Bank Act (S.C. 1991, c. 46)

Marginal note:Court may set aside or require accounting

206 If a director or officer of a bank fails to comply with any of sections 202 to 205, a court, on application of the bank or any of its shareholders or members, may set aside the contract or transaction on any terms that the court thinks fit and may require the director or officer to account to the bank for any profit or gain realized on it.

Liability, Exculpation and Indemnification

Marginal note:Director’s liability

• 207 (1) Directors of a bank who vote for or consent to a resolution of the directors authorizing the issue of a share contrary to subsection 65(1), the issue of a membership share contrary to subsection 79.1(2) or the issue of subordinated indebtedness contrary to section 80 for a consideration other than money are jointly and severally, or solidarily, liable to the bank to make good any amount by which the consideration received is less than the fair equivalent of the money that the bank would have received if the share, membership share or subordinated indebtedness had been issued for money on the date of the resolution.

• Marginal note:Further liability

  (2) Directors of a bank who vote for or consent to a resolution of the directors authorizing any of the following are jointly and severally, or solidarily, liable to restore to the bank any amounts so distributed or paid and not otherwise recovered by the bank and any amounts in relation to any loss suffered by the bank:

  • (a) a redemption or purchase of shares or membership shares contrary to section 71;

  • (b) a reduction of capital contrary to section 75;

  • (c) a payment of a dividend or patronage allocation contrary to section 79;

  • (d) a payment of an indemnity contrary to section 212; or

  • (e) any transaction contrary to Part XI.

Marginal note:Contribution

• 208 (1) A director who has satisfied a judgment in relation to the director’s liability under section 207 is entitled to contribution from the other directors who voted for or consented to the unlawful act on which the judgment was founded.

• Marginal note:Recovery

  (2) A director who is liable under section 207 is entitled to apply to a court for an order compelling a shareholder, member or other person to pay or deliver to the director

  • (a) any money or property that was paid or distributed to the shareholder, member or other person contrary to section 71, 75, 79 or 212; or

  • (b) an amount equal to the value of the loss suffered by the bank as a result of any transaction contrary to Part XI.

• Marginal note:Court order

  (3) Where an application is made to a court under subsection (2), the court may, where it is satisfied that it is equitable to do so,

  • (a) order a shareholder, member or other person to pay or deliver to a director any money or property that was paid or distributed to the shareholder, member or other person contrary to section 71, 75, 79 or 212 or any amount referred to in paragraph (2)(b);

  • (b) order a bank to return or issue shares or membership shares to a person from whom the bank has purchased, redeemed or otherwise acquired shares or membership shares; or

  • (c) make any further order it thinks fit.

Marginal note:Limitation

209 An action to enforce a liability imposed by section 207 may not be commenced after two years from the date of the resolution authorizing the action complained of.

Marginal note:Directors liable for wages

• 210 (1) Subject to subsections (2) and (3), the directors of a bank are jointly and severally, or solidarily, liable to each employee of the bank for all debts not exceeding six months wages payable to the employee for services performed for the bank while they are directors.

• Marginal note:Conditions precedent

  (2) A director is not liable under subsection (1) unless

  • (a) the bank has been sued for the debt within six months after it has become due and execution has been returned unsatisfied in whole or in part;

  • (b) the bank has commenced liquidation and dissolution proceedings or has been dissolved and a claim for the debt has been proven within six months after the earlier of the date of commencement of the liquidation and dissolution proceedings and the date of dissolution; or

  • (c) a winding-up order has been issued in respect of the bank under the Winding-up and Restructuring Act and a claim for the debt has been allowed or proven within six months after the issue of the winding-up order.

• Marginal note:Limitations

  (3) A director is not liable under subsection (1) unless the director is sued for a debt referred to in that subsection while a director or within two years after the director has ceased to be a director.

• Marginal note:Amount due after execution

  (4) Where execution referred to in paragraph (2)(a) has issued, the amount recoverable from a director is the amount remaining unsatisfied after execution.

• Marginal note:Subrogation of director

  (5) Where a director of a bank pays a debt referred to in subsection (1) that is proven in liquidation and dissolution or winding-up proceedings, the director is entitled to any preference that the employee would have been entitled to and, where a judgment has been obtained, the director is entitled to an assignment of the judgment.

• Marginal note:Contribution entitlement

  (6) A director of a bank who has satisfied a claim under this section is entitled to a contribution from the other directors of the bank who are liable for the claim.

Marginal note:Defence — due diligence

• 211 (1) A director, officer or employee of a bank is not liable under section 207 or 210 or subsection 506(1) and has fulfilled their duty under subsection 158(2) if they exercised the care, diligence and skill that a reasonably prudent person would have exercised in comparable circumstances, including reliance in good faith on

  • (a) financial statements of the bank that were represented to them by an officer of the bank or in a written report of the auditor or auditors of the bank fairly to reflect the financial condition of the bank; or

  • (b) a report of a person whose profession lends credibility to a statement made by them.

• Marginal note:Defence — good faith

  (2) A director or officer of a bank has fulfilled their duty under subsection 158(1) if they relied in good faith on

  • (a) financial statements of the bank that were represented to them by an officer of the bank or in a written report of the auditor or auditors of the bank fairly to reflect the financial condition of the bank; or

  • (b) a report of a person whose profession lends credibility to a statement made by them.

Marginal note:Indemnification

• 212 (1) A bank may indemnify a director or officer of the bank, a former director or officer of the bank or another person who acts or acted, at the bank’s request, as a director or officer of or in a similar capacity for another entity against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by them in respect of any civil, criminal, administrative, investigative or other proceeding in which they are involved because of that association with the bank or other entity.

• Marginal note:Advances

  (2) A bank may advance amounts to the director, officer or other person for the costs, charges and expenses of a proceeding referred to in subsection (1). They shall repay the amounts if they do not fulfil the conditions set out in subsection (3).

• Marginal note:No indemnification

  (3) A bank may not indemnify a person under subsection (1) unless

  • (a) the person acted honestly and in good faith with a view to the best interests of, as the case may be, the bank or the other entity for which they acted at the bank’s request as a director or officer or in a similar capacity; and

  • (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, the person had reasonable grounds for believing that their conduct was lawful.

• Marginal note:Indemnification — derivative actions

  (4) A bank may with the approval of a court indemnify a person referred to in subsection (1) or advance amounts to them under subsection (2) — in respect of an action by or on behalf of the bank or other entity to procure a judgment in its favour to which the person is made a party because of the association referred to in subsection (1) with the bank or other entity — against all costs, charges and expenses reasonably incurred by them in connection with that action if they fulfil the conditions set out in subsection (3).

• Marginal note:Right to indemnity

  (5) Despite subsection (1), a person referred to in that subsection is entitled to be indemnified by the bank in respect of all costs, charges and expenses reasonably incurred by them in connection with the defence of any civil, criminal, administrative, investigative or other proceeding to which the person is subject because of the association referred to in subsection (1) with the bank or other entity described in that subsection if the person

  • (a) was not judged by the court or other competent authority to have committed any fault or omitted to do anything that they ought to have done; and

  • (b) fulfils the conditions set out in subsection (3).

• Marginal note:Heirs and personal representatives

  (6) A bank may, to the extent referred to in subsections (1) to (5) in respect of the person, indemnify the heirs or personal representatives of any person whom the bank may indemnify under those subsections.

Marginal note:Directors’ and officers’ insurance

213 A bank may purchase and maintain insurance for the benefit of any person referred to in section 212 against any liability incurred by the person

• (a) in the capacity of a director or an officer of the bank, except where the liability relates to a failure to act honestly and in good faith with a view to the best interests of the bank; or

• (b) in the capacity of a director or officer of another entity or while acting in a similar capacity for another entity, if they act or acted in that capacity at the bank’s request, except if the liability relates to a failure to act honestly and in good faith with a view to the best interests of the entity.

Marginal note:Application to court for indemnification

• 214 (1) A bank or a person referred to in section 212 may apply to a court for an order approving an indemnity under that section and the court may so order and make any further order it thinks fit.

• Marginal note:Notice to Superintendent

  (2) An applicant under subsection (1) shall give the Superintendent written notice of the application and the Superintendent is entitled to appear and to be heard at the hearing of the application in person or by counsel.

• Marginal note:Other notice

  (3) On an application under subsection (1), the court may order notice to be given to any interested person and that person is entitled to appear and to be heard in person or by counsel at the hearing of the application.

Fundamental Changes

Amendments — Letters Patent

Marginal note:Incorporating instrument

215 On the application of a bank duly authorized by special resolution, the Minister may approve a proposal to add, change or remove any provision that is permitted by this Act to be set out in the bank’s incorporating instrument.

Marginal note:Letters patent to amend

• 216 (1) On receipt of an application referred to in section 215, the Minister may issue letters patent to effect the proposal.

• Marginal note:Effect of letters patent

  (2) Letters patent issued pursuant to subsection (1) become effective on the day stated in the letters patent.

Conversion into Federal Credit Union

Marginal note:Conversion into federal credit union

216.01 On the application of a bank that is not a federal credit union, the Minister may, by letters patent, amend the bank’s incorporating instrument to convert the bank into a federal credit union.

Marginal note:Shareholder approval of conversion proposal

• 216.02 (1) Before a bank makes an application under section 216.01, the directors of the bank must obtain from the shareholders, by special resolution,

  • (a) approval of a conversion proposal that meets the requirements of the regulations and that has been approved by the Superintendent;

  • (b) confirmation of any by-law or of any amendment to or repeal of a by-law that is necessary to implement the conversion proposal; and

  • (c) authorization to make the application.

• Marginal note:Additional information

  (2) The Minister may require the federal credit union to provide the Minister with any additional information that he or she considers necessary.

Marginal note:Right to vote

• 216.03 (1) For the purposes of subsection 216.02(1), each share of the bank carries the right to vote in respect of any matter referred to in that subsection whether or not it otherwise carries the right to vote.

• Marginal note:Class vote

  (2) For the purposes of subsection 216.02(1), the holders of shares of a class or series of shares of the bank are entitled to vote separately as a class or series in respect of any matter referred to in that subsection.

Marginal note:Time of application

216.04 An application under section 216.01 may be made no later than three months after the bank’s conversion proposal has been approved by the shareholders.

Marginal note:Criteria for issuance of letters patent

216.05 In determining whether to issue letters patent to amend a bank’s incorporating instrument to convert it into a federal credit union, the Minister must consider all matters that the Minister considers relevant, including whether

• (a) the applicant bank will, on the issuance of the letters patent, be organized and carry on business on a cooperative basis in accordance with section 12.1;

• (b) there are no reasonable grounds for believing that the issuance of the letters patent would cause the federal credit union to be in contravention of subsection 485(1), any regulation made under subsection 485(2) or any order made under subsection 485(3);

• (c) the bank’s conversion proposal was approved by special resolution of the shareholders;

• (d) the conversion of the bank into a federal credit union may reasonably be expected to be achieved under the terms of the conversion proposal;

• (e) the conversion is fair and reasonable to the shareholders; and

• (f) the conversion is in the best interests of the financial system in Canada, including the best interests of the cooperative financial system in Canada.