When a client goes bankrupt, an unpaid supplier is often left
with few remedies. Generally speaking, the unpaid
supplier's recovery is limited to their proportional share of
what is left of the proceeds from the bankrupt's assets after
the debts of secured creditors and trust claim have been satisfied.
However, a few remedies are available to unpaid suppliers: the
"thirty-day rule", set off , express trusts and
An unpaid supplier who moves quickly may be able to take
advantage of the thirty-day rule, as provided for in section 81.1
of the Bankruptcy and Insolvency Act. This
"rule" grants an unpaid supplier a special type of
security and allows it to reclaim from a bankrupt purchaser any
unsold goods sold to the purchaser in the thirty days preceding the
In order to satisfy the thirty-day rule and reclaim its goods,
the unpaid supplier must satisfy certain criteria. These are:
The supplier must make a demand in writing as soon as possible
after its customer becomes bankrupt, and at most within fifteen
days of the bankruptcy or receivership.
The goods must actually have been delivered.
The goods, generally, must be in the possession of the
purchaser or the trustee in bankruptcy, and not a third party.
The supplier must be able to prove the identity of the goods
with document evidence, such as invoices, purchase orders and
The goods must be in the same state that they were in upon
delivery to the purchaser, and not converted into some other
The goods must actually not have been paid for. Where
partial payment has been made, the supplier may elect to repossess
a portion of goods, or to repossess all of the goods upon
payment to the trustee of any partial payments.
The goods must not have been resold or be subject to an
arms' length agreement of sale.
A supplier whose demand for the return of its goods is denied by
the trustee in bankruptcy may appeal to the courts pursuant to s.
81.1(9) of the Bankruptcy and Insolvency Act. It is
important to note that the thirty-day rule does not apply to
suppliers of services or lenders of money.
Readers are reminded that bankruptcy courts are typically
solutions-oriented and that the application of the above-criteria
is dependent on the facts of each case. It is recommended
that readers consult an insolvency professional.
The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).