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Despite all of the remedies available to unpaid loggers, sometimes there simply aren't enough debtor assets available to pay the priority creditors and the unpaid loggers.

Government created the Forestry Service Providers Compensation Fund to compensate contractors who are not paid due to licensee insolvency. There are certain Rules that are set out for the trustee to follow, when deciding whether to pay a claim and in what amount. These rules are set out at the Fund's website, and they are quite technical.

Licensee insolvency is a necessary precondition to payment. Obviously an assignment in bankruptcy, a receivership, or a proposal under the Companies' Creditors Arrangement Act, indicates insolvency. But, even without those events, it may be possible to prove insolvency. In my experience, a licensee slides into insolvency, and it's not always possible to pinpoint an exact date when insolvency occurs.

Most important is to know that the rules expect a logging contractor that is not being paid to take immediate steps to shut down. The triggering event is the first non-payment of an invoice. For example, if there is a delivery window under a contract, ending in a cut-off date, and if there is an obligation to pay by a certain date that follows, the failure by a licensee to pay by that date constitutes "the first non-payment of an invoice".

Following that, the contractor is cautioned to wind down operations. The Fund will compensate for work performed going back to the beginning of the delivery window, and ending no more than 30 days after that first non-payment of an invoice. It will not compensate for more than 60 days' worth of work in total.

This can become problematic where the licensee falls behind in payment, and then catches up again, and then falls behind again. Arguably, the first non-payment of an invoice occurred long ago, and that invoice has subsequently been paid, so that no compensation may come from the fund.

This can also be problematic where, for example, harvested logs go in three different directions (depending upon grades, size, species, etc.) and where payment comes from three different sources on a direct-pay system. If some logs get stuck in a sort yard, or get sawn into lumber and then kept in inventory, or payment from one of the three delivery points is delayed, then arguably the first non-payment of an invoice has occurred and the clock has started to run for entitlement purposes. Or, what happens if sawlogs are hauled away and sold and the contractor is paid for those, but the pulp logs remain in the bush for later sale and payment to the contractor?

The trustee of the fund, Eric van Soeren, has made it clear that contractors not being fully paid should not proceed forward with the thought that, "I'll keep logging and take my chances--if the licensee won't pay me, then the fund will". Rather, one must make a prudent business decision.

Contractors are often faced with difficult decision once a licence holder falls behind in payment. Is my licensee going to be insolvent, or not? ("Not" means no access to the fund.) Should I end my relationship now, and risk non-payment, the loss of my contract, and possible litigation? Should I continue logging, and risk non-payment and a lack of access to the fund? Where is the provincial government going to be with a stumpage claim, if I continue logging or if I don't? These are not easy decisions.

The Fund exists to benefit contractors in the case of licensee insolvency. And, sub-contractors are expected to ride the contractor's coat tails in that event. But, if it is contractor insolvency that is causing nonpayment to a subcontractor, the subcontractor has no remedy under the FSPP Act or under the fund.

John Drayton is a lawyer with Gibraltar Law Group who practices in the areas of forestry and motor transport law.