Guideline on Security for Debts

Assists departmental officials in charge of the management of securing repayment of debts owed to the Crown by mitigating non-repayment risks. The guidelines provide sound management practices for accepting, protecting and discharging security on debts owed to the Crown.
Date modified: 2009-10-01

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1. Effective date

1.1 This guideline takes effect on October 1, 2009.

1.2 It replaces TB Circular 1989-2: Regulations Governing Security for Debts Due to Her Majesty (dated January 11, 1989).

2. Application

This guideline applies to departments as defined in section 2 of the Financial Administration Act.

3. Context

3.1 The purpose of these guidelines is to assist departmental officials who are charged with the management of securing repayment of debts due to the Crown by mitigating the risks of non-repayment. The guidelines provide sound management practices for accepting, protecting and discharging security on debts due to the Crown.

3.2 Theseguidelines support the Security for Debts Due to Her Majesty Regulations (hereafter the Regulations).

3.3 Though the guidelines elaborate on the Regulations, they do not present new mandatory requirements. Where the term "must" is used in these guidelines, it does not create a new obligation but rather reflects an existing obligation under either an act, regulations, policy, directive or standard. Where the term "should" is used, it indicates that something is the preferred thing to do.

3.4 Section 156 of the Financial Administration Act provides the authorities for accepting any security for a debt due to the Crown, for realizing on, assigning or selling the Crown's interest in it, and for discharging, releasing or otherwise disposing of the security. In addition to the Financial Administration Act, security for debts due to the Crown may be provided for within specific program legislation (for example, the Income Tax Act and the Excise Tax Act) that sets out the circumstances under which security deposits are to be made and establishes the amount of security required.

3.5 The Security For Debts Due to Her Majesty Regulations allows the government to accept specific guarantees to protect the Crown's interest, but do not oblige debtors to provide security (in other words, the Regulations do not require departments to request security from debtors). These Regulations do not supersede authorities contained in departmental statutes and regulations but provide authority when none exists.

3.6 Security is not to be sought from

  • government departments and agencies listed in Schedules I, I.1 and II of the Financial Administration Act and Crown corporations listed in Schedule III, Part I of the Financial Administration Act; or
  • provincial and territorial government departments and ministries.

3.7 When appropriate, security can be sought from all Crown corporations listed in Schedule III, Part II of the Financial Administration Act and provincial Crown corporations (except Liquor Control Boards).

3.8 Note: The Importation of Intoxicating Liquors Act legally empowers Liquor Control Boards or Commissions to control the importation and sale of intoxicating liquor and wine in each province. The Liquor Control Boards or Commissions and the Minister of National Revenue jointly enforce this Act and the regulations issued pursuant to it. The sole mandate of the Control Boards is the "importation of liquor and alcoholic beverages and spirits" into Canada. It is redundant to demand security deposit on liquor importations by Control Boards in the event they default on the customs duty because the federal government enforces this Act jointly with them.

4. Definitions

Definitions of terms used in these guidelines are in Appendix A.

5. Principles

5.1 The following principles and considerations will assist in making decisions and taking appropriate actions in the management of securing repayment of debts due to the Crown:

  • While being fair to a debtor or the guarantor of a debt (refer to the Directive on Receivables Management) security should be sought whenever it is consistent with good business practices and would promote more timely repayment of debts owed to the Crown.
  • Only enough security to commit the debtor to discharging the debt should be taken (refer to Appendix B).
  • Any substitution of security should not inadvertently reduce the protection that was originally intended.
  • All reasonable precautions for the future enforceability of the Crown's claim to the pledged asset should be taken.
  • The security value of assets should be established in a consistent and fair manner.
  • All reasonable actions should be carried out and all available recovery possibilities exhausted before realizing on a security.

5.2 The debtor should be charged for any associated out-of-pocket costs, with interest, and should credit any recoveries against these expenditures before reducing the debt(s).

5.3 Legal advice and assistance from Legal Services should be obtained, as required, to mitigate the risk inherent in registering, managing, and releasing security.

6. Management practices

This section describes the recommended best practices and considerations in the effective management of security for debts due to the Crown. It covers topics such as when security should be sought, acceptable types, amount, enforceability, valuation, release, realization, and cost of security.


6.1 As a matter of general practice, and without regarding it as a substitute for establishing a debtor's potential credit-worthiness, security should be actively sought, consistent with good business practices, whenever

  • a debtor's future ability or willingness to discharge a debt in accordance with the payment terms is uncertain;
  • a debtor is not discharging a debt in accordance with the payment terms, is not in an immediate financial position to pay the amount owing and is unable to borrow the amount from usual sources;
  • the normal commercial practice for the type of transaction being considered is to take security, such as a hypothec or a mortgage in the case of the sale of real estate; or
  • a debtor has enough real property or other assets to discharge a debt but has temporary cash flow problems, and it would be unreasonable to require the debtor to sell assets to pay the amount owing.

Acceptable security

6.2 The minister responsible for recovering or collecting a particular debt due to Her Majesty may accept as security a charge, such as a pledge, assignment, debenture, mortgage, encumbrance, hypothec or lien, on the assets of a debtor or of a guarantor. Although not specifically mentioned in the Regulations, other forms of security that constitute such a charge may also be accepted (see Appendix B). This does not mean, however, that security should be accepted in lieu of immediate payment when the duly approved terms and conditions of a sale call for immediate payment.

6.3 In accordance with the Regulations, only charges

  • on existing or future personal or real property of a debtor, and
  • on existing personal or real property of a person who is the surety or guarantor of the debtor

are deemed to be a security under paragraph 156(b) of the Financial Administration Act.

6.4 While an assignment of the future wages of a debtor can be accepted as security, a department is not authorized under the Regulations to accept an assignment of the future wages of a guarantor. However, a charge on an asset currently owned by either a debtor or a guarantor can be accepted as security.

6.5 Situations should be avoided where it becomes more attractive for the debtor to give up the security than to discharge the debt. This is especially important when the asset being considered as security is used to generate the revenue that would discharge the debt (for example, shares in a privately held business or special-purpose buildings or equipment for which, in fact, there is a limited market, if any). The objective of taking security is to ensure the payment of a debt, not to liquidate or acquire assets.

6.6 When considering offers of security, security deposits or guarantees provided by banks or other financial institutions are preferable, followed by unencumbered assets that are expected to maintain their value or appreciate in value. Although less desirable, a second or subordinate charge on an asset may be accepted as security when the sum of this charge and all other higher-priority charges does not exceed the estimated realizable value of the asset, net of realization costs.

Amount of security

6.7 Only enough security to commit the debtor to discharge the debt should be taken. When establishing security requirements, a determination should be made concerning whether insurance should be maintained, at the debtor's expense, on the asset given as security and whether the insurance should be made payable to the Crown.

6.8 Security that currently covers only part of the debt may be accepted when no other security is available or less than full security is required. Such action may be appropriate, for example, when

  • existing higher-priority charges will be reduced in due course, thereby providing the security sought by the government; or
  • a right is warranted to prevent subsequent creditors from gaining a higher-ranking claim.


6.9 When the Crown has authority to substitute one asset held in security for another, the net realizable value of the replacement asset should at least equal

  • the security value of the original asset that it replaces or
  • the outstanding debt(s), whichever is less.


6.10 Legal advice should be obtained to ensure the validity and future enforceability of the Crown's claim to the security being accepted and, when security has been accepted, to register the Crown's interest in accordance with the applicable provincial or territorial laws. Consideration should be given to the following:

  • the asset offered as security is assignable and transferable to the Crown (Canada Savings Bonds, for instance, are currently not transferable to a third party and Registered Retirement Saving Plans are subject to limitations);
  • local laws outside of Canada where the security may reside;
  • the asset offered as security actually belongs to the person offering it; and
  • this person, or anyone acting on behalf of this person, has the authority to act in this capacity.

6.11 The above considerations (section 5.10, 3rd and 4th bullets) are particularly important where family assets are involved and giving security may require the consent of both spouses.

6.12 When considering whether to accept security from a surety or guarantor who is the spouse or an elderly relative of the debtor, evidence should be obtained that the person has received independent legal advice before providing security. Defences based on the premise that the person was unduly taken advantage of could preclude enforcing the Crown's claim.

Valuation of security

6.13 To take into account the risk of future devaluations, the maximum value of any asset should be established in accordance with Appendix B. The valuation should be based on the lowest value of the asset. For example, the current value of a piece of real estate should be used, not an appreciated future value. If there is reason to expect that the asset may depreciate to less than the attached schedule indicates, its security value should be discounted accordingly.

6.14 A valuation from an accredited appraiser should be obtained when:

  • the security being considered is real property intended to cover a debt of more than $100,000;
  • doubt about the purported market value or the net realizable value of the asset is greater than usual, which is usually the case with precious metals and gems and often with goods and equipment (for precious metals and gems, the average of at least two appraisals should be used as the best estimate of their market value); and
  • bonds are not rated and shares are not listed on a stock exchange (an appraiser's consideration should be given to the future devaluation of these assets over the life of the debt).

6.15 To ensure that the security they hold continues to provide the required protection, portfolios should be assessed at least once a year and the appropriate action taken. As specified in Note 2 of the Appendix B, certain types of security, however, require more stringent control.

Release or discharge of security

6.16 In accordance with paragraphs 3(a) and (b) of the Regulations, the minister responsible for recovering or collecting a debt due to Her Majesty may execute and deliver any instrument that will effectively release or discharge any security

  • in full, on total payment of the debt due to Her Majesty, or
  • in part, on payment of the portion of the debt for which security was accepted.

6.17 Appropriate legal advice should be sought when the release of part of the security is anticipated. In addition, specific provisions should be made in the security instrument(s) to address the release or discharge of a portion of the security accepted. This could be done, for example, by relating specific assets to specific portions of the debt(s). From a legal perspective, it may also be preferable to execute a separate security instrument for each portion of the debt.

6.18 Security may also be released or discharged when, as a result of another form of settlement such as forgiveness, remission or a duly authorized compromise, the debt has, in the opinion of legal counsel, been extinguished.

6.19 When releasing or discharging a portion of the security, the Crown's claim to the remaining security should not be impaired in any way or the priority of its claim reduced.

Realization on security

6.20 All reasonable actions should be carried out and all available recovery possibilities exhausted before realizing on a security, including, where possible and appropriate, set-off actions as outlined in the Directive on Receivables Management.

6.21 When all collection and recovery actions are unsuccessful, a prompt attempt to realize on the security should be made, under legal advice. All actions taken should be based on principles of fairness to the debtor or guarantor. Attempts to realize on the security should not be made if, after close scrutiny, senior departmental officials determine that legislative, administrative, humanitarian, or other special circumstances make it unsuitable for such action.

6.22 Subject to subsection 5.23 of these guidelines, if a debtor commits an act of bankruptcy without having filed for bankruptcy or been petitioned into bankruptcy, under legal advice and with the written authority of the deputy head or of a person authorized by the deputy head in writing for this purpose, recovery responsibilities should be pursued in accordance with the provisions of the Bankruptcy and Insolvency Act and in a manner consistent with these guidelines and the objectives of the program under which the debt was incurred.

6.23 Except where legal counsel advises otherwise, filing a petition for a receiving order against a debtor should not be sought when a department holds adequate security, unless

  • the action is expected to increase the chances of collecting the debt; and
  • the amount of the debt is significant.

In such circumstances, however, prompt action may prevent the disappearance of other assets that are required either to retire the debt or reduce the subsequent loss.

6.24 If the court has already issued a receiving order against a debtor, consideration should be given, after obtaining legal advice, to executing the department's right to realize on its security independently of other creditors and to file with the trustee a priority claim for any shortfalls.

Cost of security

6.25 Unless legal counsel advises that it is prohibited by law, the appraisal, registration, realization and any associated legal costs should be charged with interest to the debtor pursuant to the Interest and Administrative Charges Regulations. The interest should be calculated from the time the costs are incurred until they have been recovered. Any proceeds received should be applied as follows:

  • first-to recovering the above costs, by first paying the interest on the costs and then the costs proper; and
  • second-to the original debt(s), by first paying any interest due on the debt.

6.26 To provide authority for charging interest and to avoid disputes and litigation, the guidance of legal counsel should be sought to ensure that these considerations are reflected in the documents that establish the debt and the security. Also, refer to the Interest and Administrative Charges Regulations.

7. References

For additional information regarding legislative and policy aspects of managing security for debts due to the Crown, the following may be consulted.

7.1 Other relevant legislation and regulations:

7.2 Related policy instruments and publications:

8. Enquiries

Please direct enquiries concerning these guidelines to your departmental headquarters. For interpretation of these guidelines, departmental headquarters should contact:

Financial Management Policy Division
Financial Management and Analysis Sector
Office of the Comptroller General
Treasury Board Secretariat
Ottawa ON K1A 0R5

Telephone: 613-957-7233
Fax: 613-952-9613

Appendix A — Definitions

Accredited appraiser (évaluateur accrédité)
Is a member in good standing of a professional body that sets standards for competency (e.g., training and experience), continuing professional development and ethics in a specialized field.
Assignment (cession)
Means, with respect to money payable to any person, the legal transfer by a person to whom money is owed of all rights to that money. An assignment is irrevocable. All assignments against the salary and wages of a public service employee are prohibited under subsection 68(5) of the Financial Administration Act.
Charge (droit)
Is a pledge, assignment, debenture, mortgage, encumbrance, hypothec or lien.
Credit union (caisse de credit)
Is a corporation, an association or a federation organized as a cooperative credit society where all or substantially all of its revenue is derived from cooperative financing activities. A corporation that qualifies as a credit union may commonly be designated as a "caisse populaire." An organization need not be incorporated to qualify as a credit union; therefore, the definition includes "association" and "federation." This is the official interpretation of the definition given in paragraph 137(b) of the Income Tax Act.
Debt due to the Crown (dette due à Sa Majesté)

Is an amount owing to the Crown. Debts due to the Crown include the following:

  • Amounts due from taxation (including tax assessments), the sale of goods, the provision of services, the use of facilities, and statutory or other obligations, including dividends and transfers of profits and surpluses arising from the government's financial interest in outside organizations;
  • Overpayments or erroneous payments of salaries, allowances, supplier accounts, grants, contributions and benefits;
  • Disputed claims, at their estimated value;
  • Gross amounts assigned to third parties for collection;
  • Amounts due from repayable contributions when the conditions that make the contribution repayable have been met;
  • Amounts due from defaulted loans as a consequence of the department honouring a loan guarantee;
  • Amounts due from penalties, fines and court awards; and
  • Interest, penalties, or administrative charges on the amounts and items specified above.
Fairness and principles of fair treatment (équité ou principes sur le traitement équitable)

Involve the following:

  • Debtors are informed of their obligations under applicable acts and regulations and advised of any existing administrative review or appeal processes that provide relief, redress, or both;
  • Applicable acts, regulations or policies are applied consistently toward all debtors;
  • Any information provided to debtors is accurate and understandable;
  • A debtor's financial situation and any other special circumstances regarding a debtor are considered when collecting a debt;
  • Service expectations of the department are openly communicated to debtors; and
  • Additional measures required in the circumstances, as advised by legal counsel, are taken.
Management practices and controls (pratiques et contrôles de gestion)
Are policies, processes, procedures and systems that enable a department to operate its programs and activities, use its resources effectively, exercise sound stewardship, fulfill its obligations and achieve its objectives.
Net realizable value (valeur réalisable nette)
Is gross proceeds from the disposal of an asset less the cost of disposal.
Realization (réalisation)
Is the transfer of possession of the title of the asset and its subsequent conversion to cash.
Realize (réaliser)
Means to convert into cash.
Security for debts due (garantie à l'égard des dettes dues)
Means, for the purposes of these guidelines, a charge in favour of the Crown on the existing or future personal or real property of a debtor or on the existing personal or real property of a person who is the surety or guarantor of the debtor.

Appendix B — Recommended maximum values assigned to assets taken as security and other forms of acceptable security

Maximum security value assigned to an asset accepted as security for debts due to the Crown (pursuant to Section 13 of these guidelines and subject to the notes in this appendix)

Type of Asset Canadian Dollar Maximum Security Value Equivalent
(per cent of current market value)
Unconditional documentary credit (i.e., letter of credit) 100%
Cash (e.g., certified bill of exchange or cheque) or collateral deposit in a financial institution 100%
Government debt or government guaranteed debt (i.e., foreign)
Treasury Bill and other short-term paper 95%
maturity less than 5 years 95%
maturity from 5 years to 10 years 90%
maturity greater than 10 years 85%
Other securities
Short-term paper
rated at least A-2, P-2 (or equivalent) 90%
rated A-3, P-3 (or equivalent) 80%
rated below A-3, P-3 55%
Bond rated AA or higher
maturity less than 5 years 90%
maturity from 5 years to 10 years 85%
maturity greater than 10 years 95%
Bond rated A to BBB
maturity less than 5 years 85%
maturity from 5 years to 10 years 75%
maturity greater than 10 years 70%
Bond rated below BBB 50%
Unrated bond (see Note 4)
listed and worth more than prescribed minimum value (see Note 3) 50%
not listed or below prescribed maximum value (see Note 4)
Precious metals and gems-Other 50%
Real Property
agricultural land and buildings, undeveloped land, principal residence, commercial rental or industrial-general purpose 75%
industrial-special purpose 60%
other residence (e.g., cottage) 50%
Equipment, other goods and chattels
general purpose item 75%
special purpose item (other than collector's item) 50%
recognized generally as a collector's item 75%
Insurance policy
Net cash surrender value 100%
Performance bond 100%
An insurance policy covering risks that could reduce the value of property being accepted as security does not constitute a security. The same applies to an insurance policy on the life of the debtor. Only the net cash surrender value can be considered as security. Appropriately, any such policies should be made payable to the Crown.
Future wages
Subject to the Regulations' restriction on accepting future assets as security, an assignment of (future) wages by the debtor can be accepted as security. The maximum security value of future wages, however, should be assessed in relation to the degree that periodic wages will cover future periodic payments. Therefore, only the debtor's current net income, less the sum of the payments the debtor is currently expected to make to all other creditors as well as reasonable living expenses, should be considered as security. The maximum percentages of the debtor's gross income allowable as security are as follows:
  • If the debtor has a record of stable revenue from employment
  • If the debtor has a record of uncertain revenue from employment


  1. The sole purpose of this schedule is to determine the maximum value of an asset being accepted as security. It does not determine an asset's suitability as security.
  2. To maintain the security's expected value, security based on types of assets that are subject to frequent changes in value because of market or exchange rate fluctuations need to be monitored at least monthly (and more frequently when financial markets are volatile) and should be subject to calls for additional security if the shortfall is equal to or exceeds 15 per cent.
  3. Shares denominated in Canadian dollars should be listed on a Canadian stock exchange and have been quoted at a minimum of CAN$3.00 per share for 90 per cent of the time during the previous 3 months. Shares denominated in other currencies should be listed on an accredited stock exchange in the same country as the currency. The shares should have been quoted at the equivalent of a minimum of CAN$4.00 per share for 90 per cent of the time during the past 6 months.
  4. The current market value of bonds and shares that are not rated and/or quoted on any market will be determined by a qualified appraiser who will consider, in particular, the risk of their devaluation over the life of the debt. The maximum security value should not exceed 50 per cent of the current market value.
  5. Credit ratings will either be obtained from or be consistent with those of Dominion Bond Rate Service, Canadian Bond Rating Service, Moody's Investors Service or Standard & Poor's. When more than one rating is obtained, the lowest rating will apply.
  6. Unless the debt to Her Majesty is payable in the same currency as the security is valued, in which case no conversion is required, the maximum security value of any asset not valued in Canadian dollars is established after current market value has been converted to Canadian dollars


  • Say a US$100,000, 4-year, non-government bond rated BBB by Moody's Investor Service is determined to have a current market value of US$99,417 (source may be The Globe and Mail, broker, etc.).
  • Convert to Canadian dollars: US$99,417/0.8821 = CAN$112,705
  • (US$1 = CAN$0.8821, based on Bank of Canada exchange rate on the day of valuation).
  • Establish the maximum security value: CAN$112,705 x 85% = CAN$95,799 (85% = corresponding percentage of current market value according to schedule; i.e., rated A to BBB, maturity less than 5 years)

Other forms of acceptable security

Security deposits or guarantees provided by banks and other financial institutions are acceptable when in the form of:

  • Cash and cash equivalents (e.g., certified cheques);
  • A transferable bond issued by the Government of Canada; or
  • A bond from:
    • An entity that is licensed or otherwise authorized under the laws of Canada or of a province to conduct the fidelity or surety class of insurance business and is recommended to the Treasury Board by the Office of the Superintendent of Financial Institutions as an entity whose bonds may be accepted by the Government of Canada. The most up-to-date list of the acceptable bonding companies is found in the Treasury Board Contracting Policy, Appendix L;
    • A member of the Canadian Payments Association (CPA) as referred to in section 4 of the Canadian Payments Act;
    • A corporation that accepts deposits insured by the Canada Deposits Insurance Corporation or by the Régie de l'assurance-dépôts du Québec to the maximums permitted by the statutes under which those institutions were established;
    • A credit union as defined in these guidelines and in paragraph 137(b) of the Income Tax Act; or
    • A corporation that accepts deposits from the public, if repayment of the deposits is guaranteed by the Crown in right of a province (e.g., Alberta Treasury Branches).

© Her Majesty the Queen in Right of Canada, represented by the President of the Treasury Board, 2017,
ISBN: 978-0-660-09770-1

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