by Scott Horner of Osler, Hoskin & Harcourt LLP
We recently represented a US bank in Ontario on a secured refinancing for a Canadian borrower. The Canadian borrower owns a number of Canadian and US subsidiaries (the Canadian borrower and its subsidiaries, the “Loan Parties”) which delivered secured guarantees. US counsel for the bank agreed to a request of US counsel for the Loan Parties that the US security agreement contain only a grant of a security interest (in contrast to also including an assignment, charge etc. by way of security like the US security agreement did on the original financing). The bank’s US counsel stated that they accepted this request on the basis that the Uniform Commercial Code applied to insurance proceeds.
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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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John Eric Pollabauer posted this question to the Canadian Commercial Lenders group on LinkedIn:
“What is the current status regarding commercial lending practices in Canada as we are heading into the month of October, 2011? Is it business as usual or ???”
For myself [EG], account managers from two financial institutions tell me that at the same time as they are being pushed to produce, credit is being very difficult on each deal. The result is a lot of resulting stress and unhappiness.
I believe it helps everyone when we share our experiences with others. Please enter your comments below. I will then publish them for you, but omit your name and institution, unless you wish otherwise.
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 Andrew Biderman of Aird and Berlis LLP
Introduction
In-transit inventory represents a significant, and growing, proportion of inventory for many borrowers, who often look to their lenders to advance against such inventory. 1
As part of the lender’s security package, the lender will have a security interest over the borrower’s in-transit inventory. However, before the lender can consider including the inventory in the borrowing base, the lender needs to ensure that the borrower actually has title to the inventory. Further, unlike the typical situation where the inventory is located at the borrower’s premises (where the lender will have access pursuant to the loan agreement/ security documents and/or a landlord waiver), the lender does not have any control over what the borrower’s carriers will do with the inventory.
After a brief discussion of some of the issues involved in confirming ownership of the inventory, this article will examine a few of the different strategies available to give the lender the comfort necessary to include at least a portion of the in-transit inventory in the borrowing base.
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by Kevin P. McElcheran of McCarthy Tétrault LLP
[Ed.: Concerning Indalex Limited (Re), 2011 ONCA 265]
This week, the Ontario Court of Appeal surprised many by deciding that in the context of the CCAA proceedings of Indalex, pension plan deficiency claims can have priority over security held by secured DIP lenders. The Court granted priority for the entire wind-up deficiency of two pension plans over the DIP lender’s security. If not reversed on appeal, the ruling creates a potential worst case scenario for secured lenders in Ontario and could affect availability of credit for all employers who provide defined benefit pension plans for their employees.
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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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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
by Barbara McIsaac, Q.C., and Nadia Effendi of Borden Ladner Gervais LLP
Introduction
On January 6, 2011, the Ontario Court of Appeal released a decision affirming the decision of the Ontario Superior Court of Justice concluding that the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5 (PIPEDA) prohibited a financial institution from disclosing the mortgage discharge statement of a mortgagor to a third party creditor.1
This decision is important, as it confirms that financial institutions cannot disclose financial information about one of their customers without the consent of that customer, unless one of the exceptions in PIPEDA allowing disclosure without consent applies.
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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).
In which we revisit the importance of looking at the whole picture even when someone says, “it hurts …right … here.”
Youthful excess and advancing age have led to creaky joints. From time to time, I seek help from physical therapists, trainers, and physicians.
I went to see a new provider last week. Our interview began with, ”What has brought you here?”
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by James D. McAuley of KPMG LLP
It is not surprising that Canadian banks continue to be popular targets for class action lawsuits. Not only are Canadian banks among the world’s largest and most profitable corporations, but they also provide most of the population with a set of essential and complex services.
In the absence of readily available statistics to measure industry exposure to class actions in Canada, KPMG embarked on a research project of its own. Our investigation found that Canadian banks currently face at least 81 class actions.1 The amounts claimed, where reported, amount to almost $4.9 billion. When this known amount is extrapolated to include actions with no reported financial claim,2 the total estimated claims swell to between $8.8 billion and $12.4 billion.3
It is important to remember that the ultimate liability of banks to class actions will most likely be significantly less than the aggregate amounts claimed. However, the costs of settlement are substantial, and significant operating costs are also incurred to defend class actions. Perhaps one of the greatest concerns in the process is damage to the bank’s reputation. It is common for the announcement, progress, and settlement of class actions to be
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