Discontinuance of Capital Leasing Business

  •  (1) A lessor that discontinues a capital leasing business and transfers all outstanding capital leases to another lessor shall notify the Minister in writing of the transfer.

  • (2) After the transfer referred to in subsection (1), the Minister is liable to pay to the transferee the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of lessees’ defaults on all capital leases entered into by the lessor.

  • (3) No other capital leases of the transferee that have been registered with the Minister in accordance with these Regulations shall be taken into account in determining the Minister’s liability.

Transfer of Capital Leases Between Lessees

  •  (1) When a capital lease is transferred by a lessee to another lessee, the Minister’s liability under section 7 in respect of the capital lease continues if

    • (a) the lessor approves the transferee as the lessee in accordance with the due diligence requirements referred to in section 19, and the aggregate outstanding balance in respect of the lessee or any related lessee or borrower does not exceed $250,000;

    • (b) the security referred to in section 23 is maintained;

    • (c) any additional security referred to in section 24 is maintained or replaced by other additional security of equal or greater value on the assets in accordance with that section; and

    • (d) any guarantee or suretyship referred to in section 26 is maintained or replaced by another guarantee or suretyship of equal or greater value in accordance with that section.

  • (2) Nothing in subsection (1) precludes the lessor from releasing the lessee from their obligations under the capital lease.

  • (3) When there is a change of partners in a partnership, the Minister’s liability under section 7 in respect of a capital lease continues if

    • (a) in accordance with the due diligence requirements referred to in section 19, the lessor approves the fact that the new partner has assumed the obligations of the old partnership, and the aggregate outstanding balance in respect of the new partner or any related lessee or borrower does not exceed $250,000; and

    • (b) the conditions set out in paragraphs (1)(b) to (d) are met.

  • (4) When a partner leaves a partnership and is not being replaced, the Minister’s liability under section 7 in respect of a capital lease continues if

    • (a) in accordance with the due diligence requirements referred to in section 19, the lessor approves the fact that the remaining partners have assumed the obligations of the new partnership; and

    • (b) the conditions set out in paragraphs (1)(b) to (d) are met.

  • SOR/2006-272, s. 6(E).

Reporting Requirements

 A lessor shall provide to the Minister, before June 1 in each year, a detailed report on all capital leases outstanding with that lessor as at March 31 in the year of the report, including the following information for each capital lease registered with the Minister in accordance with these Regulations:

  • (a) the registration number assigned to the capital lease by the Minister;

  • (b) the lessee’s name; and

  • (c) the outstanding balance of the capital lease as at March 31 in that year.

 If the lessor does not provide a report in accordance with section 40, the Minister is not liable after the day on which the report was due, for any loss sustained as a result of a lessee’s default on a capital lease for which the information specified in any of paragraphs 40(a) to (c) was not provided.

Default

 For the purposes of these Regulations and subject to section 21, the outstanding balance of a capital lease becomes due and payable and the lessee is in default as of the day on which the lessee fails to comply with any material condition of the capital lease.

Procedure on Default

  •  (1) If a lessee is in default under section 42, and the default has not been corrected to the satisfaction of the lessor, the lessor shall give the lessee notice of the default in writing and demand that the lessee comply with the condition of the capital lease within the period specified in the notice.

  • (2) If the lessee fails to comply with the condition within the period specified, the lessor shall formally demand payment of the outstanding balance of a capital lease within the period specified in the demand.

  • (3) If the outstanding balance of a capital lease is not paid within the period specified, the lessor shall take any of the following measures to minimize the loss sustained as a result of a lessee’s default on the capital lease or that will maximize the amount recovered:

    • (a) collect the outstanding balance of the capital lease;

    • (b) fully realize any security, guarantee or suretyship;

    • (c) realize on any insurance policy under which the lessor is the beneficiary;

    • (d) fully implement a compromise settlement with the lessee or with a guarantor or surety or any other person on behalf of the lessee, guarantor or surety; and

    • (e) subject to subsection (4), take legal proceedings, including the enforcement of any resulting judgment, if the estimated cost of the proceedings does not exceed the estimated amount that may be recovered.

  • (4) If the lessee is a sole proprietor or a partnership, the lessor may execute a judgment by realizing on the assets of the sole proprietor or partners, other than the assets of the small business in respect of which the capital lease is entered into, in an amount no greater than the aggregate of

    • (a) 25% of the total financing amount of the capital lease,

    • (b) interest on the judgment,

    • (c) taxed costs for, or incidental to, the legal proceedings against the lessee, and

    • (d) legal fees and disbursements, other than costs referred to in paragraph (c), and other costs incurred by the lessor for services rendered by persons other than the lessor’s employees for the purpose of legal proceedings against the lessee.

  • SOR/2006-272, s. 7(F).

Claims Procedure

  •  (1) A lessor shall take all of the measures described in subsection 43(3) that are applicable before submitting a claim to the Minister for loss sustained as a result of a lessee’s default on a capital lease.

  • (2) Subject to subsection (3), a lessor shall submit a claim for loss within 36 months after the expiry of the period specified in the notice referred to in subsection 43(1).

  • (3) The Minister is authorized to extend the period referred to in subsection (2) if the lessor so requests before the expiry of the period.

  • (4) A claim for loss shall be certified by the lessor and shall be accompanied by

    • (a) a copy of the capital lease, any amendments to the capital lease as a result of improvements to the equipment and other documentation substantiating the total financing amount of the capital lease;

    • (b) a copy of any document in respect of the net amount received by the lessor from any disposition of the equipment under subparagraph (7)(b)(i);

    • (c) a copy of a statement of account in respect of the capital lease; and

    • (d) a copy of the capital lease approval and administration files held by the lessor, if requested by the Minister.

  • (5) A claim for loss shall include the lessor’s acknowledgement that the lessor has acted in accordance with the due diligence requirements referred to in section 19 when entering into and administering the capital lease and has taken the measures against the lessee required by subsection (1).

  • (6) A claim for loss shall include all documents that evidence the registration or publication of any rights or interests in respect of the capital lease.

  • (7) An eligible loss sustained by a lessor shall be calculated as follows:

    • (a) by determining the aggregate of the following amounts, namely,

      • (i) the outstanding balance of the capital lease on the expiry of the period specified in the notice referred to in subsection 43(1),

      • (ii) the amount of interest calculated in accordance with subsection (10),

      • (iii) uncollected taxed costs for, or incidental to, any legal proceedings in respect of the capital lease, and

      • (iv) legal fees and disbursements, other than costs referred to in subparagraph (iii), and other costs incurred by the lessor for services rendered by persons other than the lessor’s employees, for the purpose of collecting the outstanding balance of the capital lease from the lessee or the guarantor or surety; and

    • (b) by deducting from the aggregate amount the aggregate of the following amounts, namely,

      • (i) the greater of the residual value of the equipment set out in the registration form referred to in subsection 12(1), or the net amount received by the lessor on any sale or other disposition or on any capital lease of the equipment,

      • (ii) any other proceeds realized from the taking of any measures described in subsection 43(3), and

      • (iii) any amount paid by the lessor to a secured creditor, if the secured creditor has any security interest or rights in the equipment financed by the capital lease, and the security interest or rights rank ahead of the lessor’s security interest or rights.

  • (8) If a lessor enters into a new capital lease with another lessee, of equipment that was already the subject of a capital lease, the net amount received by the lessor referred to in subparagraph (7)(b)(i) shall be calculated by determining the aggregate of the following amounts, namely,

    • (a) any down payment made by the lessee, and

    • (b) the present value of the outstanding balance of the new capital lease, calculated in accordance with subsection (9).

  • (9) The present value of the outstanding balance of the new capital lease referred to in paragraph 8(b) shall be calculated at an annual imputed rate of interest and be determined by the formula

    (A - B) - C + D

    where

    A 
    is equal to the annual imputed rate of interest used in the calculation of the scheduled payments in respect of the original capital lease;
    B 
    is equal to the rate of interest on Government of Canada bonds in effect on the day the original capital lease was entered into;
    C 
    is equal to 1.25%, being the rate of the administration fee referred to in subsection 14(2); and
    D 
    is equal to the rate of interest on Government of Canada bonds in effect on the day the new capital lease is entered into.
  • (10) The amount of interest referred to in subparagraph (7)(a)(ii) shall be calculated on the outstanding balance, taking into consideration any proceeds realized from the taking of any measures described in subsection 43(3), as follows:

    • (a) in respect of the period beginning on the day of default and ending on the expiry of the period specified in the notice referred to in subsection 43(1), at the annual imputed rate of interest used to calculate the scheduled payments in respect of a capital lease;

    • (b) in respect of the six-month period immediately after the period referred to in paragraph (a), at the annual imputed rate of interest used to calculate the scheduled payments in respect of a capital lease on the first day of the six-month period;

    • (c) in respect of the six-month period immediately after the period referred to in paragraph (b), at a rate of interest equal to one half of the rate of interest referred to in that paragraph; and

    • (d) in respect of the 24-month period immediately after the period referred to in paragraph (c), at a rate of interest of 0%.

  • (11) If the total financing amount of a capital lease referred to in subparagraph 12(1)(d)(i) is not equal to the total financing amount set out in the capital lease, the eligible loss calculated in accordance with subsection (7) shall be calculated on the portion of the capital lease that was registered with the Minister in accordance with these Regulations.

  • SOR/2006-272, s. 8.
 
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