A Crown debt is not assignable except as the Act allows
Part VII defines its terms broadly. A Crown debt is any existing or future debt due or becoming due by the Crown, and any other chose in action in respect of which there is a right of recovery enforceable by action against the Crown; the Crown is Her Majesty in right of Canada; and a contract is a contract involving the payment of money by the Crown (s. 66). The general rule in section 67 is a prohibition, not a notice rule: except as provided in the Act or any other Act of Parliament, a Crown debt is not assignable, and no transaction purporting to be an assignment of one is effective so as to confer on any person any rights or remedies in respect of that debt. Section 68 is the exception that makes factoring possible. It permits an assignment of a Crown debt that is an amount due or becoming due under a contract, and of any other Crown debt of a prescribed class. The Assignment of Crown Debt Regulations prescribe a short list of those other classes, among them compensation payable under the Expropriation Act. None of them is a supplier's invoice, so a receivable from a federal department is assignable, if at all, as an amount due under a contract. Part VII sets its own conditions for when that assignment gives anyone rights or remedies in respect of the debt, so do not take the provincial rules on notice and no-assignment clauses as the test here.
Three conditions, and a charge fails one of them
Section 68(2) makes the assignment valid only if three things are true: it is absolute, in writing and made under the hand of the assignor; it does not purport to be by way of charge only; and notice of the assignment has been given to the Crown as provided in section 69. The first two describe the document. An assignment that purports only to charge the debt as security, rather than transfer it, fails paragraph (b), so the Act draws its line between transferring a federal receivable and merely charging it. The third is procedure. The notice must be in the form set out in Appendix I of the Assignment of Crown Debt Regulations and completed to the satisfaction of the Receiver General (s. 4(1)), and the Regulations list the documents that must go with it.
The acknowledgment, not the signature, fixes the date
Notice is given by serving it on, or sending it by registered mail to, the Receiver General or a paying officer, in prescribed form, together with a copy of the assignment and the prescribed documents (s. 69(1)). Section 69(2) then adds the sentence that decides the timeline: service of the notice shall be deemed not to have been effected until acknowledgment of the notice, in prescribed form, is sent to the assignee, by registered mail, under the hand of the appropriate paying officer, meaning the paying officer who makes the payments in respect of that debt (s. 66). The prescribed acknowledgment in Appendix II is signed by the appropriate paying officer for the Receiver General. Only then does section 68(3) operate. From the date service of the notice is effected, the assignment is effectual in law to pass the legal right to the Crown debt, all legal and other remedies for it, and the power to give a good discharge for it without the concurrence of the assignor. Before that date, none of those has passed to the factor. Two practical points follow. The date you sign a factoring agreement is not the date that counts against the Crown, so plan for the interval until the acknowledgment arrives. And if a federal payment reaches you in the meantime, check what your factoring agreement requires you to do with it before you spend it.
Your contract's own assignment terms travel with the debt
Section 68(4) makes an assignment under Part VII subject to all conditions and restrictions in respect of the right of transfer that relate to the original Crown debt or that attach to or are contained in the original contract. So the contract is part of the test. One set of standard terms used in federal services contracts is the 2035 General Conditions for higher-complexity services. Its section 27 provides that the Contractor must not assign the Contract without first obtaining the written consent of the Contracting Authority, and that any assignment made without that consent is void and will have no effect. Read the words closely: the clause speaks of assigning the Contract, not of assigning an amount due under it, and it does not mention Part VII. Whether a department treats an assignment of payments as caught by it is a question to put to your contracting authority in writing before a factor funds the file. Your contract may incorporate different general conditions or supplementary terms, and those are the ones that bind you.
Set-off can still reach a federal payment
A federal receivable carries set-off exposure of its own. The same 2035 conditions provide that, without restricting any right of set-off given by law, Canada may set off against any amount payable to the Contractor under the Contract any amount payable to Canada by the Contractor under the Contract or under any other current contract (s. 32). Statute adds two more. Under section 155 of the Financial Administration Act, where a person is indebted to Her Majesty in right of Canada, the minister responsible for recovering that debt may authorize its retention by deduction from or set-off against any sum of money that may be due or payable by Her Majesty in right of Canada to the person, with the consent of the minister responsible for making the payment (s. 155(1), (4)). Section 224.1 of the Income Tax Act lets the Minister require the retention, by deduction or set-off, of an amount owed under the Income Tax Act out of any amount that may be or become payable to the person by Her Majesty in right of Canada. And the assignment itself passes the debt subject to all equities that would have been entitled to priority over the right of the assignee (s. 68(3)). How far those powers reach a payment already assigned and acknowledged is not spelled out in the federal text. Alberta's Act, by contrast, says expressly that an assignment binding on the Crown is subject to the Crown's right to set off any claims it may have in respect of any indebtedness of the assignor existing before payment to the assignee (s. 94(6)(b)). Raise any federal tax or contract debt with a factor at the start.
Crown corporations and provinces are outside Part VII
Section 70 switches Part VII off in three cases: negotiable instruments, any Crown debt incurred by or in the name of a corporation set out in Schedule III, and securities issued under Part IV. That schedule includes Canada Post Corporation, Canada Mortgage and Housing Corporation, Defence Construction (1951) Limited, the National Capital Commission and VIA Rail Canada Inc. Part VII's notice and acknowledgment do not apply to an invoice owed by one of those; read that corporation's contract terms instead. Provincial governments are outside Part VII too, because its Crown is Her Majesty in right of Canada, and a province's rules need checking separately. Alberta shows how different they can be: its Financial Administration Act says the Crown is not bound by an assignment of a Crown debt unless it is binding by reason of the regulations or, for a particular assignment the regulations do not cover, a deputy head consents, and a deputy head giving consent may prescribe terms and the time the Crown becomes bound (s. 94(2), (4)). Section 95 sets up a parallel scheme for Provincial corporations, with the corporation itself giving consent. Crewline is a broker, not a lender or a law firm: have counsel confirm the assignment and notice before you count on a government receivable being financeable.
Questions operators ask
Can I factor an invoice owed by a federal government department?
An invoice owed by a federal department can be factored, but only through Part VII of the Financial Administration Act. An amount due or becoming due under a contract with the federal Crown can be assigned (s. 68(1)(a)), but only by an absolute written assignment made under your hand that does not purport to be by way of charge only, with notice in the prescribed form served on, or sent by registered mail to, the Receiver General or a paying officer (ss. 68(2), 69(1)). The assignment passes the debt from the date service of that notice is effected, and the Act treats service as not effected until the paying officer's acknowledgment is sent to the assignee by registered mail (ss. 68(3), 69(2)). It is also subject to any transfer restrictions in your contract (s. 68(4)), so read the contract's assignment clause first.
What has to go with a notice of assignment of a Crown debt?
The notice itself follows the form in Appendix I of the Assignment of Crown Debt Regulations. That form identifies the assignor, the assignee and the date of the assignment, states either a sum or all moneys due or becoming due, names the minister through whom the Crown is represented, identifies the contract by its purpose, date and number, and tells the Receiver General where payment is to be made. A notice not accompanied by the original written assignment or a duplicate copy must include a notarial certificate, attached to a copy of the assignment, certifying it is a true copy of the original (s. 5). Where a corporation made the assignment, section 6 lists corporate-authority documents to accompany the notice, such as a certified copy of the by-law or resolution under which its signing officers acted, and a court order where a trustee or liquidator signed. A partnership or an individual sends an affidavit of execution from the person who witnessed the signature (ss. 7, 8), and an assignment made outside Canada needs a written opinion, from legal counsel to a Canadian diplomatic, consular or trade representative in that country, on whether it is valid and binding on the assignor (s. 9).
How long does the federal government take to pay an invoice, and does it pay interest when it is late?
Your contract's terms decide it. Under the 2035 General Conditions for higher-complexity services, Canada's standard payment period is 30 days, measured from the later of receipt of an invoice in acceptable form and content and delivery of the work in acceptable condition, and a payment is considered overdue on the 31st day (s. 16(1)). If the invoice or the work is not acceptable, Canada will notify you within 15 days of receipt, and the 30-day period begins again on receipt of the revised invoice or the corrected work (s. 16(2)). Interest on an overdue amount is simple interest at the Average Rate, a monthly average of the Bank of Canada's Bank Rate, plus 3 percent a year, payable without notice from you, but only if Canada is responsible for the delay, and not on overdue advance payments (s. 17).
My invoice is to Canada Post or Defence Construction (1951) Limited. Do these assignment rules apply?
Not Part VII's. Section 70(b) of the Financial Administration Act says Part VII does not apply to any Crown debt incurred by or in the name of a corporation set out in Schedule III, and both are listed there, as are Canada Mortgage and Housing Corporation, the National Capital Commission, VIA Rail Canada Inc. and the Royal Canadian Mint. The Receiver General's notice and acknowledgment are not the route for those invoices. Read the corporation's own contract terms on assignment and payment, and have counsel confirm how an assignment is made effective against it.
Can CRA arrears be deducted from a federal payment I have factored?
Possibly, and the federal text does not settle it. Section 224.1 of the Income Tax Act lets the Minister require the retention, by deduction or set-off, of an amount owed under the Income Tax Act out of any amount that may be or become payable to the person by Her Majesty in right of Canada, and section 155 of the Financial Administration Act gives the minister responsible for recovering any debt owed to the federal Crown a similar power, with the consent of the minister responsible for the payment. An assignment under Part VII passes the debt subject to all equities that would have been entitled to priority over the right of the assignee (s. 68(3)), but neither set-off provision mentions assignees. Unremitted source deductions also carry a deemed trust and garnishment powers of their own, covered in our guide to CRA arrears and receivables, so disclose them at the start.