Canada: Focus On Financial Services - June 2009

Last Updated: June 17 2009

Lender Strategy In Light Of New Pension Priorities
By Heather Chu and Ross Walker

Recent changes to the Bankruptcy and Insolvency Act have given certain unpaid pension plan contributions priority over a lender's security if the employer is bankrupt or in receivership. How can a lender monitor the debtor's pension arrears to assess the extent of the lender's loss of priority?

The Bankruptcy and Insolvency Act now provides that certain unpaid pension plan claims rank ahead of a lender's security in bankruptcy or receivership proceedings. Effective July 7, 2008, sections 81.5 and 81.6 give super-priority status to:

(a) amounts that were deducted from the employee's remuneration for payment to the pension fund,

(b) amounts that were required to be paid by the employer to the pension fund under a defined contribution provision, and

(c) "normal cost" amounts that were required to be paid by the employer to a defined benefit pension fund.

These unpaid amounts owing by an employer to a pension fund are now secured by all of the assets of the employer. The new priority status does not apply to "special payments" required to be made by an employer to a defined benefit pension fund to reduce unfunded liabilities and solvency deficiencies.

What does this mean to lenders?

If a debtor is bankrupt or in receivership, the unpaid pension plan contributions referred to above will be paid before secured lenders can collect amounts owed to them. This will reduce the amount available for lenders.

How can lenders protect themselves?

Lenders should monitor their debtors' pension plan contributions to confirm that the amounts listed above are paid when due and, where applicable, include any arrears of these amounts in their margining calculations. One way to monitor these contributions in Ontario is for the lender to obtain from its debtor a completed Form 7: Summary of Contributions / Revised Summary of Contributions each time the debtor is required to file the Form 7 under Ontario Pension Benefits Act. Form 7 is only available for Ontario-registered pension plans. However, other provinces may have similar forms that could be obtained by lenders to accomplish the same goal.1 References to Form 7 in this article should be interpreted to include such other applicable forms.

Administrators of Ontario-registered pension plans are required to submit Form 7 to the applicable pension fund holder, usually a trustee or an insurance company, each fiscal year and whenever there is a material change to the required contribution levels. The form shows reasonable estimates of employee and employer contributions required to be remitted to the pension fund holder during each fiscal plan year. Estimated employer contributions include normal cost contributions to a defined benefit plan and special payments to reduce going concern unfunded liabilities and/or solvency deficiencies. However, as mentioned above, only "normal cost" contributions, employee contributions and defined contribution plan employer contributions are subject to the super-priority.

Recognizing the specific funding information that Form 7 requires pension plan administrators to disclose can be of significant assistance to lenders. In their loan agreements, lenders can stipulate that the debtor provide a copy of its completed Form 7 to the lender whenever it is required to be submitted to the plan fund holder. In appropriate circumstances lenders could go further by requiring the debtor to remit periodic confirmation from the pension fund holder that the fund holder has in fact received the amounts shown on the most recent Form 7. In jurisdictions where the type of disclosure provided by Form 7 is not required, lenders could require their debtors to disclose such information and provide periodic payment confirmations from the pension fund holder.

A Financial Institution's Power To Investigate A Lawyer: Perpetrated Fraud Upheld By The Court Of Appeal
By Kori Williams

Under Ontario privacy law, private organizations may disclose personal information about an individual without their consent if the organization reasonably believes the individual has breached an agreement or the laws of Canada. Recently, under Ontario privacy law, the Ontario Court of Appeal affirmed a bank's power to disclose personal information to another bank despite assertions of solicitor-client privilege and Canadian Charter of Rights and Freedoms violations.

Solicitor-client privilege is a right that belongs to a lawyer's client. The right is intended to keep communications between a lawyer and the lawyer's client or prospective client strictly confidential. Section 8 of the Charter states that "everyone has the right to be secure against unreasonable search or seizure." However, section 7(3) of Ontario's Personal Information Protection and Electronic Documents Act (PIPEDA) provides for disclosure of personal information by an organization without the knowledge or consent of the individual if the organization reasonably believes the information relates to a breach of an agreement or the laws of Canada.

In Royal Bank of Canada v. Welton et al., Royal Bank (RBC) determined that it had been the victim of a series of fraudulent mortgage transactions involving a lawyer retained by RBC for these transactions. Accordingly, without notice to the lawyer, RBC asked The Toronto-Dominion Bank (TD) to trace a series of mortgage advances made by RBC into the lawyer's trust account with TD. As a result of the information gathered, RBC was able to obtain orders freezing the lawyer's assets and allowing RBC to search the lawyer's premises without notice. The Superior Court of Justice held that RBC's actions were justified.

Justice Cumming dismissed the lawyer's claim that his trust account was protected by solicitor-client privilege, reasoning that a mere banking relationship, in the form of a lawyer's trust account, does not necessarily mean a solicitor-client relationship. Furthermore, solicitor-client privilege applies to communications and not actions (as in the use of a conduit of funds) and cannot apply to communications where a lawyer knowingly participates in a fraudulent scheme. Finally, solicitor-client privilege belongs to the client, not the lawyer so the lawyer could not raise it against his own client, RBC.

With respect to the Charter, Justice Cumming reasoned that the Charter does notapply to private organizations, such as financial institutions, unless their actions are geared toward implementing a specific governmental policy or program. The fact that the enforcement of RBC's private rights related to criminal offences, did not make RBC an agent of the state for Charter purposes.

On appeal, the Ontario Court of Appeal affirmed Justice Cumming's conclusions and, among other things, noted that PIPEDA is a privacy statute and, as such, it does not grant search and seizure powers to private entities, as contemplated by the Charter. Rather, PIPEDA restricts disclosure of private information subject to certain exemptions, such as the detection and prevention of fraudulent activity. Under PIPEDA, sharing information without consent is permitted for the purpose of protecting the economic interests of the business in jeopardy, a right which has been recognized for many years before the enactment of PIPEDA.

Security Interest In Royalty Distributions Survives Bankruptcy Of Composer
By Jane Dietrich and Jarvis Hetu

In a recent decision of the Ontario Superior Court of Justice, the Court rejected a bankrupt music composer's argument that a security interest the composer had granted in royalty based distributions should be ineffective following his bankruptcy. The bankrupt unsuccessfully argued that a security interest in distributions from the Society of Composers, Authors and Music Publishers of Canada was equivalent to an assignment of accounts receivable as payment for a commission or professional fees in respect of services rendered under section 68.1 of the Bankruptcy and Insolvency Act.

Prior to his bankruptcy, Mr. Friedman, a music composer, entered into a loan agreement with OLE Media Management L.P. (OLE), whereby OLE loaned more than $4 million to Mr. Friedman. As security for the loan, Mr. Friedman granted OLE a security interest in his right to future distributions from SOCAN. The distributions represented royalty payment revenue relating to works composed by Mr. Friedman.

Following Mr. Friedman's bankruptcy, he argued that the security he had granted to OLE should be of no effect pursuant to section 68.1 of the BIA. Section 68.1 provides that an assignment of wages, or an assignment of commissions or professional fees by a natural person for services rendered, is of no effect following a bankruptcy in respect of amounts earned or generated after the bankruptcy.

The Court held that section 68.1 of the BIA is intended to assist individual bankrupts in obtaining a fresh start. The Court, however, found that it would be against the spirit and intent of the BIA to use an expanded interpretation of section 68.1 so as to encompass the royalty distributions. In the Court's view, since the remuneration arising in respect of the bankrupt's SOCAN distributions resulted from activity conducted and completed prior to his bankruptcy, the security interest in the SOCAN distributions was outside of the scope of section 68.1.

The fruits of Mr. Friedman's labour which generated the SOCAN distributions pre-dated the bankruptcy, and therefore the Court held Mr. Friedman's 'fresh start' was not precluded by recognizing OLE's security interest. Rather, the Court recognized that Mr. Friedman could earn income as a composer separate and apart from the SOCAN distributions or could earn other income from other activities, as he had in the past.


1. Two other provinces have similar forms to Ontario's Form 7 that can help lenders monitor pension plan contributions: Form 7: Schedule of Contributions in Alberta and the Pension Plan Financial Information Return in British Columbia. If the debtor's pension plan is registered elsewhere, information about pension plan contributions and funding can be obtained by reviewing the pension plan's annual information form.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions