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Summary
This is a technical Part. It deals with trust indentures created by
the corporation and under which debt obligations are issued. Part 7 addresses
the duties and role of trustees for these indentures, the ability of
holders of obligations to obtain lists of debt obligation holders, and
the role of the issuer in relation to the trustee and the holders. These
are standard commercial law provisions which are provided to enable corporations
to issue such debt obligations, are widely used and understood within
business circles, have been the subject of litigation on many occasions
and are very similar to those in the Canada Business Corporations
Act.
Briefing Book
An Act Respecting Not-for-Profit Corporations and
Other Corporations Without Share Capital
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Bill Clause No. 105
Section No. 105
Topic: Trust Indentures
Proposed Wording
105. (1) The following definitions apply in this Part.
"event of default" means an event specified in a trust indenture
on the occurrence of which a security interest effected by the trust indenture
becomes enforceable, or the principal, interest or other money payable under
the trust indenture becomes or may be declared to be payable before maturity,
once all conditions – such as the giving of notice or the lapse of time – provided
for by the trust indenture in connection with the event have been satisfied.
"trustee" means any person appointed as trustee under the terms
of a trust indenture to which a corporation is a party and includes any successor
trustee.
"trust indenture" means any deed, indenture or other instrument,
including any supplement or amendment to one, 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 under the deed, indenture or other instrument.
(2) This Part applies to a trust indenture if the debt obligations issued
or to be issued under the trust indenture are part of a distribution to the
public.
(3) On application, the Director may exempt a trust indenture from the application
of this Part if the trust indenture, the debt obligations issued under it and
the security interest effected by it are subject to a law of a province or
a country other than Canada that is substantially equivalent to this Part.
Rationale
Part 7 contains all the pertinent provisions related to trust indentures.
Subsection 105(1) sets out the definitions used in Part 7
Subsection 105(2) states that the provisions of Part 7 apply only where the
debt obligations issued under a trust indenture have been or are going to be
distributed to the public.
Subsection 105(3) states that the Director Appointed Under the Act may exempt
a trust indenture from Part 7 provisions if it is already subject to similar
laws in another jurisdiction. This provision avoids the problem of overlapping
laws in different jurisdictions governing trust indentures of federal corporations.
Present Law
None.
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Bill Clause No. 106
Section No. 106
Topic: Trust Indentures
Proposed Wording
106. (1) No person shall accept an appointment as trustee if there is a material
conflict of interest between their role as trustee and their role in any other
capacity.
(2) A trustee shall, within the prescribed period after becoming aware that
a material conflict of interest exists, eliminate the conflict of interest
or resign.
(3) A trust indenture, any debt obligations issued under it and a security
interest effected by it are valid despite a material conflict of interest of
the trustee.
(4) The court may, on the application of an interested person, order, on any
terms that it thinks fit, that a trustee who has contravened subsection (1)
or (2) be replaced.
Rationale
This section deals with the basic test for the
eligibility of a trustee (i.e., that a trustee have no conflict of interest).
Subsection 106(1) states that an individual can not accept an appointment
as a trustee if that individual has a conflict of interest.
Subsection 106(2) states that a trustee who is in a conflict of interest must,
within the prescribed period (90 days), eliminate the conflict of interest
or resign.
Subsection 106(3) states that even if the trustee has a conflict of interest,
any trust indenture as well as any debt obligation issued under it or security
effected by the trust indenture remain valid.
Subsection 106(4) allows an interested person to apply to the court for an
order to replace a trustee in a conflict of interest. The court may make any
order it thinks fit.
Present Law
None.
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Bill Clause No. 107
Section No. 107
Topic: Trust Indentures
Proposed Wording
107. A trustee, or at least one of the trustees if more than one is appointed,
shall be a body corporate incorporated under the laws of Canada or a province
and authorized to carry on the business of a trust company.
Rationale
This section ensures that debt obligation and security holders are represented
by a disinterested indenture trustee. Given that a trustee is responsible and
accountable for any default of duty, it is imperative that the appointment
be confined to a body corporate regulated under federal or provincial trust
company legislation. This ensures that they are authorized to carry on business
as a trust company and that they meet the high standards of conduct required
to be observed by trust institutions.
Present Law
None.
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Bill Clause No. 108
Section No. 108
Topic: Trust Indentures
Proposed Wording
108. (1) A holder of debt obligations issued under a trust indenture may,
on payment to the trustee of any reasonable fee and on sending to the trustee
the statutory declaration referred to in subsection (4), require the trustee
to furnish, within the prescribed period, a list of debt obligation holders
setting out the prescribed information. The list shall be updated to a prescribed
day. (2) On the demand of a trustee, the issuer of debt obligations shall furnish
the trustee with the information required to enable the trustee to comply with
subsection (1).
(3) If the applicant is a body corporate, the statutory declaration shall
be made by a director or officer of the body corporate.
(4) The statutory declaration shall
(a) state the name and address of the applicant and, if the
applicant is a body corporate, its address for service; and
(b) state that the list will not be used except as permitted under subsection
(5). |
(5) A list obtained under this section shall not be used by any person except
in connection with
(a) an effort to influence the voting of the holders of debt
obligations;
(b) an offer to acquire debt obligations; or
(c) any other matter relating to the debt obligations or the affairs
of the issuer or guarantor of the debt obligations. |
Rationale
This section is designed to enable holders of debt obligations to communicate
with one another on matters of common concern. Similar provisions dealing with
access to corporate records are contained in section 22.
Subsection 108(1) states that a holder of a debt obligation issued under a
trust indenture can require a trustee to provide a list of debt obligation
holders upon the payment of a reasonable fee and sending a statutory declaration
to the trustee. The prescribed contents of the list are: the names, in alphabetical
order, and addresses of the holders of the outstanding debt obligations; the
principal amount of their outstanding debt obligations; and the aggregate principal
amount of the debt obligations.
Subsection 108(2) states that the issuer of the debt obligations must provide
the list of debt obligation holders to the trustee so that the trustee can
comply with a request made under subsection 108(1).
Subsection 108(3) states that if a corporation requests a list of debt obligation
holders, the required statutory declaration must be made by a director or officer
of the corporation requesting the information.
Subsection 108(4) states the requirements of the statutory declaration that
must be sent to the trustee by a debt obligation holder or a body corporate
requesting to obtain information regarding debt obligation holders under subsection
108(1).
Subsection 108(5) places limitations on the use of the list of debt obligation
holders obtained under subsection 108(1).
Present Law
None.
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Bill Clause No. 109
Section No. 109
Topic: Trust Indentures
Proposed Wording
109. (1) An issuer or a guarantor of debt obligations issued or to be issued
under a trust indenture shall, before taking any of the following actions,
furnish the trustee with evidence of compliance with the conditions, if any,
in the trust indenture for taking that action:
(a) the issue, certification or delivery of debt obligations
under the trust indenture;
(b) the release or release and substitution of property subject to a
security interest effected by the trust indenture; or
(c) the satisfaction and discharge of the trust indenture. |
(2) On the demand of a trustee, the issuer or guarantor of debt obligations
issued or to be issued under a trust indenture shall furnish the trustee with
evidence of compliance with the trust indenture by the issuer or guarantor
in respect of any act to be done by the trustee at the request of the issuer
or guarantor.
Rationale
This section is designed to ensure that the issuer of debt obligations under
a trust indenture is in compliance with the conditions of the trust indenture.
It ensures that full and fair disclosure is provided.
Subsection 109(1) requires the issuer to provide the trustee with evidence
that the conditions of the trust indenture are satisfied before the issuer
takes any of the actions described in paragraphs (a), (b)
and (c).
Subsection 109(2) gives the trustee the right to demand from the issuer or
guarantor of the debt obligations evidence of other matters showing that the
issuing corporation is complying with the trust indenture.
Present Law
None.
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Bill Clause No. 110
Section No. 110
Topic: Trust Indentures
Proposed Wording
110. Evidence of compliance as required by section 109 shall consist of a
statutory declaration or certificate made by a director or an officer of the
issuer or guarantor stating that the conditions referred to in that section
have been complied with. If compliance with any of those conditions is subject
to review by legal counsel, evidence of compliance also includes an opinion
of legal counsel that those conditions have been complied with. If compliance
with any of those conditions is subject to review by an auditor or accountant,
evidence of compliance also includes an opinion or report of the public accountant
of the issuer or guarantor, or any other accountant that the trustee selects,
that those conditions have been complied with.
Rationale
This section stipulates the kind of evidence that an issuing corporation of
debt obligations must produce in order to comply with a trustee's demand under
section 109 (to provide the trustee with evidence of compliance with the conditions
of the trust indenture). This provision is largely a declaration of good trustee
practices.
Present Law
None.
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Bill Clause No. 111
Section No. 111
Topic: Trust Indentures
Proposed Wording
111. The evidence of compliance referred to in section 110 shall include
a statement by the person giving the evidence
(a) declaring that they have read and understand the conditions
of the trust indenture referred to in section 109;
(b) describing the nature and scope of the examination or investigation
on which the statutory declaration certificate, opinion or report is based; and
(c) declaring that they have made the examination or investigation that
they believe necessary to enable them to make their statutory declaration, certificate,
opinion or report. |
Rationale
This section supplements section 110. It is designed to ensure that the person
providing the evidence of compliance to the trustee has made the appropriate
examinations and investigations upon which the evidence is based.
Present Law
None.
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Bill Clause No. 112
Section No. 112
Topic: Trust Indentures
Proposed Wording
112. (1) On the demand of a trustee, the issuer or guarantor of debt obligations
issued under a trust indenture shall furnish the trustee with evidence in any
form that the trustee may require as to compliance with any condition relating
to any action required or permitted to be taken by the issuer or guarantor
under the trust indenture.
(2) At least once in each prescribed period beginning on the date of the trust
indenture and at any other time on the demand of a trustee, the issuer or guarantor
of debt obligations issued under a trust indenture shall furnish the trustee
with
(a) a certificate that the issuer or guarantor has complied
with all requirements contained in the trust indenture that, if not complied
with, would, with the giving of notice, lapse of time or otherwise, constitute
an event of default, or
(b) a certificate of the particulars of any failure to comply with the
requirements. |
Rationale
This section authorizes the trustee to demand from the corporation issuing
debt obligations any additional evidence of compliance with the conditions
of the trust indenture that the trustee may think necessary. Such evidence
is to be in the form the trustee may require. In addition (subsection 112(2)),
at least once in each prescribed period (12 months), the issuer or guarantor
of the debt obligations must provide the trustee with a certificate to the
effect that the issuer or guarantor has complied with all the requirements
of the trust indenture that, if not complied with, would constitute an event
of default. Moreover, the issuer or guarantor must provide the trustee with
information concerning any failures to comply with the trust indenture.
Present Law
None.
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Bill Clause No. 113
Section No. 113
Topic: Trust Indentures
Proposed Wording
113. The trustee shall give notice to the holders of debt obligations issued
under a trust indenture of every event of default arising under the trust indenture
and continuing at the time the notice is given, unless the trustee reasonably
believes that it is in the best interests of the holders of the debt obligations
to withhold such notice and so informs the issuer and guarantor in writing.
The notice shall be given within the prescribed period.
Rationale
This section obliges the trustee to provide, within a prescribed period (30
days after the trustee becomes aware of the event of default), the debt obligation
holders notice of any event of default so that they can decide whether any
action should be taken. The trustee can withhold this information from the
debt obligation holders if the trustee believes it is in the debt obligations
holders'best interest to do so. If the trustee withholds the notice of default,
the trustee must inform the issuer or guarantor.
Present Law
None.
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Bill Clause No. 114
Section No. 114
Topic: Trust Indentures
Proposed Wording
114. A trustee in exercising their powers and discharging their duties shall
(a) act honestly and in good faith with a view to the best interests
of the holders of the debt obligations issued under the trust indenture; and
(b) exercise the care, diligence and skill of a reasonably prudent
trustee.
Rationale
This section imposes a standard of care on a trustee of a trust indenture.
The standard is that of a reasonably prudent trustee, not, as with directors,
a reasonably prudent person. This means that trustees will be held to a more
specific, and higher, standard than would otherwise be the case. This standard
presumes specific knowledge, training and experience and it is against this
that performance will be measured. The higher standard is justified as trusteeship
in Canada are normally handled by trust companies where it is reasonable to
demand a professional degree of skill and care. The trustee's fiduciary obligations
are not owed to the corporation but to the holders of the debt obligations
issued under the trust indenture for which the trustee acts.
Present Law
None.
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Bill Clause No. 115
Section No. 115
Topic: Trust Indentures
Proposed Wording
115. Despite section 114, a trustee is not liable if they rely in good faith
on statements contained in a statutory declaration, certificate, opinion or
report that complies with this Act or the trust indenture. Rationale
This section ensures that the trustee will not be liable if he/she relies,
in good faith, on proper evidence presented to him/her by the issuing or guaranteeing
corporation or the person acting on its behalf.
Present Law
None.
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Bill Clause No. 116
Section No. 116
Topic: Trust Indentures
Proposed Wording
116. No term of a trust indenture or of any agreement between a trustee and
the holders of debt obligations issued under the trust indenture or between
the trustee and the issuer or guarantor shall operate so as to relieve a trustee
from the duties imposed on the trustee by section 114.
Rationale
This section prevents a trustee from escaping liability
for a breach of duty by an "exculpatory clause(s)" (i.e., declaring
themselves to be not guilty of wrongdoing) in the trust indenture. It ensures
that a trustee can
not shield him/herself from the consequences of a breach of duty.
Present Law
None.
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Corporate and Insolvency Law Policy
