Canada: A Banker Asked Us: Renewing Bank Act Security

Last Updated: September 30 2013
Article by Richard Dusome

Most Read Contributor in Canada, October 2018

Q.

The bank received security under Section 427 of the Bank Act1 ("Bank Act Security") from one of our corporate borrowers, and the bank wishes to renew the registration. Do we have to file a new notice of intention and get a new set of Bank Act Security documents executed by the borrower in order to complete the renewal?

A.

A renewal (or an extension of the registration period) of a Bank Act Security registration is not done by filing a new notice of intention to give security (a "Notice of Intention") every three years.2 Rather, the Regulations under the Bank Act3 set out the annual procedure to be followed to extend or continue the registration period of any existing Notice of Intention.

Each Notice of Intention registered under Section 427 of the Bank Act initially remains effective until December 31st of the fifth year following the date of registration. Thus, a notice of intention filed on September 17, 2013 will remain effective until December 31, 2018.

Under the Regulations, each bank is required, annually during the month of March, to send to the appropriate agency of the Bank of Canada a statement listing every notice of intention that was registered more than five years before the end of the preceding December in respect of which the special security that was given to the bank is still in effect.4 The listing must indicate the number, place, date and time of registration of each Notice of Intention that is to remain in effect, and the name of the person who gave the special security. At the time that each bank sends the statement, the registration period of each Notice of Intention included in the statement is extended.5 The Bank of Canada is also permitted to remove from its registration system any notices of intention in favour of the applicable bank registered more than five years before the end of the preceding December that are not included on the list.6

Thus by complying with this procedure, the bank can annually extend the registration period of a particular Notice of Intention for a further year for as long as the Bank Act Security is intended to remain in effect.

Two Bank Act Security documents that are customarily signed by a borrower immediately after the registration of a Notice of Intention are the application for credit and promise to give security under Section 427 of the Bank Act (the "Application"), and the special security assignment (the "Assignment")7. In some instances the Application and/or the Assignment may contain text that describes the specific credit facility being secured or creates a defined term for "secured obligations", and that text may contain words that could limit or restrict the scope of the Bank Act Security. If there has been a change in the nature or amount of the credit facility being secured or in the type of the secured obligations since the time of the filing of the Notice of Intention, the bank may need to file a new Notice of Intention and obtain a new Application and Assignment in order for the Bank Act Security to extend to and secure the repayment of all of the borrower's indebtedness under the new or amended or extended credit facility or in respect of the expanded "secured obligations". This determination will depend upon the specific text used in those documents. However, these types of supplemental filings are not technically renewals of the existing Bank Act Security package.

Footnotes

1. Bank Act SC 1991, c 46, as amended [Bank Act]

2. The three year period is referenced in Section 427(4)(a) of the Bank Act, and is frequently mistaken as being the registration period of a Notice of Intention. However, that subsection actually provides that the rights of the bank under Section 427 are not effective unless the Notice of Intention is filed not more than three years immediately before the security was given.

3. Registration of Bank Special Security Regulations, SOR/92-301, as amended [The Regulations]

4. The Regulations, s 7(1).

5. The Regulations, s 7(2).

6. The Regulations, s 7(3).

7. The Regulations, ss 2 and 8(2).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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