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
consignment.
When a party becomes bankrupt, any claims against it are stayed
unless the court lifts the stay of proceedings. In circumstances
where the bankrupt purchaser also has a claim against the unpaid
supplier, this could lead to a situation where the purchaser,
through a trustee or receiver, may enforce its own claim but the
supplier is precluded from doing so. Fortunately, the
principle of set-off, governed by s. 97(3) of the Bankruptcy
and Insolvency Act, may protect an unpaid supplier from the
impact of this inequitable result.
