Issue 114

REPORT TO THE HOUSE

Thursday, December 14, 1995

The Standing Committee on Finance has the honour to present its

TWENTY-THIRD REPORT

In accordance with its Order of Reference of Tuesday, November 28, 1995, your Committee has considered Bill C-100, An Act to amend, enact and repeal certain laws relating to financial institutions, and has agreed to report it with the following amendments:

Clause 1

In the French version only, strike out line 23, at page 1, and substitute the following therefor:

``surintendant selon les modalités qu'il peut exi-''

Clause 5

Strike out line 2, at page 3, and substitute the following therefor:

``Superintendent may determine that a particular director''

Strike out line 10, at page 3, and substitute the following therefor:

``rector and can reasonably be expected to affect the exercise of the director's best judgment.''

Clause 12

Strike out line 15, at page 5, and substitute the following therefor:

``532.2 (1) A bank shall make available to the''

Add, immediately after line 25, at page 5, the following:

``(2) Paragraph (1)(a) does not apply to a bank that is within such class or classes of banks as may be prescribed.''

Clause 14

Strike out line 45, at page 5, and lines 1 to 44, at page 6, and lines 1 to 24, at page 7, and substitute the following therefor:

``spect of a bank

(a) that has been notified by the Superintendent that his section so applies where the bank is subject to measures requiring it to maintain or improve its safety and soudness, which measures have been specified by the Superintendent by way of

(i) conditions or limitations in respect of the order approving the commencement and carrying on of the bank's business, or

(ii) a written agreement or undertaking between the bank and the Superintendent; or

(b) that is the subject of

(i) a direction made pursuant to section 535, or

(ii) an order made pursuant to subsection 485(3) requiring the bank to increase its capital.

(2) A bank shall provide the Superintendent with the name of

(a) each person who has been nominated for election or appointment as a member of its board of directors,

(b) each person who has been selected by the directors of the bank for appointment as chief executive officer, secretary, treasurer, controller, or any other officer reporting directly to the bank's board of directors or chief executive officer, and

(c) each person who is newly elected as a director of the bank at a meeting of shareholders and who was not proposed for election by anyone involved in the management of the bank, together with such other information about the background, business record and experience of the person as the Superintendent may require.

(3) The information required by subsection (2) shall be provided to the Superintendent

(a) at least thirty days prior to the date or proposed date of the election or appointment or within such shorter period as the Superintendent may allow; or

(b) in the case of a person referred to in paragraph (2)(c), within fifteen days after the date of the election of the person.

(4) Where, in respect of a bank, the Superintendent is of the opinion that on the basis of the competence, business record, experience or character of a person referred to in

(a) paragraph (2)(a) or (c), the person is not suitable for a position as a member of the board of directors of the bank, or

(b) paragraph (2)(b), the person is not suitable for the discharge of the duties and responsibilities associated with the position referred to in that paragraph,

the Superintendent may, subject to subsection (5), by order, disqualify the person from being elected or appointed to the position or, in the case of a person referred to in paragraph (2)(c), from continuing to hold office as a director.

(5) The Superintendent must in writing notify the bank and the person concerned of any action that the Superintendent proposes to take under subsection (4) and must afford them an opportunity within fifteen days after the date of the notice to make representations to the Superintendent in relation to the matter.

(6) Where an order has been made under subsection (4) disqualifying a person

(a) from being elected or appointed to a position, the person shall not be, and the bank shall not permit the person to be, elected or appointed to the position; or

(b) from continuing to hold office as a director, the person shall not hold, and the bank shall not permit the person to continue to hold, office as a director.''

Clause 21

In the French version only, strike out lines 26 to 30, at page 11, and substitute the following therefor:

``« affaires internes » Les activités commerciales de l'institution membre ainsi que les relations entre celle-ci, les entités de son groupe et leurs associés, actionnaires, administrateurs et dirigeants.''

New Clause 21.1

Add, immediately after line 5, at page 12, the following:

POWERS, etc., OF MINISTER

``21.1 The Act is amended by adding the following after section 2.1:

2.2 The Minister may delegate any of the Minister's powers, duties and functions under this Act to any Minister of State appointed pursuant to the Ministries and Ministers of State Act to assist the Minister.''

Clause 26

Strike out line 5, at page 14, and substitute the following therefor:

``that amount at a rate determined in accordance with rules prescribed by''

Clause 28

Strike out line 40, at page 16, and substitute the following therefor:

``poration on or before July 15 in the premium''

Clause 29

Strike out line 5, at page 17, and substitute the following therefor:

``greater of''

Clause 34

In the French version only, strike out lines 22 and 23, at page 18, and substitute the following therefor:

``changé au point d'avoir un effet important sur la situation de la Société, en sa qualité d'assu-''

In the French version only, strike out line 27, at page 18, and substitute the following therefor:

``prime sont, pour l'essentiel, exactes;''

Clause 41

Strike out lines 27 to 48, at page 23, and lines 1 to 17, at page 24, and substitute the following therefor:

``the order;

(b) gives the Corporation, as receiver, in respect of the assets and undertaking of the federal member institution or such part thereof as may be specified in the order, the power to

(i) enter the federal member institution and take possession and control of the assets and require any person therein to account for and deliver up to the Corporation possession and control of the assets,

(ii) subject to subparagraph (iii), sell or otherwise dispose of the assets and undertaking by private or public sale or in such other manner and on such terms and conditions as the Corporation deems appropriate,

(iii) sell or otherwise dispose of any asset that is subject to an agreement creating a security interest to any person who agrees to assume the obligation secured by the security interest,

(iv) arrange for the assumption by any person of all or any part of the federal member institution's liabilities,

(v) carry on the business of the federal member institution to the extent that the Corporation deems is necessary or beneficial to the receivership,

(vi) sue for, defend, compromise and settle, in the name of the federal member institution, any claim made by or against it,

(vii) in the name of the federal member institution, do all acts and execute all receipts and other documents and for that purpose, when necessary, use its seal, and

(viii) do all such other things as may be necessary or incidental to the exercise of the Corporation's rights, powers, privileges and immunities as receiver; and

(c) gives the Corporation the right to recover out of the assets of the federal member institution all the costs, charges and expenses properly incurred by the Corporation in the receivership, in priority to all other claims.''

Strike out line 44, at page 26, and substitute the following therefor:

``(2) Where an order is made under subsection 39.13(1), any stipulation in an agreement is of''

Strike out line 5, at page 30, and substitute the following therefor:

``vide that subsection 39.15(1) or (2) or any portion thereof''

Stike out line 31, at page 38, and substitute the following therefor:

``the Corporation or the Bank of Canada and the value immediately after re-vesting, as determined by the assessor, of any shares or subordinated debt re-vested in the dissenting offerees.''

Strike out line 47, at page 38, and substitute the following therefor:

``the dissenting offerees immediately before the making of an order under subsection 39.13(1);''

Strike out lines 1 to 17, at page 39, and substitute the following therefor:

``(b) where the assessor determines that the consideration obtained for the shares or subordinated debt or for the assets of the federal member institution that were sold or otherwise disposed of in a transaction or series of transactions referred to in subsection 39.2(1) was unreasonable in the circumstances, the amount equal to the value that the shares or subordinated debt that were held by the dissenting offerees immediately before the making of an order under subsection 39.13(1) would have had on the completion of the sale or other disposition had such consideration been reasonable, as determined by the assessor; or''

Strike out lines 37 to 41, at page 39, and substitute the following therefor:

``(a) the amount of compensation for the shares or subordinated debt of the class in respect of which there are dissenting offerees that were held by that dissenting offeree immediately before the making of the order under subsection 39.13(1);''

Add, immediately after line 2, at page 42, the following:

``39.361 (1) Notwithstanding subsection 39.34(2), at any time within 180 days after the date of a notice under subsection 39.24(2), the federal member institution or, subject to subsection (2), any creditor or holder of shares or subordinated debt of the federal member institution may, on notice to the Corporation, apply to a superior court to have the court review the allocation of the consideration for the sale or other disposition of all or part of the assets of the federal member institution or the assumption of all or part of its liabilities.

(2) A reference in subsection (1) to

(a) a ``creditor'' means a creditor who is owed at least $1,000 by the federal member institution, other than by way of subordinated debt; and

(b) a ``holder of shares or subordinated debt'' means a holder who, whether alone or together with other applicants, holds not less than 10 per cent of the shares or subordinated debt of a given class of the federal member institution.

(3) Where, on an application under subsection (1), the court finds that the Corporation has not allocated or caused the allocation of the consideration for the sale or other disposition of all or part of the assets of the federal member institution or the assumption of all or part of its liabilities, or both, among the creditors or, where applicable, the holders of shares or subordinated debt of the federal member institution, in the order in which it would have been allocated by a liquidator of the federal member institution, the court may make such order as the court deems necessary to require the Corporation to rectify the allocation.''

New clause 45.1

Add, immediately after line 15, at page 45, the following:

``45.1 (1) Section 2 of the schedule to the Act is amended by adding the following after subsection (2):

(2.1) For the purposes of subsection (2), where an institution is, in respect of deposit moneys received or held by it, obligated to repay the moneys to a person on a fixed day and also is or may become obligated to repay the moneys

(a) on an earlier date by virtue of a right of withdrawal, reinvestment or other right afforded to the person by the terms under which the moneys were solicited or received or are held, only the fixed day shall be considered, or

(b) on a later date by virtue of a right afforded to any person to extend the term of the deposit at a rate or rates of interest determined at the time the moneys were solicited or received, the later date is deemed to be the fixed day

in determining whether the institution is or may become obligated to repay the moneys on or before the expiration of five years after the date of the deposit, whether or not the right is exercised.

(2.2) For greater certainty, a right referred to in paragraph (2.1)(b) does not include a right to renew or reinvest a deposit at a rate or rates of interest prevailing on the date of renewal or reinvestment.

(2) Subsection (1) applies only in respect of deposit moneys received by an institution after that subsection comes into force.''

Clause 59

Strike out lines 39 to 41, at page 49, lines 1 to 45, at page 50, and lines 1 to 24, at page 51, and substitute the following therefor:

``spect of an association

(a) that has been notified by the Superintendent that this section so applies where the association is subject to measures requiring it to maintain or improve its safety and soundness, which measures have been specified by the Superintendent by way of

(i) conditions or limitations in respect of the order approving the commencement and carrying on of the association's business, or

(ii) a written agreement or undertaking between the association and the Superintendent; or

(b) that is the subject of

(i) a direction made pursuant to section 439, or

(ii) an order made pursuant to subsection 409(3) requiring the association to increase its capital.

(2) An association shall provide the Superintendent with the name of

(a) each person who has been nominated for election or appointment as a member of its board of directors, and

(b) each person who has been selected by the directors of the association for appointment as chief executive officer, secretary, treasurer, controller, or any other officer reporting directly to the association's board of directors or chief executive officer,

together with such other information about the background, business record and experience of the person as the Superintendent may require.

(3) The information required by subsection (2) shall be provided to the Superintendent at least thirty days prior to the date or proposed date of the election or appointment or within such shorter period as the Superintendent may allow.

(4) Where, in respect of an association, the Superintendent is of the opinion that on the basis of the competence, business record, experience or character of a person referred to in

(a) paragraph (2)(a), the person is not suitable for a position as a member of the board of directors of the association, or

(b) paragraph (2)(b), the person is not suitable for the discharge of the duties and responsibilities associated with the position referred to in that paragraph,

the Superintendent may, subject to subsection (5), by order, disqualify the person from being elected or appointed to the position.

(5) The Superintendent must in writing notify the association and the person concerned of any action that the Superintendent proposes to take under subsection (4) and must afford them an opportunity within fifteen days after the date of the notice to make representations to the Superintendent in relation to the matter.

(6) Where an order has been made under subsection (4) disqualifying a person from being elected or appointed to a position, the person shall not be, and the association shall not permit the person to be, elected or appointed to the position.''

Clause 60

Strike out lines 24 to 32, at page 52, and substitute the following therefor:

``that may detrimentally affect its creditors; or

(f) the association has failed to comply''

Clause 70

Strike out lines 14 to 17, at page 58, and substitute the following therefor:

``financial activities;

(c) an entity that was, on the day immediately preceding the day on which that subsection comes into force, using the word ``assurance'', ``assurances'', ``insurance'' or ``lifeco'' or any word or words of import equivalent to nay of those words in its name.''

Add, immediately after line 10, at page 59, the following:

``(4) Notwithstanding subsection (3), where a financial institution controls and entity that

(a) is not a financial institution,

(b) carries on business in Canada under a reserved name, and

(d) one year after this section comes into force, and

(e) one year after the date one which the entity acquires control of the company.''

New clause 71.1

Add, immediately after line 12, at page 59, the following:

``71.1 Paragraph 92(1)(a) of the Act is replaced by the following:

(a) a restriction on its transfer except a constraint under any provision of Part VII other than section 427, or''

Clause 73

Strike out line 29, at page 59, and substitute the following therefor:

``Superintendent may determine that a particular director''

Strike out line 37, at page 59, and substitute the following therefor:

``rial to the director and can reasonably be expected to affect the exercise of the director's best judgment.''

New clause 74.1

Add, immediately after line 12, at page 60, the following:

``74.1 Subsection 176(2) of the Act is replaced by the following:

(2) Where the aggregate of the voting shares beneficially owned by a person and any entities controlled by the person carries more than 10 per cent of the voting rights attached to all the outstanding voting shares of a company, the directors to be elected by shareholders shall be elected by cumulative voting.''

Clause 76

Strike out lines 17 to 19, at page 60, and substitute the following therefor:

``359.1 (1) The chief executive officer or chief operating officer or a person performing like functions''

Add, immediately after line 29, at page 60, the following:

``359.2 (1) The chief financial officer or a person performing like functions may not be appointed as or hold the position of actuary of a company unless

(a) the audit committee of the company has provided the Superintendent with a written statement indicating that it is satisfied that the duties of both positions in the company will be adequately performed and that the actuarial duties will be performed in an independent manner; and

(b) the appointment or holding of the position is authorized by the Superintendent.

(2) an authorization under paragraph (1)(b) may contain limitations and conditions, including a limitation on the time during which the person referred to in the authorization may hold the position of actuary of the company.

(3) A person holding the position of actuary pursuant to an authorization under paragraph (1)(b) shall not hold that position after the time limit referred to in subsection (2).''

New Clause 77.1

Add, immediately after line 42, at page 60, the following:

``77.1 The Act is amended by adding the following after section 426:

427. Subject to such regulations as the Governor in Council may make for the purpose, a mutual company may by by-law impose, change or remove restrictions on the issue, transfer or ownership of shares of any class issued under section 63, in order to prevent a person from having a significant interest in that class.''

New Clause 83.1

Add, immediately after line 25, at page 62, the following:

``83.1 (1) The definition ``association'' in section 571 of the Act is replaced by the following:

``association'' means an association of persons formed in a foreign country on the plan known as Lloyd's, whereby each member of the association participating in a policy becomes liable for a stated, limited or proportionate part of the whole amount payable under the policy;

(2) Subsection (1) is deemed to have come into force on January 1, 1994.''

Clause 87

Strike out line 28, at page 64, and substitute the following therefor:

`` 87. (1) Subsection 608(1) of the French version of the Act is replaced by the following:

608. (1) La société d'assurance-vie étrangère est tenue de maintenir, à l'égard de ses opérations d'assurance dans les branches assurance-vie, assurance accidents et maladie, assurance-accidents, assurance accidents corporels et assurance-maladie, un excédent suffisant de son actif au Canada sur son passif au Canada, ainsi que des formes de liquidité suffisantes et appropriées, et de se conformer à tous les règlements relatifs à cette exigence.

(2) Section 608 of the Act is amended''

Strike out line 33, at page 64, and substitute the following therefor:

``(3) The portion of subsection 608(3) of''

Add, immediately after line 41, at page 64, the following:

``(4) Subsection 608(4) of the French version of the Act is replaced by the following:

(4) La société d'assurance-vie étrangère est tenue d'exécuter l'ordre visé au paragraphe (3) dans le délai que lui fixe le surintendant.''

New Clause 88.1

Add, immediately after line 11, at page 65, the following:

``88.1 The Act is amended by adding the following after section 624:

624.1 (1) the chief agent of a foreign company may not be appointed as or hold the position of actuary of the foreign company unless authorized in writing by the Superintendent. [6~*ti42 (2) An authorization under subsection (1) ceases to be in effect on the day specified therein but not later than the day that is six months after it is issued, and a person appointed or holding the position of actuary pursuant to the authorization shall not hold that position after that day.''

Clause 90

Strike out line 29, at page 65, and substitute the following therefor:

``weeks, in at least one newspaper of general circulation at or near the''

Clause 93

Strike out line 37, at page 66, and substitute the following therefor:

``673.1 (1) A company, society, foreign compa-''

Add, immediately after line 2, at page 67, the following:

``(2) Paragraph (1)(a) does not apply to a company, society, foreign company or provincial company that is within such class or classes of companies, societies, foreign companies or provincial companies as may be prescribed.''

Clause 95

Strike out lines 25 to 42, at page 67, and lines 1 to 46, at page 68, and lines 1 to 9, at page 69, and substitute the following therefor:

``company

(a) that has been notified by the Superintendent that this section so applies where the company, society or provincial company is subject to measures requiring it to maintain or improve its safety and soundness, which measures have been specified by the Superintendent by way of

(i) conditions or limitations in respect of the order approving the commencement and carrying on of it's business, or

(ii) a written agreement or undertaking between it and the Superintendent; or

(b) that is the subject of

(i) a direction made pursuant to section 676, or

(ii) an order made pursuant to subsection 515(3) requiring it to increase its capital or an order made pursuant to subsection 516(4) requiring it to increase its assets.

(2) A company, society or provincial company shall provide the Superintendent with the name of

(a) each person who has been nominated for election or appointment as a member of its board of directors,

(b) each person who has been selected by its directors for appointment as chief executive officer, secretary, treasurer, controller, actuary or any other officer reporting directly to its board of directors of chief executive officer, and

(c) each person who is newly elected as a director of the company, society or provincial company at a meeting of shareholders and policyholders and who was not proposed for election by anyone involved in the management of the company, society or provincial company,

together with such other information about the background, business record and experience of the person as the Superintendent may require.

(3) The information required by subsection (2) shall be provided to the Superintendent

(a) at least thirty days prior to the date or proposed date of the election or appointment or within such shorter period as the Superintendent may allow; or

(b) in the case of a person referred to in paragraph (2)(c), within fifteen days after the date of the election of the person.

(4) Where, in respect of a company, society or provincial company, the Superintendent is of the opinion that on the basis of the competence, business record, experience or character of a person referred to in

(a) paragraph (2)(a) or (c), the person is not suitable for a position as a member of its board of directors, or

(b) paragraph (2)(b), the person is not suitable for the discharge of the duties and responsibilities associated with the position referred to in that paragraph,

(5) The Superintendent must in writing notify the company, society or provincial company and the person concerned of any action that the Superintendent proposes to take under subsection (4) and must afford them an opportunity within fifteen days after the date of the notice to make representations to the Superintendent in relation to the matter.

(6) Where an order has been made under subsection (4) disqualifying a person

(a) from being elected or appointed to a position, the person shall not be, and the company, society or provincial company shall not permit the person to be, elected or appointed to the position, or

(b) from continuing to hold office as a director, the person shall not hold, and the company, society or provincial company shall not permit the person to continue to hold, office as a director.''

Clause 110

Add, immediately after line 6, at page 79, the following:

``(3) Notwithstanding subsections (1) and (2) and section 166, the Superintendent of Financial Institutions shall, before December 31 in the year in which this subsection comes into force ascertain

(a) the total amount of expenses incurred during the immediately preceding fiscal year and up to and including the date on which this subsection comes into force for or in connection with the administration of the Investment Companies Act, as that Act read immediately before the coming into force of section 166 of this Act, and

(b) the average total assets during the calendar year 1994 of each investment company to which the Investment Companies Act applied on December 31, 1995, as that Act read immediately before the coming into force of section 166 of this Act,

and subsections 23(2), (3), (5), (6) and (7) of the Office of the Superintendent of Financial Institutions Act continue to apply, with such modifications as the circumstances require, in respect of the final assessment of each investment company that was in existence under the Investment Companies Act, as that Act read immediately before the coming into force of section 166 of this Act.''

Clause 115

Strike out lines 42 to 45, at page 80, and substitute the following therefor:

``by or under an Act of Parliament other than this Act''

Strike out lines 9 and 10, at page 81, and substitute the following therefor:

``(a) an entity the business of which is not financial activities; or

(b) an entity that was, on the day immediately preceding the day on which

(i) subsection (1) comes into force, using the word ``fiduciaire'', ``fiduciary'', ``fiducie'', ``trust'' or ``trustco'' or any word or words of import equivalent to any of those words in its name, or

(ii) subsection (2) comes into force, using the word ``loan'', ``loanco'' or ``prêt'' or any word or words of import equivalent to any of those words in its name.''

In the French version only, strike out line 18, at page 81, and substitute the following therefor:

``dans sa dénomination sociale. L'entité''

Add, immediately after line 10, at page 82, the following:

``(4) Notwithstanding subsection (3), where a financial institution controls an entity that

(a) is not a financial institution,

(b) carries on business in Canada under a reserved name, and

the entity shall not control the company on the later of

(d) one year after this section comes into force, and

(e) one year after the date on which the entity acquires control of the company.''

Clause 117

Strike out line 16, at page 82, and substitute the following therefor:

``Superintendent may determine that a particular director''

Strike out line 24, at page 82, and substitute the following therefor:

``rial to the director and can reasonably be expected to affect the exercise of the director's best judgment.''

Clause 124

Strike out line 32, at page 84, and substitute the following therefor:

``504.2 (1) A company shall make available to''

Add, immediately after line 42, at page 84, the following:

``(2) Paragraph (1)(a) does not apply to a company that is within such class or classes of companies as may be prescribed.''

Clause 126

Strike out lines 15 to 42, at page 85, and lines 1 to 43, at page 86, and substitute the following therefor:

``spect of a company

(a) that has been notified by the Superintendent that this section so applies where the company is subject to measures requiring it to maintain or improve its safety and soundness, which measures have been specified by the Superintendent by way of

(i) conditions or limitations in respect of the order approving the commencement and carrying on of the company's business, or

(ii) a written agreement or undertaking between the company and the Superintendent; or

(b) that is the subject of

(i) a direction made pursuant to section 507, or

(ii) an order made pursuant to subsection 473(3) requiring the company to increase its capital.

(2) A company shall provide the Superintendent with the name of

(a) each person who has been nominated for election or appointment as a member of its board of directors,

(b) each person who has been selected by the directors of the company for appointment as chief executive officer, secretary, treasurer, controller, or any other officer reporting directly to the company's board of directors or chief executive officer, and

(c) each person who is newly elected as a director of the company at a meeting of shareholders and who was not proposed for election by anyone involved in the management of the company, together with such other information about the background, business record and experience of the person as the Superintendent may require.

(3) The information required by subsection (2) shall be provided to the Superintendent

(a) at least thirty days prior to the date or proposed date of the election or appointment or within such shorter period as the Superintendent may allow; or

(b) in the case of a person referred to in paragraph (2)(c), within fifteen days after the date of the election of the person.

(4) Where, in respect of a company, the Superintendent is of the opinion that on the basis of the competence, business record, experience or character of a person referred to in

(a) paragraph (2)(a) or (c), the person is not suitable for a position as a member of the board of directors of the company, or

(b) paragraph (2)(b), the person is not suitable for the discharge of the duties and responsibilities associated with the position referred to in that paragraph,

(5) The Superintendent must in writing notify the company and the person concerned of any action that the Superintendent proposes to take under subsection (4) and must afford them an opportunity within fifteen days after the date of the notice to make representations to the Superintendent in relation to the matter.

(6) Where an order has been made under subsection (4) disqualifying a person

(a) from being elected or appointed to a position, the person shall not be, and the company shall not permit the person to be, elected or appointed to the position; or

(b) from continuing to hold office as a director, the person shall not hold, and the company shall not permit the person to continue to hold, office as a director.''

Clause 151

In the English version only, strike out line 10, at page 98, and substitute the following therefor:

``classes of those creditors and the company or is proposed''

Clause 157

Strike out lines 39 to 48, at page 99, and lines 1 to 40, at page 100, and substitute the following therefor:

``(2) The court may give judgment to the liquidator against the directors of the company, jointly and severally, in the amount of the dividend or redemption or purchase price, with interest thereon, as has not been paid to the company where the court finds that

(a) the transaction occurred at a time when the company was insolvent or the transaction rendered the company insolvent; and

(b) the directors did not have reasonable grounds to believe that the transaction was occurring at a time when the company was solvent or the transaction would not render the company insolvent.

(3) In making a determination under paragraph (2)(b), the court shall consider whether the directors acted as prudent and diligent persons would have acted in the same circumstances and whether the directors in good faith relied on

(a) financial or other statements of the company represented to them by officers of the company or the auditor of the company, as the case may be, or by written reports of the auditor to fairly reflect the financial condition of the company; or

(b) a report relating to the company's affairs prepared pursuant to a contract with the company by a lawyer, notary, an accountant, engineer or appraiser or other person whose profession gave credibility to the statements made in the report.

(4) Where a transaction referred to in subsection (1) has occurred and the court makes a finding referred to in paragraph (2)(a), the court may give judgment to the liquidator against a shareholder who is related to one or more directors or to the company or who is a director not liable by reason of paragraph (2)(b) or subsection (5), in the amount of the dividend or redemption or purchase price referred to in subsection (1) and the interest thereon, as was received by the shareholder and not repaid to the company.

(5) A judgment pursuant to subsection (2) shall not be entered against or be binding on a director who had, in accordance with any applicable law governing the operation of the company, protested against the payment of the dividend or the redemption or purchase for cancellation of the shares of the capital stock of the company and had thereby exonerated himself or herself under that law from any liability therefor.

(6) Nothing in this section shall be construed to affect any right, under any applicable law governing the operation of the company, of the directors to recover from a shareholder the whole or any part of any dividend, or any redemption or purchase price, made or paid to the shareholder when the company was insolvent or that rendered the company insolvent.

(7) For the purposes of an inquiry under this section, the onus of proving that the company was not insolvent or, in the case of the directors, that there were reasonable grounds to believe that the company was not insolvent when a dividend was paid or shares were redeemed or purchased for cancellation or that the payment of a dividend or a redemption of shares did not render the company insolvent lies on the directors and the shareholders of the company.''

Clause 161

In the French version only, strike out line 33, at page 108, and substitute the following therefor:

``grave aux termes des polices.''

Strike out line 37, at page 109, and substitute the following therefor:

``tor, and, whether transfer or reinsurance has been ar-''

Schedule-clause 1

In the English version only, strike out line 36, at page 115, and substitute the following therefor:

``1. This Act may be cited as the Payment''

Schedule-clause 2

Add, immediately after line 2, at page 116, the following:

``central counter-party'' means a corporation, association, partnership, agency or other entity in a clearing and settlement system with whom all participant's payment rights and obligations are netted to produce a single amount owing as between each participant and the central counter-party;''

In the English version only, strike out line 9, at page 116, and substitute the following therefor:

``(b) clearing or settlement is all or partly''

Strike out line 22, at page 116, and substitute the following therefor:

``clears or settles payment obligations arising from those transactions;''

In the French version only, strike out lines 23 to 26, at page 116, and substitute the following therefor:

``les institutions financières dans d'autres parties du système financier canadien, soit une chambre de compensation du système de règlement et de compensation ou celle d'un autre système de règlement et de compensation dans le système financier canadien, incapables de satisfaire à leurs''

Strike out line 34, at page 116, and substitute the following therefor:

``ity of a participant to meet its obligations in a clearing and settlement system as''

Schedule-clause 5

In the French version only, strike out lines 26 and 27, at page 117, and substitute the following therefor:

``(e) les systèmes d'exploitation et la solidité de la chambre de compensation;''

Schedule-clause 6

Strike out lines 6 to 27, at page 118, and substitute the following therefor:

``(a) a clearing house for a designated clearing and settlement system is engaging in or is about to engage in any act, omission or course of conduct,

(b) a participant is engaging in or is about to engage in any act, omission or course of conduct with respect to its participation in the designated clearing and settlement system, or

that results or is likely to result in systemic risk being inadequately controlled, the Governor may issue a directive in writing to the clearing house requiring it, within such time as the Governor considers necessary and may specify in the directive, to

(d) cease or refrain from engaging in the act, omission or course of conduct or have the participants cease or refrain from engaging in the act, omission or course of conduct, and

(e) perform such acts or have the participants perform such acts as in the opinion of the Governor are necessary to remedy the situation.

(2) Where the Governor of the Bank has formed an opinion under subsection (1) that systemic risk is being inadequately controlled and

(a) the clearing house fails to comply with a directive that has been issued to it under that subsection,

(b) the designated clearing and settlement system does not have''

``a clearing house located in Canada, or

(i) the systemic risk is being inadequately controlled due to an act, omission or course of conduct by a participant with respect to its participation in the designated clearing and settlement system, and

(ii) the act, omission or course of conduct is not subject to the by-laws, agreements, rules, procedures, guides or other documentation governing the designated clearing and settlement system,

the Governor may issue a directive in writing to the participants requiring them, within such time as the Governor considers necessary and may specify in the directive, to

(d) cease or refrain from engaging in certain acts, omissions or courses of conduct with respect to their participation in the designated clearing and settlement system, and

(e) perform such acts with respect to their participation as the Governor considers necessary to remedy the situation.

(3) For greater certainty, a directive under this section may not be made in respect of

(a) the capital adequacy of a participant;

(b) the management of its investments;

(d) its relations with customers who are not themselves participants in the designated clearing and settlement system;

(e) its ownership structure; or

(f) any other matter that is not directly related to its participation in the designated clearing and settlement system.

(4) Subject to the approval of the Minister,''

Schedule-clause 7

Strike out line 38, at page 118, and substitute the following therefor:

``house and the central counter-party; and''

Schedule-clause 8

Strike out lines 1 to 46, at page 119, and lines 1 and 2, at page 120, and substitute the following therefor:

``8. (1) Notwithstanding anything in any statute or other law of Canada or a province,

(a) the settlement rules of a designated clearing and settlement system are valid and are binding on the clearing house, the participants, a central counter-party and the Bank and any action may be taken or payment made in accordance with the settlement rules;

(b) the obligation of a participant, a clearing house or a central counter-party to make payment to a participant and the right of a participant, a clearing house or a central counter-party to receive payment from a participant, a clearing house or a central counter-party shall be netted and a net settlement or close-out amount shall be determined in accordance with the settlement rules, if they so provide; and

(c) where the settlement rules of a designated clearing and settlement system provide that the settlement of a payment obligation through an entry to or a payment out of an account of a participant, a clearing house or a central counter-party at the Bank is final and irrevocable, the entry or payment shall not be required to be reversed, repaid or set aside.

(2) An entry to or a payment out of the account of a participant, a clearing house or a central counter-party at the Bank to settle a payment obligation in a designated clearing and settlement system shall not be the subject of any provision or order that operates as a stay of that activity.''

(3) The rights and remedies of a participant, a clearing house, a central counter-party or the Bank in respect of collateral pledged to it as security for a payment or the performance of an obligation incurred in a designated clearing and settlement system shall not be the subject of any stay provision or oder affecting the ability of creditors to exercise rights and remedies with respect to the collateral.

(4) Notwithstanding that all or part of the administration or operation of a designated clearing and settlement system is conducted outside Canada or that its settlement rules are governed by the laws of a foreign jurisdiction, where in any judicial proceedings in Canada a court determines that the rights and obligations of any person arising out of or in connection with the operation of the designated clearing and settlement system are governed in whole or in part by Canadian law, the provisions or this section shall be applied to the extent that the Canadian law applies in determining those rights and obligations.

(5) In this section, ``settlement rules'' means the rules, however established, that provide the basis on which payment obligations are calculated, netted or settled and includes rules for the taking of action in the event that a participant is unable or likely to become unable to meet its obligations to the clearing house, a central counter-party or the other participants.''

Schedule-clause 9

In the French version only, strike out lines 9 to 14, at page 120, and substitute the following therefor:

``nant les changements importants qu'elle compte apporter au système de compensation et de règlement, notamment ceux qui visent ses propres actes constitutifs et règlements administratifs et ceux qui visent le fonctionnement du système et les actes -- règlements administratifs, accords, règles, procédures, guides et autres -- qui régissent celui-ci.''

Schedule-clause 12

Strike out lines 25 and 26, at page 121, and substitute the following therefor:

``(c) notwithstanding section 23 of the Bank of Canada Act, accept and pay interest on deposits from the clearing house, a participant or the central counter-party.''

Schedule-clause 13

Strike out lines 27 to 37, at page 121, and lines 1 to 15, at page 122, and substitute the following therefor:

``13. (1) Notwithstanding anything in any law relating to bankruptcy or insolvency or any order of a court made pursuant to an administration of a reorganization, arrangement or receivership involving insolvency, a financial institution that is a party to a netting agreement may terminate the agreement and determine a net termination value or net settlement amount in accordance with the provisions of the agreement and the party entitled to the net termination value or settlement amount shall be a creditor of the party owing the net termination value or net settlement amount for that value or amount.

(2) In subsection (1),

``financial institution'' means

(a) a financial institution within the meaning of section 2 of the Trust and Loan Companies Act,

(b) such other entity or entity within a class of entities engaged primarily in the business of providing financial services as may be designated by order of the Governor in Council to be a financial institution for the purposes of this section, or

(c) a trustee, manager or administrator of a pension fund maintained to provide benefits under a pension plan registered under the Income Tax Act;

``net termination value'' means the net amount obtained after setting off or otherwise netting the obligations between the parties to a netting agreement in accordance with its provisions;

``netting agreement'' means an agreement between two or more financial institutions that is

(a) an eligible financial contract within the meaning of section 22.1 of the Winding-up and Restructuring Act, or

(b) an agreement that provides for the netting or set-off of present or future obligations to make payments against the present or future rights to receive payments.''

Schedule-clause 14

In the French version only, strike out lines 28 to 35, at page 122, and substitute the following therefor:

``déterminer si son système de compensation et de règlement pose un risque systémique, notamment :

a) le nom des établissements participants;

b) copie des documents constitutifs, règlements administratifs, résolutions, accords, règles, procédures et autres documents qui régissent sa constitution et son fonctionnement;''

Schedule-clause 15

In the French version only, strike out lines 8 to 12, at page 123, and substitute the following therefor:

``mander à une cour supérieure d'enjoindre à la chambre de compensation ou à l'établissement participant de se conformer à la présente loi ou à une directive du gouverneur se rapportant à la présente loi, ou à toute personne visée par une exigence formulée dans le cadre du paragraphe 14(1) de se conformer à celle-ci. Le tribunal peut agréer à la demande''

Schedule-clause 18

Strike out lines 1 to 3, at page 124, and substitute the following therefor:

``cial institutions, within the meaning of section 2 of the Trust and Loan Companies Act, for purposes re-''

Schedule-clause 22

Strike out lines 35 and 37, at page 124, and substitute the following therefor:

``system does not have a clearing house located in Canada, the Canadian participants''

Strike out lines 4 to 10, at page 125, and substitute the following therefor:

``in the same manner and to the same extent as if the Canadian participants were the clearing house on which those obligations and rights are imposed or conferred and, for that purpose, any action that the Bank may take in respect of a clearing house may only be taken in respect of the Canadian participants.''

Add, immediately after line 20, at page 125, the following:

``(3) In subsection (1), a participant is ``Canadian'' if the participant is incorporated or formed under an enactment of Canada or a province.

23. A participant is not required to provide information to the Bank under this Act concerning another participant of a clearing and settlement system if that information is not available to all the participants.''

A copy of the Minutes of Proceedings relating to this Bill (Issue Nos. 111 and 114, which includes this Report) is tabled.

Respectfully submitted,

JIM PETERSON

Chairman.