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Bill C-38

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First Reading

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	(c) an interest in real property,
	if the investment or interest is acquired through the realization of a security interest held by the association or any of its subsidiaries.
Disposition	(2) Subject to subsection 81(2), if an association acquires control of, or a substantial investment in, an entity by way of the realization of a security interest held by the association or any of its subsidiaries, the association shall, within five years after the day on which the substantial investment is acquired, do all things necessary, or cause its subsidiary to do all things necessary, as the case may be, to ensure that the association no longer controls the entity or has a substantial investment in the entity.
Transitional	(3) Despite subsection (2), if an association that was in existence immediately before June 1, 1992 had an investment in an entity on September 27, 1990 that is a substantial investment within the meaning of section 12 and the association later increases that substantial investment by way of a realization of a security interest under subsection (1), the association shall, within five years after increasing the substantial investment, do all things necessary to ensure that its substantial investment in the entity is no greater than it was on September 27, 1990.
Extension	(4) The Superintendent may, in the case of any particular association that makes an application under this subsection, extend the period of five years referred to in subsection (2) or (3) for any further period or periods, and on any terms and conditions, that the Superintendent considers necessary.
Exception	(5) If, under subsection (1), an association acquires control of, or acquires or increases a substantial investment in, an entity that it would otherwise be permitted to acquire or increase under section 390, the association may retain control of the entity or continue to hold the substantial investment for an indeterminate period, if the approval in writing of the Minister is obtained before the end of the period referred to in subsection (2) or (3), including any extension of it granted under subsection (4).
Regulations restricting ownership	396. The Governor in Council may make regulations
	(a) for the purposes of subsection 390(4), permitting the acquisition of control or the acquisition or increase of substantial investments;
	(b) prescribing the circumstances under which subsection 390(5) or (6) does not apply, or the entities in respect of which those subsections, or either of them, do not apply, including prescribing entities on the basis of the activities they engage in;
	(c) for the purposes of subsection 390(10), permitting an association to give up control of an entity; and
	(d) restricting the ownership by an association of shares of a body corporate or of ownership interests in an unincorporated entity under sections 390 to 395 and imposing terms and conditions applicable to associations that own such shares or interests.
	Portfolio Limits
Exclusion from portfolio limits	397. (1) Subject to subsection (3), the value of all loans, investments and interests acquired by an association and any of its prescribed subsidiaries under section 394 or as a result of a realization of a security interest is not to be included in calculating the value of loans, investments and interests of the association and its prescribed subsidiaries under sections 398 to 402
	(a) for a period of twelve years following the day on which the interest was acquired, in the case of an interest in real property; and
	(b) for a period of five years after the day on which the loan, investment or interest was acquired, in the case of a loan, investment or interest, other than an interest in real property.
Extension	(2) The Superintendent may, in the case of any particular association, extend any period referred to in subsection (1) for any further period or periods, and on any terms and conditions, that the Superintendent considers necessary.
Exception	(3) Subsection (1) does not apply in respect of an investment or interest described in that subsection if the investment or interest is defined by a regulation made under section 403 to be an interest in real property and
	(a) the association or the subsidiary acquired the investment or interest as a result of the realization of a security interest securing a loan that was defined by a regulation made under section 403 to be an interest in real property; or
	(b) the association or the subsidiary acquired the investment or interest under section 394 as a result of a default referred to in that section in respect of a loan that was defined by a regulation made under section 403 to be an interest in real property.
	Commercial Loans
Lending limit: regulatory capital of $25 million or less	398. An association with twenty-five million dollars or less of regulatory capital shall not, and shall not permit its prescribed subsidiaries to,
	(a) make or acquire a commercial loan, or
	(b) acquire control of a permitted entity that holds commercial loans,
	if the aggregate value of all commercial loans held by the association and its prescribed subsidiaries exceeds, or the acquisition or making of the commercial loan or the acquisition of control of the entity would cause the aggregate value of all commercial loans held by the association and its prescribed subsidiaries to exceed, 5% of the total assets of the association.
Lending limit: regulatory capital over $25 million	399. An association with more than twenty-five million dollars of regulatory capital may
	(a) make or acquire commercial loans, or
	(b) acquire control of a permitted entity that holds commercial loans,
	if the aggregate value of all commercial loans held by the association and its prescribed subsidiaries would thereby exceed 5% of the total assets of the association only with the prior approval in writing of the Superintendent and in accordance with any terms and conditions that the Superintendent may specify.
Meaning of ``total assets''	400. For the purposes of sections 398 and 399, ``total assets'', in respect of an association, has the meaning given to that expression by the regulations.
	Real Property
Limit on total property interest	401. An association shall not, and shall not permit its prescribed subsidiaries to, purchase or otherwise acquire an interest in real property or make an improvement to any real property in which the association or any of its prescribed subsidiaries has an interest if the aggregate value of all interests of the association in real property exceeds, or the acquisition of the interest or the making of the improvement would cause that aggregate value to exceed, the prescribed percentage of the regulatory capital of the association.
	Equities
Limits on equity acquisitions	402 . An association shall not, and shall not permit its prescribed subsidiaries to,
	(a) purchase or otherwise acquire any participating shares of any body corporate or any ownership interests in any unincorporated entity, other than those of a permitted entity in which the association has, or by virtue of the acquisition would have, a substantial investment, or
	(b) acquire control of an entity that holds shares or ownership interests referred to in paragraph (a),
	if the aggregate value of
	(c) all participating shares, excluding participating shares of permitted entities in which the association has a substantial investment, and
	(d) all ownership interests in unincorporated entities, other than ownership interests in permitted entities in which the association has a substantial investment,
	beneficially owned by the association and its prescribed subsidiaries exceeds, or the purchase or acquisition would cause that aggregate value to exceed, the prescribed percentage of the regulatory capital of the association.
	Miscellaneous
Regulations	403. For the purposes of this Part, the Governor in Council may make regulations
	(a) defining the interests of an association in real property;
	(b) determining the method of valuing those interests; or
	(c) exempting classes of associations from the application of sections 397 to 402.
Divestment order	404. (1) The Superintendent may, by order, direct an association to dispose of, within any period that the Superintendent considers reasonable, any loan, investment or interest made or acquired in contravention of this Part.
Divestment order	(2) If , in the opinion of the Superintendent,
	(a) an investment by an association or any entity it controls in shares of a body corporate or in ownership interests in an unincorporated entity enables the association to control the body corporate or the unincorporated entity, or
	(b) the association or any entity it controls has entered into an arrangement whereby it or its nominee may veto any proposal put before
	(i) the board of directors of a body corporate, or
	(ii) a similar group or committee of an unincorporated entity,
	or whereby no proposal may be approved except with the consent of the association, the entity it controls or the nominee,
	the Superintendent may, by order, require the association, within any period that the Superintendent considers reasonable, to do all things necessary to ensure that the association no longer controls the body corporate or unincorporated entity or has the ability to veto or otherwise defeat any proposal referred to in paragraph (b).
Divestment order	(3) If
	(a) an association
	(i) fails to provide or obtain within a reasonable time the undertakings referred to in subsection 392(1), (2) or (4), or
	(ii) is in default of an undertaking referred to in subsection 392(1) or (2) and the default is not remedied within ninety days after the day of receipt by the association of a notice from the Superintendent of the default, or
	(b) a permitted entity referred to in subsection 392(4) is in default of an undertaking referred to in subsection 392(4) and the default is not remedied within ninety days after the day of receipt by the association of a notice from the Superintendent of the default,
	the Superintendent may, by order, require the association, within any period that the Superintendent considers reasonable, to do all things necessary to ensure that the association no longer has a substantial investment in the entity to which the undertaking relates.
Exception	(4) Subsection (2) does not apply in respect of an entity in which an association has a substantial investment permitted by this Part.
Deemed temporary investment	405. If an association controls or has a substantial investment in an entity as permitted by this Part and the association becomes aware of a change in the business or affairs of the entity that, if the change had taken place before the acquisition of control or of the substantial investment, would have caused the entity not to be a permitted entity or would have been such that approval for the acquisition would have been required under subsection 390(5) or (6) , the association is deemed to have acquired, on the day the association becomes aware of the change, a temporary investment in respect of which section 393 applies.
Asset transactions	406. (1) An association shall not, and shall not permit its subsidiaries to , without the approval of the Superintendent, acquire assets from a person or transfer assets to a person if
	A + B > C
	where
	A is the value of the assets;
	B is the total value of all assets that the association and its subsidiaries acquired from or transferred to that person in the twelve months ending immediately before the acquisition or transfer ; and
	C is 10% of the value of the total assets of the association, as shown in the last annual statement of the association prepared before the acquisition or transfer .
Restriction	(2) The prohibition in subsection (1) does not apply in respect of a transaction or series of transactions between an association and a member of the association.
Exception	(3) The prohibition in subsection (1) does not apply in respect of
	(a) an asset that is a debt obligation referred to in subparagraphs (b)(i) to (vi) of the definition ``commercial loan'' in subsection 386(1); or
	(b) a transaction or series of transactions by an association with another financial institution as a result of the association's participation in one or more syndicated loans with that financial institution.
Exception	(4) The approval of the Superintendent is not required if
	(a) the association sells assets under a sale agreement that is approved by the Minister under section 233.5; or
	(b) the association or its subsidiary acquires shares of, or ownership interests in, an entity for which the approval of the Minister under Part VIII or subsection 390(5) is required or the approval of the Superintendent under subsection 390(6) is required.
Value of assets	(5) For the purposes ``A'' in subsection (1), the value of the assets is
	(a) in the case of assets that are acquired, the purchase price of the assets or, if the assets are shares of, or ownership interests in, an entity the assets of which will be included in the annual statement of the association after the acquisition, the fair market value of the assets; and
	(b) in the case of assets that are transferred, the book value of the assets as stated in the last annual statement of the association prepared before the transfer, or if the assets are shares of, or ownership interests in, an entity the assets of which were included in the last annual statement of the association before the transfer, the value of the assets as stated in the annual statement.
Total value of all assets	(6) For the purposes of subsection (1), the total value of all assets that the association or any of its subsidiaries has acquired during the period of twelve months referred to in subsection (1) is the purchase price of the assets or, if the assets are shares of, or ownership interests in, an entity the assets of which immediately after the acquisition were included in the annual statement of the association, the fair market value of the assets of the entity at the date of the acquisition.
Total value of all assets	(7) For the purposes of subsection (1), the total value of all assets that the association or any of its subsidiaries has transferred during the period of twelve months referred to in subsection (1) is the book value of the assets as stated in the last annual statement of the association prepared before the transfer, or if the assets are shares of, or ownership interests in, an entity the assets of which were included in the last annual statement of the association before the transfer, the value of the assets of the entity as stated in the annual statement.
Transitional	407. Nothing in this Part requires
	(a) the termination of a loan made before June 25, 1999 ;
	(b) the termination of a loan made after that date as a result of a commitment made before that date;
	(c) the disposal of an investment made before that date ; or
	(d) the disposal of an investment made after that date as a result of a commitment made before that date.
	But if the loan or investment would be precluded or limited by this Part, the amount of the loan or investment may not, except as provided in subsections 393(2) , 394(3) and 395(3), be increased after that date .
Saving	408. A loan or investment referred to in section 407 is deemed not to be prohibited by the provisions of this Part.
1997, c. 15, s. 151(1)	303. (1) Paragraph 410(1)(b) of the Act is replaced by the following:
	(b) is a director or senior officer of the association or of a body corporate that controls the association ;
	(2) Subsection 410(1) of the Act is amended by striking out the word ``or'' at the end of paragraph (d) and by adding the following after paragraph (d):
	(d.1) is an entity in which a person who controls the association has a substantial investment; or

Bill C-38

Portfolio Limits

Commercial Loans

Real Property

Equities

Miscellaneous