By Blair W. Keefe, Peter A. Aziz and Eli Monas of Torys LLP
The Canadian federal government recently published three regulations that will impose additional requirements and restrictions on the use of credit card cheques, on cheque hold periods and on the provision of new optional products or services.
Proposed amendments to the Credit Business Practices Regulations would require federally regulated financial institutions (FRFIs) to obtain the express consent of borrowers before distributing credit card cheques. The Access to Funds Regulations will reduce the maximum cheque hold period for consumers and small and medium-sized enterprises. In addition, the Negative Option Billing Regulations will require FRFIs to obtain consumers’ express consent before providing a new optional product or service.
The Credit Business Practices Regulations were published in the Canada Gazette on March 10, 2012, for a 30-day comment period and will come into force on the date on which they are registered. The other two regulations were published on March 14, 2012, in final form and will come into force on August 1, 2012. The Financial Consumer Agency of Canada (FCAC) will oversee compliance with each regulation.
The details of these regulations are discussed below.
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By Blair Keefe, Dan Logan, Peter Aziz and Eli Monas of Torys LLP
The Financial Consumer Agency of Canada (FCAC) issued several guidance notes and decisions affecting the payments and card business of federally regulated financial institutions (FRFIs) and others in 2011. In this bulletin, we highlight some of the FCAC’s more important pronouncements.
Background
In January 2010, the Canadian government introduced the Credit Business Practices Regulations1 (CBP Regs) and amended the Cost of Borrowing Regulations (CoB Regs) under the Bank Act, Trust and Loan Companies Act and the Insurance Companies Act to enhance the protection of consumers of financial products and to better ensure that consumers have access to credit on terms that are fair and transparent. In addition, in August 2010, the government introduced a Code of Conduct for the Credit and Debit Card Industry in Canada (the Code) to promote greater transparency for business owners and consumers who use credit and debit cards. In addition to monitoring various other consumer provisions applicable to FRFIs, the FCAC monitors compliance with, and provides guidance on the interpretation of, these regulatory requirements.
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by Stevan Novoselac & John Sorensen
In our article, “The CRA is not a Bank – Director’s Liability in an Age of Economic Uncertainty”,1 we strongly warned corporate directors to make sure that source deductions, GST/HST, employee EI premiums and employee CPP contributions are remitted to the Crown and not used as operating funds, regardless of whether the corporation has cash flow problems. This is because a corporation’s failure to remit these amounts makes directors personally liable for the default, if:
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By Richard Dusome of Gowling Lafleur Henderson LLP
When structuring a new financing for a corporate borrower, lenders typically obtain postponements from all other creditors and shareholders advancing loans to the proposed borrower. Postponements establish the lender’s priority to receive payment from the borrower vis-à-vis these other known creditors.
However, some shareholders who have not actually advanced loans to the borrower may still hold shares that contain a right of retraction that will require the borrower, at the shareholder’s option, to purchase the retractable shares at a pre-arranged price following the issuance of an exercise notice. The retraction serves to create a new debt obligation out of what was originally an equity holding.
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By Mike Todd of Gowling Lafleur Henderson LLP
Lenders should be aware that one of the waivers found in most standard form guarantees of certain statutory rights is not effective under the British Columbia Personal Property Security Act (“BCPPSA”).
This was the result in the recent BC Supreme Court decision HSBC Bank Canada v. Kupritz. The facts of that case are unremarkable. A trucking company went out of business leaving an unpaid debt to the bank of approximately $1 million. The bank was unable to recover that amount from the company’s assets and therefore sued the two principals of the company on their unlimited guarantees. One of the principals defended the claim on the basis that the bank had breached its obligations to him under the BCPPSA by failing to secure the company’s assets, improvidently realizing on the collateral seized, failing to provide notice of the impending sale of the collateral and failing to provide an accounting.
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Here are a few characteristics of the ideal banking account manager for a business, based on feedback from the businesses I work with:
- Returns your calls promptly
- Answers your questions with clarity and authority
- Always has time to consult with you about your needs and performance
- Suggests techniques for innovative loan structuring
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By Eric Koh of Gowling Lafleur Henderson LLP
Introduction
A director of a corporation is personally liable under subsection 323(1) of the Excise Tax Act1 (“ETA”) for the failure of the corporation to remit goods and services tax (“GST”). However, subsection 323(5) imposes a time limit on this liability whereby a director will not be held liable for unremitted GST two or more years after ceasing to be a director. Unfortunately, the Tax Court of Canada’s (“TCC”) decision in Snively v. The Queen 2 (“Snively”) makes it more difficult for an individual to rely on subsection 323(5). Indeed, this decision may have broader ramifications on directors’ liability in general, and beyond the ETA. According to the TCC, an individual may still be a deemed director of a corporation even after formally resigning from that position.
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By Andrea Lockhart of Osler, Hoskin & Harcourt LLP
A recent decision of the Ontario Court of Appeal illustrates that secured creditors should address their priority position relative to all other creditors of their borrower in order to achieve a complete subordination of competing security. Failure to do so in this case resulted in circular priorities that the Court was left to resolve. In light of the Court of Appeal’s decision, secured creditors should ensure they are a party to all subordination agreements with the debtor in order to achieve their expected result.
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By Cary Heller of Collins Barrow Toronto LLP
On Wednesday, March 16, 2011, the Department of Finance released proposed income tax legislation designed to address three decisions of the Federal Court of Appeal.
Contingent Amounts and Limits on Expenses
In Collins v. The Queen, 2010, FCA 12, the issue was deductibility of interest. In brief, the taxpayers deducted accrued but unpaid interest at the full amount even though they had an existing right to discharge their obligations by electing to pay a significantly lower amount of interest. The Federal Court of Appeal (“FCA”) ruled that it was not the original obligation to pay the interest that was contingent, but that it was each taxpayer’s subsequent decision to exercise the option to pay the lower amount which was contingent. As such, the decision allowed interest payable under the original obligation to be deducted in computing income even though both taxpayers had a right to elect to pay a lower amount.
The draft legislation provides that
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Michael Friedman and Ashley Palmer of McMillan LLP
Canada’s income tax system requires taxpayers to self-assess and report their income tax liabilities in respect of each taxation year. Where a taxpayer has previously provided incorrect or incomplete information, or has failed to disclose required information entirely, to the Canada Revenue Agency (CRA), the taxpayer may, under certain circumstances, be permitted to come forward and voluntarily disclose past reporting errors or omissions in exchange for potential penalty (and, in limited circumstances, interest) relief by making an application to the CRA under the federal “Voluntary Disclosures Program” (VDP). This article provides a general overview of the conditions that a taxpayer must satisfy in order to be eligible to make a valid voluntary disclosure.
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by Mark McElheran of Stikeman Elliott LLP
It remains to be seen whether the reform fever that is presently sweeping through the US securitization market will continue unabated across the 49th parallel but there is no question that these monumental reforms have given rise to a considerable amount of discussion and debate over the appropriateness of similar reforms in Canada. This was perhaps inevitable given the degree of economic integration between the two countries and the fact that both have recently suffered through significant ABS-induced crises (albeit on entirely different scales).
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Tags: bank, bankruptcy, bubbles, Canada, debt, Economics, finance, insolvency, lender, securitization, trend
On October 6, 2010, in Seier v. The Queen, the Tax Court of Canada provided us with one more example of a lender and corporate director who must pay the GST and payroll withholdings arrears of a failed business.
In this case, a lender, by realizing on his security, becomes the sole director and shareholder of the borrower corporation. He then fails to monitor the corporation’s compliance with the various GST and payroll tax requirements. As a result, the corporation accumulates in these accounts $60,000 outstanding for which the lender, as corporate director, is assessed.
The Court’s decision is instructive since it paints a picture of absentee management that is common and likely found within your own experience.
Lenders (who upon a liquidation are liable for such debts out of the proceeds) and directors (who are directly liable for such debts) must have monitoring systems in place to limit this risk.
I suggest that some combination of the following could be used to reduce risk:
- Use of a third-party payroll service, with all remittances to be made by the service.
- All payroll and GST/HST assessments and statements are forwarded for review immediately upon receipt.
- An independent accountant is engaged by the lender/director for periodic review of underlying calculations with the accountant’s fees reimbursed by the corporation.
- The lender’s/director’s own bookkeeper/accountant provides this periodic review.
If you are using any of these controls, or some other one, please share it by clicking on “Leave a comment” at the top of this post.
In Fairbanx Corp. v. Royal Bank of Canada, the Ontario Court of Appeal considered a contest between two registrations under the Personal Property Security Act (Ontario) (“PPSA“): a registration made by Fairbanx to perfect its purchase of accounts receivable from the bankrupt debtor and a registration made by Royal Bank of Canada (RBC) in respect of security for a loan to the debtor. While Fairbanx filed first and would therefore normally have ranked ahead of RBC, it made a mistake in recording the debtor’s name in its PPSA financing statement. The debtor’s correct legal name was “Friction Tecnology Consultants Inc.”, spelling “Tec[h]nology” without the “h”.
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By O. Max Gardner III
Originally published at: http://bit.ly/cceEC6
Dalton Camp proclaimed [Ed.: in Canada's defunct Saturday Night Magazine] several years ago that “having lost its value, money may no longer be the root of all evil; credit having taken its place.” This statement demonstrates the paradox of modern day Christianity and debt—should the Christian reaction be one of condemnation or one of compassion. Since many recent respected studies have shown that the average American family is only three weeks away from personal bankruptcy, and since Congress is on the verge of passing legislation that will deny bankruptcy relief to hundreds of thousands of American families, it is time to revisit what the Bible teaches us about debt.
The Bible makes it clear that people are generally expected to pay their debts. Leviticus 25:39. No one in support of or in opposition to the Bankruptcy Reform Bill presently before Congress has advanced any argument against this general proposition. However, this moral and legal obligation to pay just debts must be balanced by such considerations as the need for compassion and the call to cancel debts at periodic intervals. The Biblical basis for such considerations is based on the sabbatical and Jubilee years. The secular basis arises out of the Constitutional of Congress to enact uniform laws allowing businesses and consumers to cancel and to restructure debt obligations. This Biblical support for the legal right to cancel debt is enforced by the even stronger Biblical doctrine that prohibited interest of any amount rather than just usury or excessive interest.
Within the areas of economic justice and stability, the Old Testament is replete with examples of compassionate treatment of the poor, and with preservation of the family unit. These goals were superior to the material concerns of repayment of debt. For instance
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by Jeffrey S. Graham, Tyler Hodgson and Gar Knutson of Borden Ladner Gervais LLP
Toronto is the financial services capital of Canada and one of North America’s premier financial centres. One of the most rapidly growing segments of the international financial services sector is Islamic finance. Recognizing this trend, a number of other financial centres are positioning themselves as global centres for Islamic Finance, including London, England, Dubai, UAE, Bahrain and Kuala Lumpur, Malaysia.
The City of Toronto and its financial cluster developed a unique public-private partnership called the Toronto Financial Services Alliance (TFSA). The mandate of TFSA is to enhance and promote the competitiveness of Toronto as a premier international financial centre. One of the ways to do this is to build leading hubs of expertise in defined areas. With a prominent and growing Canadian Muslim community and strong and innovative financial sector, there is every reason to believe that Toronto could emerge as a North American centre for Islamic finance. Exploring the opportunities that exist in this developing segment is consistent with the TFSA’s mandate and in 2009 the TFSA created an Islamic Finance Working Group (IFWG).
Recently the IFWG delivered to the TFSA its initial report entitled Making Toronto the North American Centre for Islamic Finance: Challenges and Opportunities. The report provides an overview of Islamic finance activity in Toronto and Canada, identifies tax, regulatory and legal issues that need to be addressed to ensure the growth of Islamic finance in Toronto and Canada. In addition, the report proposes a series of next steps:
- helping members of the Islamic community to network within the conventional Canadian financial system;
- clarifying the regulatory environment relevant to products and services compliant with Islamic commercial law;
- working with the new Centre of Excellence in Financial Services Education to build linkages with other countries where Islamic Finance is well established to facilitate in Toronto educational and awareness building initiatives;
- partnering with Canadian governments to increase the level of foreign direct investment from the Gulf region;
- a series of technical working papers are proposed on the following topics: Education, Retail Markets and Sukuks (Corporate and Sovereign).
