Delivering on a promise first made at the Truck Loggers convention in January, 2009, the government introduced Bill 21, the “Forestry Service Providers Protection Act” for a first reading on April 29, 2010. The Act does three things for those who provide services to the forest industry in BC:
- it creates lien rights over forest products in favour of contractors in the forest industry;
- it establishes charges in favour of both contractors and subcontractors over accounts receivable of the person they contract with for unpaid amounts under the contracts or subcontracts;
- it enables the creation of a trust fund to assist contractors (“Forestry Service Providers”) who are victims in the insolvency of persons to whom they have provided services.
As is often the case with legislation in the forest sector, regulations are contemplated. Until we see the regulations, it will not be possible to answer all questions with respect to the Act.
Creation of the Lien
The Act creates a lien over “forest products” in favour of a “contractor” who has a contract for “services” with a “forest products owner”. The details are in the definitions:
- “forest products” means timber, whether felled, bucked or peeled and products manufactured from timber as described in a regulation;
- “services” means any phase of logging, road construction or maintenance, chipping, grinding and other activities described in a regulation, and provided in respect of forest products;
- “forest products owner” means a person who enters a contract with a contractor for the provision of services;
- “contractor” means a person who contracts with a forest products owner for the provision of services. Interestingly, under Section 1(2) of the Act, where a forest products owner contracts with an affiliate for services, which affiliate then contracts with a subcontractor for those services, the subcontractor is deemed to be a contractor for the purposes of the Act.
Without the benefit of the regulations, we cannot say with certainty who is entitled to a lien or what the lien attaches to. What is clear is that logging contractors providing logging services to licensees or landowners will have a lien over the logs of the licensee or the landowner.
The lien is created when the services are provided and secures the value of those services, regardless of whether the contractor registers the lien.
Registration and Priority
The lien is registerable under the Personal Property Security Act, but not until the forest products owner is delinquent in payments under the contract. Any registration before that time is not valid and may be challenged by the forest products owner. Until the lien is registered, it ranks behind any registered charge holder in the Personal Property Registry who has a charge over the forest products of the forest products owner. Once registered (after the forest products owner has defaulted in payment under the contract), the lien will rank in priority to charges that are registered after it.
Persons who have prior registered security interests over the inventory and other assets of the forest products owner will rank ahead of the lien holder, even for advances made after the lien is registered. There is no priority as between two or more registered lien holders.
A purchaser of forest products, who purchases in the ordinary course of business, will take title free of any lien.
To register a lien, a financing statement is filed in the Personal Property Registry. This is a relatively straight-forward process and requires no input from the forest products owner or the courts, however, any lien that is registered before the forest products owner is in default in payment, is not valid.
The contractor must give notice of the lien registration to the forest products owner. At any time the court may be called upon to determine the validity of the lien claim and other issues relating to the lien claim.
Where a forest products owner believes that the lien is invalid or has been discharged, the forest products owner may demand that the lien registration be discharged. Where, within 20 days of the demand, the lien holder fails to discharge the lien or obtain a court order that the lien be maintained, the forest products owner may cause the lien to be discharged.
Seizure under a Lien
Where a forest products owner is in default, a contractor may apply to court to have forest products seized. The court may deal with any issues about the validity of the lien or its priority, may order that persons be notified of the application, may order a trial of any issue and may order the Sheriff to seize and sell the forest products.
Once forest products have been seized and sold, the contractor must apply to court for payment out from the lien fund. The court may determine who is entitled to the lien funds, may determine who is to receive notice of the application for payment out, may deal with any issues of validity or priority, or may order a trial of any issue. After 30 days following a court order determining entitlement to lien funds, the Sheriff will pay out the lien funds to the claimants, unless the Sheriff receives notice that additional lien holders have made application to court in respect of the funds. If there are insufficient funds to discharge the amounts owing to lien holders, the funds will be distributed to the contractors in proportion to their claims, after allowing for third party claims that rank in priority to the liens.
The Act creates a charge in favour of a contractor or subcontractor for any monies due to them under a contract for the provision of services. A charge in favour of a contractor attaches the accounts receivable of a forest products owner. A charge in favour of a subcontractor attaches the accounts receivable of a contractor and would include any amounts payable by the forest products owner to the contractor.
Contractor’s Charge: Creation and Registration
The charge in favour of a contractor on accounts receivable of a forest products owner attaches immediately upon an amount being due under the contract for services, and not when the forest products owner is in default. However, like the lien over forest products, the charge on accounts receivable ranks behind security interests registered in the Personal Property Registry.
The charge may be registered in the Personal Property Registry only after the forest products owner is in default in payment under the contract. Once registered, the charge will rank ahead of subsequent registrations purporting to create a security interest in the accounts receivable. There is no priority as between two or more registered charge holders.
As with lien registrations, a forest products owner can demand that an invalid or discharged registration be removed. The charge holder then has 20 days to remove the charge registration or obtain a court order maintaining it.
Notice to Account Debtor (Customer)
Once a forest products owner defaults in payment to a contractor, the contractor may notify persons who owe money to the defaulting forest products owner of the default and of the amount of the default. Where a customer of the forest products owner receives such notice, the customer may pay the amount payable to the sheriff in discharge of the payment obligation to the forest products owner. Where the customer pays the forest products owner instead, the payment does not discharge the debt to the forest products owner to the extent of the charge. In other words, the customer is still deemed to owe the amount to the forest products owner, despite the payment.
Distribution of Charge Funds
Where monies have been paid to a Sheriff in respect of a charge by a contractor over accounts receivable, the Sheriff will deposit the monies into a separate account, net of the Sheriff’s costs. The contractor may apply to court for entitlement to the funds. The court will then determine entitlement, may determine what persons should receive notice of the application, may deal with questions of validity and priority, and may order a trial of any issue. After 30 days after a court has determined entitlement, the Sheriff must pay to the contractor the amounts secured by the charge, unless the Sheriff receives notice that additional charge holders have applied to the court in respect of the fund. If there is insufficient money in the fund to discharge the amounts owing to all charge holders, after allowing for third party claims that rank in priority to the charges, the funds will be distributed to the contractors in proportion to their claims.
A subcontractor who provide services to a contractor who in turn provide services to a forest products owner has a charge over the accounts receivable of the contractor for amounts owing to the subcontractor under the subcontract. The rules with respect to creation, registration, priority, discharge and payment out are identical to those for the contractor’s charge.
FORESTRY SERVICE PROVIDERS COMPENSATION FUND
Part 2 of the Forestry Service Providers Protection Act deals with the establishment of a fund to be called the Forestry Service Providers Compensation Fund (the “Fund”). This Part, and the Fund, are not related to the lien and charge provisions of the Act.
Purpose of the Fund
The purpose of the Fund is to provide compensation to “forestry service providers” who have suffered financial losses as a result of the insolvency of persons to whom they have provided services. “Services” has the same meaning as in the context of liens and charges. “Forestry service provider” will be defined by regulation and may, or may not, be the same persons who qualify as contractors and subcontractors under the Act.
Creation and Administration of the Fund
Part 2 of the Act does not create the fund, it enables the creation of the fund and of the institutions that will administer it. The Lieutenant Governor-in-Council, by regulation, may create the fund. The fund will then be administered by an “Authority”, who will be designated by the Minister of Forests and Range. Once designated, the Authority is not an agent of the government for the purposes of the Act or the regulations under it.
The Authority will be responsible for investing monies in the Fund and for making payments from the Fund. The fund will be administered in accordance with an “administrative agreement” between the Authority and the Minister of Forests and Range, as approved by Cabinet, and will be independent of government.
Sources of funds for the Fund
Part 2 of the Act refers to “contributors” who will be identified by regulation and who will make contributions to the fund in accordance with the regulations. Additionally, Cabinet may, by regulation, impose a levy on stumpage bearing timber that must be paid into the Fund. Finally, any amounts received by a person in respect of a financial loss for which that person has applied for and received monies from the Fund, must be paid to the Fund. This is to prevent double dipping.
How the Fund will work, who will benefit and who will pay, will be unclear until the regulations are passed and the administrative agreement is entered.
WOODWORKER LIEN ACT
The Act repeals the Woodworker Lien Act.