Q: What relevant changes will Bill 28 bring to
syndicated loan transactions in Québec?
A: On April 21, 2015, the Government of
Québec adopted An act mainly to implement certain
provisions of the budget speech of June 4, 2014 and return to a
balanced budget in 2015-2016, also known as Bill 28. Among its
many amendments, the provisions that will have a major impact on
professionals practicing in the fields of banking and financial
services concern (i) the legal regime applicable to hypothecs
granted in favour of a "fondé de pouvoir"
(security agent), and (ii) movable hypothecs with delivery on bank
deposits. We will discuss the amendments relating to the movable
hypothecs with delivery on bank deposits and the question of
security over bank deposits in a further installment of this
Who is a fondé de pouvoir under Québec
law? A fondé de pouvoir is an agent representing
the lenders in a syndicated loan transaction. Why did the system
need to be changed? Because the structure to grant a hypothec
in favour of a fondé de pouvoir was quite
cumbersome. Prior to the adoption of Bill 28, a hypothec
could not be granted directly in favour of a collateral agent under
a syndicated loan, since it was not the direct creditor of all of
the obligations of the debtor vis à vis the lenders
belonging to the banking syndicate.
The only way of granting a hypothec to the fondé de
pouvoir under the previous system was to base the security on
article 2692 of the Civil Code of Québec (the
"CCQ"), which allowed the granting of a
hypothec in favour of the fondé de pouvoir
only if the obligation that was to be secured was a bond, a
debenture, or similar form of indebtedness. Therefore, in order for
the security to be effective, the previous version of article 2692
CCQ required, as security for the actual obligation, the issuance
of a collateral demand bond or other similar form of indebtedness
by the borrower and a pledge of the bond in favor of the
fondé de pouvoir. Article 2692 CCQ also required
that the hypothec be granted in favour of the fondé de
pouvoir concurrently with the issuance and pledge of the bond,
and that it be in notarial form.
Bill 28 simplifies the structure that is presently in place by
allowing a hypothec to be granted directly in favour of the
fondé de pouvoir, acting on behalf of the lenders,
without the need of any further documentation. Moreover, a formal
procedure of nomination and replacement of the fondé de
pouvoir is also provided for in the revised version of article
2692 CCQ. Although the process is greatly simplified by Bill 28, it
is important to note that the requirement that the hypothec be in a
notarial form still stands.
What does this amendment mean for syndicated loans secured by
assets situated in Québec? From now on, the granting of
security for a syndicated loan will be similar to the system used
in other provinces of Canada and in the United States, causing less
confusion for any non-Québec party in the transaction.
Moreover, the simplification of the process will also increase
efficiency and rapidity. It will be interesting to see what other
practical advantages this very useful amendment will provide for
secured lenders and their legal practitioners.
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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