With the passing of An act mainly to implement certain
provisions of the budget speech of June 4, 2011 and return to a
balanced budget in 2015-2016 (the "Act") in the
spring of 2015, the Government of Quebec introduced, among other
things, much awaited provisions that will have a positive impact on
how secured syndicated financing transactions are structured in the
Province of Quebec. In particular, the Act modified the existing
provisions of Article 2692 of the Civil Code of
Québec (the "CCQ").
The Province of Quebec is a civil law jurisdiction. The
widespread common law concept of holding security in trust for the
benefit of others is not recognized under Quebec law. Prior to the
changes introduced by the Act, it was challenging in Quebec in the
context of a secured syndicated financing transaction for an entity
to grant security in favour of a security agent (or the like),
acting for the benefit of all the creditors from time to time party
to the underlying credit documentation. Instead of the very
straightforward structure commonly used elsewhere in North America
and indeed elsewhere in the world1, a more complex and
costly structure was required in Quebec in order to broadly achieve
the same commercial result.
Under revised Article 2692 of the CCQ, a legal person,
partnership or trustee may now grant a hypothec2 in
favour of a hypothecary representative3 for all present
and future creditors of the obligations secured under that
hypothec. The hypothecary representative may be appointed by the
debtor, the grantor of the hypothec, or by one of the creditors.
The hypothecary representative may be one of the actual creditors
of the obligations secured under the hypothec, the only creditor of
those obligations, or an unrelated third person to whom no such
obligations whatsoever are owing. If the hypothecary representative
is a third person, the secured obligations need not be limited to
the payment of titles of indebtedness. Any nature of obligations
may be secured under this structure.
While these changes have done away with the requirement of a
more extensive suite of documentation (in addition to the deed of
hypothec itself), it is worth noting that a hypothec granted in
favour of the hypothecary representative must still be in notarial
form, except in the case of a movable hypothec with
delivery4. Accordingly, the signature of all the parties
to the hypothec will need to be taken before a Quebec
notary5. Signatories will therefore need to be
physically available to sign in person before a notary in Quebec.
Signatories will also be required to remit the relevant corporate
authorities to the notary. However, there are ways to circumvent
this potential geographical inconvenience. When the parties do not
have signing representatives in the Province of Quebec, local
counsel may be authorized, by way of a power of attorney, to sign
the hypothec on their behalf.
The harmonization of the new Quebec rules with that of the rest
of Canada and the United States is a welcomed change to the
cumbersome formalities of the past. The new rules will greatly
simplify the method for taking security in the circumstances
described above, reduce costs and indeed provide much needed
comfort to foreign investors and practitioners alike.
1 In certain jurisdictions in continental Europe (mostly
civil law jurisdictions where the concept of trust is not
recognized), parallel debt provisions are used whereby an
independent and separate parallel debt (equal to the actual
aggregate debt then owing to the lenders under the underlying
credit documentation) is acknowledged by the borrower as being owed
directly to the security agent. The security agent then holds the
benefit of its claim to the parallel debt for the benefit, and as
property, of those lenders. This allows the security agent to
foreclose over the assets for the benefit of those
2 A hypothec is the Quebec equivalent of a security
3 A hypothecary representative is the Quebec equivalent
of a security agent.
4 A movable hypothec with delivery is the Quebec
equivalent of a pledge.
5 This was equally the case prior to the changes in the
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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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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