Several of the IIC recommendations would positively contribute
to certainty regarding the enforceability of close-out and
collateral enforcement rights. These include express safe-harbours
in receivership proceedings and clear priority over statutory trust
and lien claims for financial collateral for eligible financial
However, other IIC Report recommendations include removing the
EFC safe-harbour from the debtor's contract disclaimer power
and power to assign contracts, banning walk-away clauses and
restricting the EFC financial collateral protections to collateral
under the "control" of the collateral receiver. The IIC
recommendations are almost entirely proposed from the perspective
of an insolvency practitioner and demonstrate certain
misunderstandings of documentation and market practice, if not
little or no understanding of the reasonable requirements of
derivatives market participants. Some of the changes are likely
acceptable in principle, but others would have a material and
adverse impact upon Canadian market participants and on the ability
of Canadian market participants to transact internationally. Input
from derivatives industry experts on each of these matters will be
critical to ensuring that the issues and the implications of change
are fully understood by Industry Canada.
Another topic on which the Discussion Paper seeks input is empty
voting and disclosure of economic interests that arise from the
potential effect of credit default swaps. The concern is that a
debtor that has purchased credit protection may have disincentives
to support a workout or restructuring. The suggestion is that the
court be permitted to consider the actual economic interests of the
creditors when considering approval of a restructuring plan.
Disclosure of the economic positions is also a matter for
The Sarra Report also recommends narrowing the EFC safe-harbours
for certain types of new derivatives and the implications of that
could be very significant.
Also, the industry could consider whether there are other
matters not addressed in either the IIC Report or Sarra Report that
could be addressed in revised legislation.
This opportunity to make submissions to Industry Canada on the
insolvency legislation only comes along every 5 years, so don't
let it slip by.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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