Canadian Bankers Association Model Credit Agreement Provisions

Under the Income Tax Act (Canada) (the Tax Act), interest paid by a Canadian resident debtor to a non-resident creditor on market terms is generally not subject to Canadian withholding tax, unless interest is involved (p.B. depending on the use or production of real estate in Canada; calculated by reference to income, profit, cash flow, commodity prices or similar criteria; with respect to dividends paid). If the interest is subject to withholding tax under the provisions of the Tax Act (either because it is paid or because it has participated in an arm`s length creditor), the terms of an applicable bilateral tax treaty may apply to reduce the withholding tax rate relative to the Canadian domestic rate of 25%. Under the terms of the Canada-U.S. income tax agreement, the rate is lowered to 15 per cent for interest, or otherwise to zero per cent. Most other agreements lower the interest tax rate to 10%. In particular, a number of Canadian federal and provincial trusts that may claim security from a lender outside of bankruptcy for unpaid amounts such as vacation pay and sales taxes will be cancelled in the event of the insolvent borrower`s bankruptcy.20 However, if a legal trust complies with the general principles of trust law for the creation of a genuine trust, the encumbered assets of the trust would be encumbered by any distribution to the trust. Secured creditors of the insolvent borrower excluded from bankruptcy proceedings.21 Financial assets such as shares and other securities are considered investment property under PPS. Each of the common law provinces and territories has a Transfer of Title Act (ATS) or similar legislation based on the revised Section 8 of the Uniform Commercial Code. TSOs work with SPAs to regulate the creation and perfection of collateral in investment properties. The CQQ also contains provisions specific to the determination for investment properties.

A security right in such assets is created when a debtor grants the creditor a security right in the asset. The concession clause of the security agreement expressly describes the security to which the security right is attached. Often, secured creditors receive a general security right that secures all of the debtor`s personal property, both tangible and intangible, acquired after acquisition. The Canadian Bankers Association has published the standard terms and conditions of loan agreements for use in syndicated credit transactions in Canada. The purpose of these provisions was to harmonise certain provisions of credit agreements in order to facilitate trading on the secondary market and to include standard provisions for disposals and credit transactions. They are based on terms prepared by the Loan Syndication and Trading Association, Inc. The use of the provisions is not mandatory, but they are often used in syndicated credit transactions where the administrative agent is a large Canadian bank. 16 Certain provisions of the Corporations Act (Newfoundland and Labrador) restrict a corporation`s ability to provide financial assistance to related parties if the assistance would jeopardize the solvency of the business. In addition, section 78 of the Corporations Act (Newfoundland and Labrador) prohibits a company from providing financial assistance to certain blacklisted persons, which may be a loan, guarantee or other structure, if there are circumstances that adversely affect the company. The blacklist includes the shareholders, directors, officers or employees of the Company and the employees of such persons, subject to certain exceptions.

17 If a liquidator refuses or fails to initiate proceedings after a creditor has so requested, the liquidator may apply to the court for an injunction authorising him to conduct the proceedings in question in his own name, at his own expense and risk. Trends of low interest rates, high liquidity and increased M&A activity continued through 2021 and, as a result, leveraged lending continues to be attractive to Canadian borrowers. Factors to watch in 2021 include the increase in other sources of credit (including private credit funds), government loan programs related to COVID-19 (including the Large Employer Emergency Financing Facility (LEEFF), which recently provided significant credit facilities to some of Canada`s largest airlines), the impact of open banking and the continued recovery of the Canadian economy. 20 In Callidus Capital Corp.c. C. Canada, 2018 SCC 47, the Supreme Court of Canada, rejected the efforts of a tax authority in the debtor`s bankruptcy proceedings to obtain its accepted trust for unpaid taxes granted to a secured creditor who received proceeds from the insolvent debtor prior to the bankruptcy of the insolvent debtor, who were considered to be in trust for the tax administration. Intangible personal property, which is commonly treated in the Canadian market, includes receivables and claims, contractual rights, and intellectual property (IP) rights.12 Generally, creditors secure intangible assets similar to tangible assets through security creation and perfection through registration under PPSAs.13 The law of the jurisdiction in which the debtor is located at the time of the security right: regulates the validity, perfection and primacy of a security right in intangible personal property.14 Therefore, under the BPA, the secured party must plead against the intangible personal property in the province or territory in which the debtor is located. Secured parties must also deposit in the jurisdiction where the debtor is located to complete interests not holding certain collateral such as instruments, negotiable asset documents, money and movables. Unrelated to a bank, foreign and other lenders that are not otherwise regulated as financial institutions in Canada (i.B insurance companies, trusts, credit unions and private lenders) do not require special licenses or regulatory approvals to grant a loan to a Canadian borrower.

However, these lenders are subject to laws of general application that apply to the creation and enforcement of guarantees in certain provinces. For example, a lender may require an extra-provincial licence under provincial legislation to hold and enforce a mortgage on real estate in that province. Lenders lending for the security of real estate may also need to obtain a mortgage brokerage licence under provincial legislation if it is not a financial institution exempt from compliance. As mentioned earlier, in the event of a borrower`s bankruptcy, certain pension rights may take precedence over a lender`s guarantee. .