On November 24, 2005 the Government of Canada, through the Ministry of Natural Resources, announced the Forest Industries Competitiveness Strategy. This strategy, an initiative worth close to CDN $1.5 billion, is targeted at buttressing the competitiveness of the Canadian forest industry in the global market place, while also supporting the economic sustainability of forest-dependent communities across the country.
A significant component of the strategy seeks to provide short-term relief to the forest industry from the strain imposed on its treasury as a result of the refusal by the United States Department of Commerce to refund approximately CDN $5 billion in duties collected since 2001 despite rulings from NAFTA panels that the basis invoked to establish the duties was without merit.
The Government of Canada, through Industry Canada, intends to insure new loans made to companies affected by the unique circumstances of the softwood lumber dispute. Credit insurance will facilitate the procurement of additional credit by protecting the financial institutions against the risk of loss which may result from the insolvency or default of the borrower under the new credit arrangement to be concluded. Up to $800 million in such loans will be insured by Industry Canada to help provide immediate short-term relief. The amount of credit insurance available by any one borrower can reach 25% of the duties paid up to a maximum of $40 million. Although the details of the mechanisms of the program have yet to be released, it is anticipated that lenders will work constructively with the borrowers to facilitate their accessibility to this additional liquidity, as the lending risk will ultimately be tied to the credit of the Canadian government. It is also our understanding thatthis component of the strategy can be implemented without the requirement for the current government to return to Parliament for budget appropriations.
At this stage, we are anticipating that the insured loans will likely take the form of working capital facilities with potential borrowers offering as collateral their claims to the duties deposited with the U.S. Department of Commerce, and all associated supporting documentation, as well as having their lenders named as the insured or loss payees under the credit insurance to be provided by Industry Canada. The term of the loan will likely be 364 days with the possibility of renewal and contain a mandatory prepayment provision to deal with the receipt of the refund of the duties by the borrower. In the event of default by a borrower, there would likely be a mechanism to provide for the assignment of the claim to the duties from the lending institution to Industry Canada upon receipt of the insurance proceeds.
Many of the larger forest products companies that have paid significant amounts in duties have either raised or refinanced long-term debt, on an unsecured or secured basis, in the US bond markets and are subject to a variety of restrictive covenants contained in trust indentures. Of principal interest amongst these are covenants which may affect their ability to incur additional indebtedness or grant security on their assets. Such covenants are also prevalent in Canadian long term debt agreements. Borrowers are invited to carefully review their credit agreements or debt instruments to ascertain, what, if any, restrictions may impact their ability to incur additional indebtedness.
We are actively involved in monitoring the developments and implementation of this program in order to continue to advise forest product companies interested in reinforcing their liquidity positions at this critical juncture for the forest products industry in Canada, as well as lending institutions who are interested in providing these credit facilities.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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