Policy on exempting a trust indenture from Part VIII – Canada Business Corporations Act, subsection 82(3)

Table of contents

  1. Statement of general principles
  2. Legislative framework
  3. Issuance of debt obligations not part of a distribution to the public
  4. Guidelines for making an application
  5. Other information
  6. Making the application
  7. Annex A - Example of documents to submit when making an application under subsection 83(3) of the CBCA

1. Statement of General Principles

  • 1.01 The September 22, 2004 exemption policy is repealed and replaced with this policy.
  • 1.02 This policy sets out information to facilitate an application to the Director appointed under the CBCA to exempt a trust indenture made by a CBCA corporation from the application of Part VIII of the Act.
  • 1.03 A trust indenture established between a CBCA corporation issuing debt obligations as part of a distribution to the public and a trustee for that debt must comply with Part VIII of the CBCA unless an exemption applies. The rules governing trust indentures in Part VIII are designed to ensure that the terms and conditions of such an agreement provide adequate protection for debt holder. The Director will only exempt a trust indenture from Part VIII of the Act if satisfied that the trust indenture, the debt obligations and any security interests effected are subject to a law of a province or a country other than Canada that affords equivalent protection to Part VIII.
  • 1.04 Nothing in this policy is intended to constitute a binding statement of what position the Director will take with respect to a particular application. This policy is intended to reflect the Director's understanding of the Director's role in processing an application under subsection 82(3) of the CBCA.

2. Legislative framework

  • 2.01 Subsection 82(1) of the CBCA defines a trust indenture as any deed, indenture or other instrument, including any supplement or amendment thereto, made by a corporation after its incorporation or continuance under this Act, under which the corporation issues debt obligations and in which a person is appointed as trustee for the holders of the debt obligations issued thereunder.
  • 2.02 Subsection 82(2) of the CBCA states that Part VIII applies to a trust indenture only if the debt obligations issued or to be issued under the trust indenture are part of a distribution to the public.
  • 2.03 Subsection 82(3) of the CBCA provides, however, that the Director may exempt a trust indenture from Part VIII if the trust indenture, the debt obligations issued thereunder, and the security interest effected thereby are subject to a law of a province or a country other than Canada that is substantially equivalent.
  • 2.04 A corporation and/or a trustee may be held civilly and/or criminally liable where a trust indenture is made in violation of the provisions of Part VIII of the CBCA and where no exemption is granted by the Director.

3. Issuance of debt obligations not part of a distribution to the public

  • 3.01 Pursuant to subsection 82(2) of the Act (see 2.02 above), an application is not necessary and the Director will not exempt a trust indenture if the debt obligations issued thereunder are not part of a distribution to the public.
  • 3.02 The debt obligations are part of a distribution to the public where there is a filing of a prospectus, statement of material facts, registration statement or similar document under the laws of Canada, a province or a jurisdiction outside Canada.

4. Guidelines for making an application

  1. General considerations
    • 4.01 The general test used by the Director consists in determining whether the trust indenture is subject to a law of a province or country other than Canada that offers substantially equivalent protection to Part VIII of the CBCA. The applicant should compare the proposed legislation to the list of requirements set out in the table in Appendix 1 which summarily lists the requirements of Part VIII.
  2. Factors considered in reviewing an application
    • 4.02 Applicants frequently propose a non-Canadian trustee where the debt obligations will be sold outside Canada and it is anticipated that no Canadian will purchase the debt obligations or that only a relatively small number of Canadians will likely purchase the debt obligations under private placement exemptions. Subject to 4.04, the Director may exempt such a trust indenture from Part VIII of the Act if the applicant demonstrates that a law of the jurisdiction in which the debt obligations will be primarily offered has provisions substantially equivalent to Part VIII. Precedents have been established for trust indentures subject to the laws of the following countries which laws are considered substantially equivalent to Part VIII:
      1. The United States of America: The Trust Indenture Act of 1939 as amended by the Trust Indenture Reform Act of 1990.
    • 4.03 Note that where the debt obligations will be primarily offered outside Canada, but a portion nevertheless will be sold to the Canadian public, the applicant must address the question of the procedural fairness of the exemption for Canadian debt holders. Where no Canadian trustee is appointed or to be appointed and a portion of the debt obligations will be sold to Canadians, the foreign trustee will generally have to appoint an agent for service in Canada and irrevocably submit to at least the non-exclusive jurisdiction of the Canadian courts.
  3. Conditions for issuing an exemption
    • 4.04 The language used in the exemption must permit a person to identify the specific trust indenture for which the exemption was granted. Typically, the applicant should include the date or the date range (month and year) that the trust indenture is or will be entered into and the identity of the trustee. Where the issuer of the trust indenture does not include a CBCA corporation but one or more CBCA corporations are guarantors of the debt obligations issued under the trust indenture, the description should also name all of the issuers and all of the guarantors that are CBCA corporations.

5. Other information

  1. Additional information required
    • 5.01 The Director may require other information not provided in the application in order to decide whether or not to exempt a trust indenture made by a corporation from the requirements of Part VIII of the CBCA.
    • 5.02 Under s. 89 of the CBCR, an application for an exemption under ss. 82(3) shall be made at least 30 days before the corporation is required to comply with Part VIII of the Act (which runs from the first issuance of debt obligations under the trust indenture). The Director will extend the time for making an application if the applicant establishes that no prejudice will result from the extension.
    • 5.03 Under section 91 of the CBCR, the Director has the authority to seek additional information from the applicant or third parties. With respect to information requested from third parties, section 92 of the CBCR provides that the applicant shall be given a copy of the information obtained and be given a reasonable opportunity to respond.
    • 5.04 There is no statutory obligation on the Director, however, to seek information at the request of third parties nor to allow third parties to make representations regarding an application.
  2. Access to information contained in an application
    • 5.05 Pursuant to section 266 of the CBCA, a person who has paid the required fee is entitled to examine and make copies or extracts of any document required by the CBCA to be sent to the Director. The information filed with the Director in support of an exemption application is not confidential since such information is required to be filed in order to obtain an exemption. Consequently, an application for exemption is public information.
  3. Offences
    • 5.06 Section 250 of the Act creates an offence with respect to documents required by the Act or Regulations to be sent to the Director, or any other person, that contains a false or misleading statement about a material fact or omits to state a material fact.

6. Making the application

  1. Format
    • 6.01 Along with a cover letter indicating the name of the applicant corporation, the application must provide information under three distinct headings: description and details of the exemption sought, statement of facts, and argument. These are described briefly below with further elaboration contained in the attached Annex A. We recommend the use of Annex A as a model.
  2. The documents
    • 6.02 Detailed below is a brief description of the three major documents that comprise the submission:
      1. Description and Details of the Exemption Sought: The application must: state that it is an application for an exemption under subsection 82(3) of the Canada Business Corporations Act; indicate the name of the law of a province or country other than Canada that will govern the trust indenture, the debt obligations issued thereunder and, if any, the security interests effected thereby (see attached Annex A, Schedule A).
      2. Statement of Facts: The applicant must include sufficient facts and all material information about the trust indenture, the debt obligations issued thereunder and, if any, the security interests effected thereby, which might affect the Director's decision (see attached Annex A, Schedule B). Where a precedent has not been established (i.e. a jurisdiction other than the U.S.A., see section 4.02 above), the applicant must compare the proposed legislation to Part VIII of the CBCA and demonstrate that the legislation is substantially equivalent to Part VIII.
      3. Argument: Following the Statement of Facts, the applicant must provide convincing reasons that the exemption would not be prejudicial to debt holders or security interests affected thereby (see attached Annex A, Schedule C).
  3. Supplementary issuance of debt obligations
    • 6.03 A separate exemption is not ordinarily required for any supplemental or amending indenture provided that:
      1. the exemption for the original trust indenture expressly includes such supplemental or amending indenture; and
      2. such supplemental or amending indenture does not negate the basis upon which the original exemption was made. Where a trust indenture has been granted for the issuance of a specific type and/or amount of debt obligations, without reference to any supplemental indenture that might follow, and the applicant now requests an exemption for a supplementary issuance of debt obligations under the same trust indenture, it is not necessary to complete a detailed application. Instead, an applicant may submit a letter referring to the previous exemption and request that the trust indenture be exempt for the supplementary issuance, providing the necessary details about the debt obligations.
  4. Effective date of the exemption
    • 6.04 An exemption will bear the date on which it was granted. A separate exemption is ordinarily required for each trust indenture. However, in a given case where there are strong similarities in the applications, it may be administratively convenient to combine several exemption applications into one.
    • 6.05 Pursuant to paragraph 89(1)(c) of the CBCR, an application shall be made at least 30 days before the corporation is required to comply with Part VIII of the Act. Subsection 89(2) provides, however, that the Director shall extend the time for making an exemption application where the applicant establishes that no prejudice will result from the extension.
  5. Duration
    • 6.06 The exemption generally takes effect on the date it was granted, unless otherwise indicated on the decision and remains in effect for the full term of the issuance subject to it being revoked.
  6. Revocation
    • 6.07 The Director will not revoke an exemption before providing notice to the applicant and the opportunity to respond by submitting new facts and arguments to support the exemption.
    • 6.08 A revoked exemption ceases to carry effect from the date of revocation.
  7. Fees and number of copies of file
    • 6.09 The prescribed fee for an exemption application is $250.00.
    • 6.10 Only one set of documents is required.
  8. Time for processing an application
    • 6.11 Section 90 of the CBCR provides that the Director shall, within 30 days after receipt of an application for an exemption, grant the exemption requested or send to the applicant written notice of the Director's refusal, together with reasons for the refusal.
    • 6.12 An application duly completed and filed, with no outstanding issue or concern, will usually receive a response from the Director within 15 working days after receipt of the application.
    • 6.13 An applicant requiring that the Director review the application on an expedited basis should bring the request immediately to the attention of the Director's staff, providing reasons for the urgency.
  9. Publication
  10. Appeal of Director's decision
    • 6.15 An applicant who feels aggrieved by a decision of the Director to grant, or to refuse to grant, an exemption may apply to the court, pursuant to paragraph 246(c) of the Act, for an order requiring the Director to change the decision.

Annex A

Example of documents to submit when making an application under subsection 82(3) of the CBCA

Schedule A

In the Matter Concerning the Director Appointed Under the Canada Business Corporations Act

and

The Application Of

(Name of corporation)

(hereinafter called the "Corporation")

Description and Details of the Exemption Sought

  1. This application is for an exemption under subsection 82(3) of the Canada Business Corporations Act (the "CBCA") to exempt a trust indenture (made / to be made) on or about (date, see 4.04 pf the policy) on between the Corporation and (name of trustee), as trustee, from Part VIII of the CBCA.
  2. On the date the exemption takes effect:
    1. the trust indenture will be subject to the (name of legislation and country/province) which is a law that is substantially equivalent to Part VIII of the CBCA;
    2. the debt obligation issued under the trust indenture will be subject to the (name of legislation and country/province) which is a law that is substantially equivalent to Part VIII of the CBCA;
    3. any security interest effected by the trust indenture will be subject to the (name of legislation and country/province) which is a law that is substantially equivalent to Part VIII of the CBCA.

Schedule B

Statement of facts

  • 1. The corporation has issued or is proposing to issue debt obligations under a trust indenture (describe proposed trust indenture: name of trustee, date or date range, etc.; or issued trust indenture: name of trustee, date, type of debt obligations, amount, etc.)
  • 2. The debt obligations will be distributed to the public under a trust indenture ("made" or "to be made") on or about (date, see 4.04 of the policy) between the Corporation and (name of Trustee), as trustee, which is a body corporate authorized to carry on the business of a trust company under the laws of (identify country/ province/ state).
  • 3. Since it is expected that the securities will be primarily issued in (name geographical area), it is imperative that the trustee and the trust indenture be subject to the legislation of (name of country/ province/ state).
  • 4. The Corporation does not propose to appoint a trustee which is a body corporate incorporated under the laws of Canada or a province and authorized to carry on the business of a trust company in view of the fact that the debt obligations are intended to be offered for sale outside Canada and it is anticipated that no Canadians will purchase the debt obligations or only a relatively small number of Canadians are likely to purchase the debt obligations under private placement exemptions.

    Or
  • 4. The Corporation does not propose to appoint a trustee which is a body corporate incorporated under the laws of Canada or a province and authorized to carry on the business of a trust company in view of the fact that the debt obligations are intended to be offered for sale primarily outside Canada. Nevertheless, it is anticipated that a portion of the debt obligations will be offered for sale to the Canadian public, and therefore the trustee will undertake to appoint an agent for service of process in Canada and attorn to the non-exclusive jurisdiction of courts in a Canadian province (see 4.03 of the policy).
  • 5. The trust indenture, the debt obligations issued, and any security interests affected will be subject to (name of legislation of country/province) which contains provisions that are substantially equivalent to those set forth in Part VIII of the CBCA.
  • 6. Where a precedent has yet to be established – The table set forth below lists each substantive provision of Part VIII of the CBCA and the corresponding provision of the (Identify legislation) whenever such a corresponding provision exists. To the extent that significant differences in such corresponding provisions have been identified, a brief discussion of those differences has been included in an appendix to the table (see APPENDIX "1" which provides a proposed format).

    Or
  • 6. If the trust indenture is governed by the laws of the United States of America - the Director has concluded that the United States Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, contains provisions that are substantially equivalent to Part VIII of the CBCA.

Schedule C

Arguments

  1. This application is made pursuant to subsection 82(3) of the Canada Business Corporations Act which empowers the Director to exempt a trust indenture from Part VIII of the CBCA if the trust indenture, the debt obligations issued thereunder and the security interest effected thereby are subject to a law of a province or a country other than Canada that is substantially equivalent to this Part.
  2. On the date the exemption takes effect, the trust Indenture, the debt obligations issued thereunder, and the security interest effected thereby will be subject to the (name of legislation of country/province) that is substantially equivalent to Part VIII of the CBCA.
  3. The (name of legislation of country/province) would not deprive the affected debt holders or security interests of rights that they would be entitled to under Part VIII of the CBCA.

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Schedule D

Model of a decision

In the Matter Concerning the Director Appointed Under the

and

The Application Of

(Name of corporation)

(hereinafter called the "Corporation")

For an Exemption Under Subsection 82(3) of the Canada Business Corporations Act

Exemption

Upon Application of the Corporation, in accordance with subsection 82(3) of the Canada Business Corporations Act (the "Act"), to exempt the trust indenture ("made" or "to be made") on or about (date, see 4.04 of the policy) between the Corporation and (name of trustee), as trustee, for (details of debt obligations) to be issued thereunder from the application of Part VIII of the Act,

And Upon reading the application documents and being satisfied that there is adequate justification for the exemption,

It is Hereby Determined that:

  1. the trust indenture made [or to be made] on [date] [or to be made not later than date] between [name of the issuer}, as issuer and [if no CBCA corporation is an issuer, name of any corporation that is a guarantor], as guarantor and name of trustee, as trustee, for any other available details of the debt obligations to be issued thereunder; and
  2. any supplemental indenture or amending indenture (including any supplementary issuance of debt obligations under the same trust indenture) that does not negate the basis for this exemption,
  3. is exempt from the application of Part VIII of the Act.

This Exemption is made subject to the following terms:

  1. (Optional, or subject to modified wording as suits the situation) No debt obligations are issued to a holder residing in any province or territory of Canada.
  2. The trust indenture is entered into not later than [date].
  3. No supplemental indenture or amending indenture is subsequently entered into that negates the basis for this exemption.
  4. The parties to the trust indenture do not amend or waive any provision of the trust indenture, the debt obligations issued thereunder or the security interest, if any, affected thereby that are substantially equivalent to Part VIII of the Act without the written consent of the Director.

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Deputy Director


Appendix "1"

Note

Part VIII of the CBCA should be compared with the provisions of the legislation governing the trust indenture. Table 1 summarizes the requirements of Part VIII of the CBCA to which the applicable legislation should be compared.

Table 1

Part VIII of the CBCA
Part VIII of the CBCA Legislation governing the Trust Indenture
83(1) Conflict of Interest
83(2) Eliminating conflict of interest
83(3) Validity
83(4) Removal of trustee
84 Qualification of trustee
85(1) List of security holders
85(2) Duty of issuer
85(3) Corporate applicant
85(4) Contents of statutory declaration
85(5) Use of list
85(6) Offence
86(1) Evidence of compliance
86(2) Duty of issuer or guarantor
87 Contents of declaration, etc.
88 Further evidence of compliance
89(1) Trustee may require evidence of compliance
89(2) Certificate of compliance
90 Notice of default
91 Duty of care
92 Reliance on statements
93 No exculpation

The attached note to this table outlines any significant differences between the provisions of the CBCA and (name of legislation). The (name of legislation) contains a number of sections that are not found in Part VIII of the CBCA. Certain of these sections provide additional protection to the indenture securities holders which is not offered by Part VIII of the CBCA. (Note: Explanations should be provided indicating any material differences that may exist and what is being undertaken to ensure that the security holders are afforded protection that is at least equivalent to Part VIII of the CBCA.)

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