Compensation Regulations: SOR/2018-59
Canada Gazette, Part II: Volume 152, Number 8
Registration
March 27, 2018
CANADA DEPOSIT INSURANCE CORPORATION ACT
P.C. 2018-338 March 26, 2018
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 39.28(1) footnotea of the Canada Deposit Insurance Corporation Act footnoteb, makes the annexed Compensation Regulations.
Compensation Regulations
Interpretation
Definitions
1 (1) The following definitions apply in these Regulations.
- Act means the Canada Deposit Insurance Corporation Act. (Loi)
- liquidation entitlement means the amount to which the holder of a share of a federal member institution is entitled to be paid, in the event that the institution is wound up, in priority to any amount to be paid to a holder of another share of the institution that ranks subordinate in right of payment to that share. (part de liquidation)
- share does not include
- (a) a conversion or exchange privilege, issued by a federal member institution, that is convertible at any time into a share; or
- (b) an option or right, issued by a federal member institution, to acquire a share or privilege referred to in paragraph (a). (action)
- subordinated debt does not include
- (a) a conversion or exchange privilege, issued by a federal member institution, that is convertible at any time into subordinated debt; or
- (b) an option or right, issued by a federal member institution, to acquire subordinated debt or a privilege referred to in paragraph (a). (dette subordonnée)
Same class
(2) For the purposes of these Regulations, shares and liabilities of a federal member institution are of the same class if
- (a) in the event of a winding-up of the federal member institution, they rank equally in right of payment; and
- (b) following the making of an order under subsection 39.13(1) of the Act, they receive treatment that is substantially equivalent as a result of the making of the order and any actions taken in furtherance of the order or in accordance with their terms, having regard to the manner in which their resolution value is estimated.
Persons
Prescribed persons
2 (1) For the purposes of subsection 39.23(1) of the Act and subject to subsections (2) to (4), a prescribed person is a person who, immediately before the making of an order under subsection 39.13(1) of the Act with respect to a federal member institution, owns, directly or through an intermediary, any of the following:
- (a) shares of the federal member institution;
- (b) liabilities of the federal member institution that, after the order is made, are converted in whole or in part into common shares under subsection 39.2(2.3) of the Act or in accordance with their terms;
- (c) subordinated debt of the federal member institution that is vested in the Corporation under the order;
- (d) liabilities of the federal member institution — other than liabilities that, after the order is made, are assigned to or assumed by a bridge institution or third party — if a winding-up order is made under the Winding-up and Restructuring Act with respect to the federal member institution as a result of an application made under section 39.22 or 39.3717 of the Act;
- (e) liabilities of the federal member institution that, after the order is made, are assigned to or assumed by a corporation that is described in subsection 10(2) of the Act and that is then liquidated, during a period in which a majority of the corporation’s voting shares are held by, on behalf of or in trust for the Corporation, other than liabilities that, after being assigned to or assumed by that corporation, are assigned to or assumed by a third party;
- (f) liabilities of the federal member institution that, after the order is made, are assigned to or assumed by a bridge institution — other than liabilities that, after being assigned to or assumed by the bridge institution, are assigned to or assumed by a third party — when a winding-up order is made under the Winding-up and Restructuring Act with respect to the bridge institution.
Exclusion — assignee or transferee
(2) A prescribed person referred to in subsection (1) includes the person’s successor in interest but does not include an assignee or transferee.
Exclusion — amounts paid
(3) A person is not a prescribed person with respect to any liability if, after the order is made, the amounts owing under the liability’s terms are paid in full.
Exclusion — intermediary
(4) A person is not a prescribed person with respect to any shares or liabilities if, immediately before the making of the order, they own the shares or liabilities solely as an intermediary.
Definitions
(5) The following definitions apply in this section.
intermediary means a natural person, corporation, trust, partnership or entity that, in the ordinary course of its business, owns or holds shares or liabilities on behalf of another person and is acting in that capacity, other than a natural person, corporation, trust, partnership or entity that, in the ordinary course of its business, manages or administers a pension fund, a mutual fund, an investment fund or similar type of fund and is acting in that capacity. (intermédiaire)
liability means a debt of at least $100 owed immediately before the making of an order under subsection 39.13(1) of the Act by the federal member institution and excludes any claim against the federal member institution if
- (a) the value of the debt is too uncertain to be provable against the institution in a winding-up proceeding; or
- (b) the debt is for a monetary loss resulting from the ownership, purchase or sale of an equity interest in the institution or from the rescission, or, in Quebec, the annulment, of a purchase or sale of an equity interest in the institution, or for contribution or indemnity in respect of the claim. (élément du passif)
Compensation
Amount of compensation
3 (1) For the purposes of determining the amount of compensation to which a prescribed person is entitled, the Corporation must estimate the liquidation value and resolution value of the person’s shares or liabilities that are referred to in subsection 2(1).
Liquidation value
(2) The liquidation value of a share or liability is the estimated value that the prescribed person would have received in respect of the share or liability if an order under the Winding-up and Restructuring Act to wind up the federal member institution had been made immediately before the making of an order under subsection 39.13(1) of the Act in respect of the institution.
Assumptions
(3) The liquidation value is to be estimated
- (a) as if no order under subsection 39.13(1) of the Act has been made in respect of the federal member institution; and
- (b) without taking into consideration any assistance, financial or other, that is or may be provided to the federal member institution, directly or indirectly, by the Corporation, by the Bank of Canada or by Her Majesty in right of Canada or a province after any order to wind up the institution has been made.
Resolution value
(4) The resolution value of a share or liability is the total of the estimated value of the following:
- (a) the share or liability, if it is not held by the Corporation and it was not converted, after the making of the order under subsection 39.13(1) of the Act, into common shares under subsection 39.2(2.3) of the Act or in accordance with their terms;
- (b) common shares that are the result of a conversion of the share or liability carried out, after the making of the order under subsection 39.13(1) of the Act, under subsection 39.2(2.3) of the Act or in accordance with their terms;
- (c) any dividend or interest payments made, after the making of the order under subsection 39.13(1) of the Act, with respect to the share or liability to any person other than the Corporation; and
- (d) any other cash, securities or other rights or interests that are received or are to be received with respect to the share or liability as a direct or indirect result of the making of an order under subsection 39.13(1) of the Act and any actions taken in furtherance of the order, including cash, securities or other rights or interests to be received from any of the following:
- (i) the Corporation or the federal member institution,
- (ii) the liquidator of the federal member institution, if the institution is wound up,
- (iii) the liquidator of a corporation described in subsection 10(2) of the Act, if the corporation is liquidated,
- (iv) the liquidator of a bridge institution, if the bridge institution is wound up.
Determination of compensation
(5) Subject to subsection (7), the amount of compensation to which a prescribed person is entitled with respect to each share or liability is determined by the formula
- A − B − C
- A is the estimated liquidation value;
- B is the estimated resolution value; and
- C is
- (a) if the share or liability is converted into common shares in accordance with its terms, an amount equal to an estimate of losses attributable to that conversion, or
- (b) in any other case, zero.
where
For greater certainty
(6) For greater certainty, a prescribed person is not entitled to compensation if the amount of compensation determined under subsection (5) is zero or a negative value.
Difference in time
(7) In determining the amount of compensation to which a prescribed person is entitled, the Corporation must consider the difference between the estimated day on which the liquidation value would be received and the estimated day on which the resolution value is, or would be, received.
Same class
(8) Every offer of compensation in respect of the shares or liabilities of a federal member institution that are of the same class must be calculated using the same amount of compensation, in the case of
- (a) common shares, per share,
- (b) shares other than common shares, per dollar of liquidation entitlement, or
- (c) liabilities, per dollar of principal and accrued and unpaid interest.
Notice — offer of compensation
4 (1) Within a reasonable period of time after the day set out in subsection (2), the Corporation must give each prescribed person
- (a) a notice containing an offer of compensation in an amount equal to, or in a value estimated by the Corporation to be equal to, the compensation to which that person is entitled; or
- (b) a notice stating that no offer of compensation is being made because that person is not entitled to compensation.
Day
(2) A day is
- (a) with respect to a share or liability referred to in any of paragraphs 2(1)(a) to (c), the earlier of the date on which a notice referred to in subsection 39.2(3) of the Act with respect to the federal member institution is to take effect or the day on which a winding-up order is made in respect of that institution;
- (b) with respect to a liability referred to in paragraph 2(1)(d), the day on which the winding-up order is made in respect of the federal member institution;
- (c) with respect to a liability referred to in paragraph 2(1)(e), the day on which the order is made to liquidate the corporation described in subsection 10(2) of the Act; or
- (d) with respect to a liability referred to in paragraph 2(1)(f), the day on which the winding-up order is made in respect of the bridge institution.
Contents of notice
5 The notice referred to in section 4 must
- (a) state that an order has been made under subsection 39.13(1) of the Act;
- (b) set out a description of the order’s effects;
- (c) state that the prescribed person has 45 days from the day on which a summary of the notice is published in the Canada Gazette to notify the Corporation of their decision to accept or object to the offer, or to object to the absence of an offer, and;
- (d) state that the compensation to be paid will be determined by an assessor if the offer or the absence of an offer is objected to by prescribed persons who together own, in the case of
- (i) common shares, at least 10% of the shares of the same class,
- (ii) shares other than common shares, at least 10% of the liquidation entitlement of the shares of the same class, or
- (iii) liabilities, at least 10% of the principal amount and accrued and unpaid interest of the liabilities of the same class; and
- (e) state that, if the prescribed person does not notify the Corporation of their objection within the period set out in paragraph (c), the prescribed person will receive the compensation offered or no compensation, as the case may be, and will not be permitted to contest its amount or value or the fact that no compensation is offered.
Publication
6 A summary of the notice referred to in section 4 must be published in the Canada Gazette and on the website of the federal member institution.
Payment of compensation
7 The Corporation must pay a prescribed person any compensation offered under paragraph 4(1)(a) if
- (a) the prescribed person notifies the Corporation of their acceptance of the offer within the period set out in paragraph 5(c);
- (b) the prescribed person does not notify the Corporation of their acceptance of, or objection to, the offer within the period set out in paragraph 5(c); or
- (c) the prescribed person notifies the Corporation of their objection to the offer but the condition set out in paragraph 5(d) is not met by the end of that period.
Appointment of assessor
8 An assessor is to be appointed under section 39.26 of the Act if the condition referred to in paragraph 5(d) is met within the period referred to in paragraph 5(c).
Corporation’s notice to dissenters
9 Within 45 days after the day on which an assessor is appointed, the Corporation must provide, to each prescribed person whose compensation is to be determined by the assessor, a notice of the appointment of the assessor indicating that the prescribed person is bound by the assessor’s determination of the amount of compensation to be paid which may be lower or higher than that contained in the offer.
Assessor’s determination
10 For the purpose of reviewing a decision made by the Corporation and determining the amount of compensation to be paid to a prescribed person under section 39.26 of the Act, the assessor must consider
- (a) whether the Corporation based its determination on an unreasonable estimate or on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it; and
- (b) the manner of determining compensation set out in section 3.
Assessor’s notice
11 (1) The assessor must provide, to every prescribed person whose compensation is determined by the assessor, a notice
- (a) setting out the assessor’s determination of the amount of compensation that the person is entitled to;
- (b) stating that the person is bound by the assessor’s determination as to the amount of compensation to be paid; and
- (c) stating that the Corporation must pay the compensation within 90 days after the date of the notice.
Copy to Corporation
(2) The assessor must provide the Corporation with a copy of each notice.
Payment of compensation
12 The Corporation must pay a prescribed person the compensation that they are entitled to receive within
- (a) if a notice referred to in subsection 11(1) is provided to the person, 90 days after the date of that notice; or
- (b) in any other case, 135 days after the day on which a summary of the notice referred to in section 4 is published in the Canada Gazette.
Coming into Force
S.C. 2016, c. 7
13 These Regulations come into force on the day on which section 142 of the Budget Implementation Act, 2016, No. 1 comes into force, but if they are registered after that day, they come into force on the day on which they are registered.
N.B. The Regulatory Impact Analysis Statement for these Regulations appears appears following SOR/2018-57, Bank Recapitalization (Bail-in) Conversion Regulations.