With all this foreign production coming to Canada, it is inevitable that Canadian production companies will occasionally be forced to deal with non-payment from the foreign company. For smaller Canadian production companies, just one of these non-paying foreign jobs can put it on the brink of bankruptcy. What’s worse, in certain circumstances, the Canadian company may never see the money owed to it.

The majority of our foreign productions are American so I will use U.S. companies as an example, however, I am not suggesting that it is only U.S. companies that sometimes don’t pay.

To better understand why you may never get paid, it is important to understand why you did not get paid in the first place. Generally, there are two types of companies: those with positive cash flows that are meeting their debt obligations, and those that have depleted their assets and are not meeting their debt obligations.

U.S. companies that have positive cash flows and that intend to be an ongoing concern will almost always pay. When these types of companies do not pay it is usually because of some issues they have with the finished product or the services provided. Threatening a lawsuit is sometimes enough to initiate negotiations for a resolution. If this does not work, commencing a lawsuit is certain to initiate negotiations. This requires your company to retain a U.S. lawyer in the state where the U.S. company has its assets, since assets are necessary to enforce a judgement for money.

It is possible to obtain a provincial judgement against a U.S. company, however, if the U.S. company has no assets in that province, that judgement must be enforced in the U.S. Most, if not all states, have agreements with Canadian provinces recognizing each other’s judgements, however, the process of enforcing a provincial judgement in a U.S. state is just as costly as retaining a lawyer to commence a lawsuit in that state from the outset.

Depending on the firm chosen, you can expect to spend approximately US$3,000 to have a U.S. lawyer conduct the necessary searches, prepare a claim, have it issued and served on the U.S. company.

Companies that are financially strapped and owe a lot of money at the time they award a job to a Canadian company are the ones most likely not to pay when invoiced. Further, it is these companies that have nothing to negotiate when faced with a lawsuit. Often, the company is already named in other lawsuits and usually does not have any assets for a creditor to seize. Therefore, even a judgement in these cases is worthless since there is nothing to which the judgement can attach.

If you are not getting paid and you believe that the U.S. company is one of these cash-strapped companies, you may want to hire a private investigator to conduct various searches before spending thousands for a worthless judgement. It always surprises me how much information a good private investigator can obtain. This will cost about US$700 and may assist you in deciding whether to proceed with a lawsuit.

Protecting yourself from these cash-strapped companies is very difficult given the fast nature of the commercial industry. If time allows, you can conduct various searches prior to entering into a contract with an unfamiliar company. These searches can provide you with information on: i) any lawsuits pending, by whom, and for what amount; ii) whether there are any judgements against the company; iii) whether there are any state and/or federal taxes owing; iv) who the secured creditors of the company are; v) any real property owned, and, vi) the company’s status vis-a-vis credit agencies and state business bureaus. These searches can take days, even weeks, which is usually too long to wait in this fast-paced industry.

Alternatively, and prior to entering into a contract, some of the things you may do to protect yourself are:

* attempt to get personal guarantees from the principals of these unfamiliar companies ;

* agree that 100% of the budget will be paid prior to delivery of the film (with adjustments after actualization);

* agree that final payment will be held in trust for your company by a third party (such as a lawyer or an accountant) until the job is actualized;

* have an agreement that your company will be a secured creditor in the amount of the budget.

Unfortunately, in this highly competitive industry, making demands such as these may be enough of an incentive for the U.S. company to award the job to a competitor. This is fine if your suspicions about the U.S. company are correct, but costly if they are not.

If all fails and you have no hope of getting your money, a small consolation is that bad debts are business losses which can be applied against past income (three years back) and indefinitely against future income. *

This article is intended to provide general legal information and opinions. If you are involved in a legal matter related to those issues discussed above, you should seek your legal counsel’s advice. Andrew Tolomizenko is a freelance writer for On The Spot. Accordingly, his opinions do not necessarily reflect those of the publication.