Farmers' Creditors Arrangement Act

By 1934, the farm debt problem in Canada, which had been provoked by the Great Depression, reached a scale where provincial moratory legislation[2][lower-alpha 1] could not resolve it, as it could not remove the farmer from his position of default.[3] The last agricultural census reported that 244,201 farms (33.61% of all farms in Canada) reported having mortgages totalling $677,000,000 (16.75% of the value of all farms, or 49% of the value of owned farms).[4] Cash flow problems also resulted in a significant increase in the amount of short-term obligations.[4] It reached the point where Prime Minister R.B. Bennett decided to introduce remedial legislation to address it at the federal level.[5] The initial draft submitted by the Department of Finance addressed only voluntary arrangements between farmers and their creditors, but Bennett sent it back to add provisions designed to adjust principal and interest obligations to the productive value of the farm.[5] As Bennett told the House of Commons, "The object, of course, is to keep the farmer on the farm; if possible to keep him cultivating the land on which he had lived."[6][7]

The bill was introduced in June 1934,[5] together with relief legislation concerning farm loans,[8] and received Royal Assent a month later. M.A. MacPherson, a former Attorney General and Provincial Treasurer of Saskatchewan,[9] was appointed to oversee the Act's initial implementation,[10] before permanent oversight was assigned to staff in the Department.

As originally passed, the Act provided for:

• Official Receivers to be appointed in each county or district of a province where an assignment or a petition might be a filed with respect to a farmer[11]
• a farmer, who is unable to meet his liabilities as they come due, to be able to file a proposal for a composition, extension of time or scheme of arrangement with respect to his creditors, at any time before or after an assignment is filed[12]
• such proposal to go ahead only with the concurrence of any secured creditor or person with a right of redemption over any applicable property (except in those cases where a proposal is formulated by a Board of Review)[13]
• a stay of proceedings, not exceeding sixty days, where no creditor may exercise any remedy against property, or commence any proceedings relating to bankruptcy, debt recovery or realization of security[14]
• the establishment of provincial Boards of Review, whose task would be to determine acceptable proposals (if, and only if, it can be done in fairness and justice to the debtor and creditors) where the creditors have declined to accept a farmer's proposal, and to submit their proposal (either with or without the creditors' consent) to the court for its approval, and such approved proposal would be binding[15]
• failure to comply with the terms of a approval would constitute an act of bankruptcy, except where the court considers that such an act was due to causes beyond the farmer's control[16]
• the reduction of interest payable, where a mortgage's annual rate of interest exceeds 7%, so that the contracted rate can only be enforced on the amount of interest then due, plus three months' further interest in lieu of notice, after which the annual interest rate is commuted to 5%[17]

Many Canadian legal commentators at the time expected that the FCAA, together with 1933's Companies' Creditors Arrangement Act,[33] would be declared unconstitutional as encroaching upon the provincial power over property and civil rights in relation to the rights of secured creditors, and they were astonished when both were upheld.[34] The FCAA (and by extension the CCAA) was held to be constitutional by the Supreme Court of Canada,[35] and the Judicial Committee of the Privy Council subsequently agreed.[36] As Duff CJ noted in his judgment:

The statute is, by its express terms, incorporated into the general system of bankruptcy legislation in force in Canada and it is not open to dispute that legislation in respect of "compositions and arrangements is a natural and ordinary component of a system of bankruptcy and insolvency law".[lower-alpha 3]

The Act was repealed and replaced in 1943, with its scope limited to the provinces of Alberta, Saskatchewan and Manitoba,[37] but it would fall into disuse later in the 1940s.[38] It would remain dormant until its repeal in 1988,[39] as a consequence of the passage of the Farm Debt Review Act in 1986.[40]

• MacPherson, M.A. (5 November 1934). The Farmer and his Debt (PDF) (Speech). The Canadian Club. Toronto.
• Easterbrook, W.T. (1935). "Agricultural Debt Adjustment". Canadian Journal of Economics and Political Science. 2 (3): 390–403. JSTOR 136668.
• Bryce, Robert Broughton (1986). Maturing in Hard Times: Canada's Department of Finance Through the Great Depression. McGill-Queen's University Press. pp. 160–162. ISBN 0-7735-0555-5.
• Torrie, Virginia (2017). Should Paramountcy Protect Secured Creditor Rights? Saskatchewan v Lemare Lake Logging in Historical Context (pdf). The Canadian Confederation: Past, Present, and Future. Université de Montréal. pp. 1–17.