By Dr. Virginia Torrie, JD, LLM, PhD, ICD.D

Canadian farms face various economic pressures from fluctuating commodity prices, rising operational costs, and the impacts of climate change. In recent years, high interest rates and increasing debt loads have further strained farm operations, causing financial instability in the sector. While these challenges reflect modern-day realities, the financial struggles of farmers are not new.

For over a century, farmers have played an important role in shaping Canadian insolvency laws, advocating for protections that address the unique vulnerabilities of the agricultural sector. The article examines legislative responses to these challenges, including the Farm Debt Mediation Act (FDMA), s. 81.2 of the Bankruptcy and Insolvency Act (BIA), and Bill C-280.

Agriculture has long been a cornerstone of the Canadian economy, particularly in regions such as Western Canada. However, the volatility of the agricultural sector, driven by unpredictable economic and environmental conditions, leaves farmers vulnerable to financial instability. In response, Parliament introduced the Farm Debt Review Act (FDRA) in 1986 as a temporary measure to provide relief to farmers. Drawing inspiration from the Farmers' Creditors Arrangement Act of the 1930s – a response to the Great Depression and severe drought – the FDRA aimed to address the financial struggles of agricultural producers.¹ After recognizing the need for ongoing protection, the FDRA was replaced in 1998 by the Farm Debt Mediation Act (FDMA). This legislation grants unique rights to farmer debtors in Canada and imposes obligations on creditors, reflecting a continued commitment by the government to safeguard agricultural producers while balancing the rights of lenders. Despite its benefits, the procedural requirements for creditors under the FDMA, such as the mandatory 15-day written notice before enforcing debts against a farmer’s property, can impose burdens and delay resolution. Without following the requirements, enforcement measures taken by creditors may be deemed null and void by a court. This can be challenging in urgent situations where immediate action is necessary.

From the perspective of farmers, the FDMA provides critical tools to navigate financial hardship. Through the Farm Debt Mediation Service, farmers gain access to free, confidential support, including financial counseling and mediation services. This program facilitates negotiations between farmers and creditors, often resulting in mutually agreeable solutions.² Central to the FDMA is the ability of a farmer to apply for a stay of proceedings that halts secured creditors’ actions for at least 30 days (ss. 7, 12). This is significant, as a bankruptcy stay of proceedings generally applies only to unsecured creditors. During the stay period, mediators work with both parties to find resolutions that allow farmers to stabilize their operations (s. 10). This is particularly valuable for farmers whose livelihoods depend on seasonal income and who face significant risks from natural forces including droughts or floods. Importantly, the FDMA requires that, before enforcing any security, the creditor must provide the farmer with written notice of their intention, and inform the farmer of their right to make an application under the FDMA (s. 21).

Section 81.2 of the BIA provides special protections for farmers, fishermen, and aquaculturists who sell and deliver their products to a buyer who later becomes insolvent. If the goods were delivered within 15 days prior to the buyer's bankruptcy or the appointment of a receiver, and the seller files a claim within 30 days of insolvency, the seller’s unpaid claim is secured by a priority charge on the buyer’s inventory as of the insolvency date. This charge ranks above other claims, including secured creditors, except for certain repossession rights under s. 81.1. This provision is designed to protect sellers who rely on timely payments for their livelihood and who face significant risks when their goods cannot be quickly sold or realized.

In 2024, Private Member’s Bill C-280 added a new “deemed trust” as a protection mechanism for suppliers of perishable goods to the BIA (s. 81.7) and CCAA (s. 8.1) subject to certain requirements and limitations. These amendments address unique vulnerabilities of the perishable goods sector, where inventory loses value rapidly and payment delays can jeopardize suppliers’ financial stability. By granting suppliers a deemed trust and excluding the perishable goods (or their proceeds) from the debtor’s property, the amendments ensure timely payments to suppliers, enabling them to meet their obligations and maintain the health of the agricultural supply chain. The deemed trust mechanism elevates a supplier’s claim over perishable goods above even those of secured creditors with perfected interests and super-priorities, guaranteeing that suppliers are paid first in the event of insolvency. Bill C-280 reflects ongoing advocacy by organizations and industry leaders across the fresh produce supply chain and the broader agricultural sector.

The amendments introduced by Bill C-280 build on the protections currently offered under s. 81.2 of the BIA. However, this bill takes a more targeted approach, addressing the distinct vulnerabilities of the perishable goods sector and using a deemed trust to segregate the goods or proceeds from the debtor’s property. While Bill C-280 may address a pressing need, a proliferation of deemed trusts and super-priority claims in bankruptcy undermines the principle of equitable distribution among creditors. Similar to the Pension Protection Act, another recent Private Member’s bill which granted a more expansive super-priority status to pension claims, Bill C-280's approach could encourage more exceptions to the pari passu rule, further complicating the landscape. Balancing these interests will be essential if this legislation takes effect.

The FDMA, s. 81.2 of the BIA, and Bill C-280 each address different facets of the financial challenges faced by farmers as both debtors and creditors in insolvency. While s. 81.2 of the BIA applies broadly to farmers, fishermen, and aquaculturists by securing claims against inventory still held by an insolvent buyer, its protections are limited to goods in the buyer’s possession. In contrast, Bill C-280 offers specific protection to sellers of perishable fresh produce, establishing a deemed trust that ranks ahead of super-priorities even when the goods have been sold or consumed. The FDMA adds another layer of protection by providing farmers with tools to negotiate with creditors, offering mediation services to stabilize their finances. Together, this legislation provides diverse solutions to help farmers recover from their own financial distress, as well as that caused by the insolvency of their customers, enhancing financial stability in the agricultural sector.

Canada’s legislative framework, including the FDMA, s. 81.2 of the BIA, and Bill C-280 (now BIA, s 81.7 and CCAA, s 8.1), provides critical protections for farmers, addressing their unique challenges. These laws offer tools such as mediation, prioritized claims, and stays of proceedings to help farmers stabilize during financial distress. However, they also impose procedural requirements on creditors that can delay asset recovery and reduce recoveries for general creditors. Looking ahead, amending these laws to balance the evolving interests of farmers and creditors, while addressing emerging issues such as high debt loads and market volatility, will be essential.

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¹ “Evaluation of the Farm Debt Mediation Service”, (14 March 2016), online: Government of Canada <www.agriculture.canada.ca/en/department/transparency/audits-evaluations/evaluation-farm-debt-mediation-service>.

² “Farm Debt Mediation Service”, online: Government of Canada <www.agriculture.canada.ca/en/programs/farm-debt-mediation-service>.