motion for an interlocutory or interim injunction. One of the most common forms of injunctive relief sought by creditors is a Mareva Injunction, also known as an asset freeze. This order ensures that assets are available to satisfy judgment if the plaintiff is successful and prevents the defendant from disposing of assets prior to recovery. To successfully bring a motion for a Mareva Injunction, the moving party must show: (i) a strong prima facie case; (ii) that the defendant has assets in the jurisdiction; (iii) that there is a serious risk that the defendant will remove property or dissipate assets before judgment or thwart tracing; (iv) that the plaintiff will suffer irreparable harm if the injunction is not granted; and (v) that the balance of convenience favours granting the injunction (Aetna Financial v Feigelman [1985], 1 SCR 2).

Unrecoverable debts are routinely written off in Canada. However, if a creditor wants to continue to pursue the collection route, the debt can be sold to a credit collection agency for a fee (usually a percentage of the amount collected, around 20% - 60% plus disbursements). The objective of debt collection agencies is to collect as much debt as possible because the more money they receive from the debtor, the more they earn. In Ontario, collection agencies must register under and follow the rules set out in the Collection and Debt Settlement Services Act, RSO 1990, c C.14.