To the extent that additional loans are granted after the new guarantee is made available or if there is sufficient evidence that the guarantee has been granted to allow the debtor to continue its activities, the lender is in a strong position to rebut suspicions under the provincial preferences and BIA rules. [33] Although the existing debt is not a valid consideration, there is some jurisprudence to support the notion of genuine leniency as a good consideration for the granting of additional guarantees. [34] In practice, and particularly when the appeal is brought within the framework of national preferences legislation, the courts have insisted that there be further financial progress before the new security can overcome a preferential challenge. [35] In the 2012 ONCA 765 (CanLII) Harry Snoek Limited Partnership (CanLII), the Ontario Court of Appeal refused to accept the argument that the terms of the restructuring of the payment terms, including lower interest rates, extended time limit and willingness to lenient, were sufficient consideration to deal with the trust company`s preferential challenge without a financial advance. What would happen if the existing unsecured debt amounted to $100,000.00 and an additional $50,000.00 tariff was advanced as a precondition for the new guarantee, would that be a sufficient “value” to avoid a successful, defenceless preferential challenge? There is case law that supports an argument that the existing portion of the debt should remain unsecured, despite the additional advance granted at the time the new guarantee was granted. [36] A leniency agreement is called because a party agrees to create remedies at its disposal for a period of time, provided certain conditions are met. Whether a lender is willing to enter into such an agreement and over what duration depends on a number of factors. Leniency can also occur for other types of loans, as may be the case for student loans. For example, the U.S. Congress recently passed the CARES Act to address the economic consequences of COVID-19.

The package contained provisions relating to student credit leniency. Some national governments have also adopted their own rules on leniency in the middle of the pandemic While the payment approach may include an explicit royalty element for the lender, the final consideration is not an additional revenue. Lenders have had too many bad experiences with informal time extensions. How many times does a lender have freely extended deadlines to find that not only has the customer not achieved what it promised, but is now holding the lender responsible for the difficult situation and threatening litigation? Such problems arise when lenders and debtors do not formalize their accommodations in documentary form. What the lender is really prepared to do in the time is the certainty that if the customer is unable to meet its obligations, there will be “no surprises” and that the lender will be able to continue its corrective actions without question. For entrepreneurs, a leniency agreement gives them some relief, as it gives them time to solve the business problems that have contributed to their current financial problems. Without this agreement, a bank could appoint a receiver to sell the company`s assets and close the business.

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