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Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3)

Act current to 2022-11-16 and last amended on 2022-09-01. Previous Versions

PART XIISecurities Firm Bankruptcies (continued)

General

Marginal note:Application of other provisions

  •  (1) All of the provisions of this Act apply, with such modifications as the circumstances require, in respect of claims by customers for securities and customer name securities as if customers were creditors in respect of such claims.

  • Marginal note:Application of transaction provisions

    (2) Sections 95 to 101 apply, with such modifications as the circumstances require, in respect of transactions of a customer with or through a securities firm relating to securities.

  • Marginal note:Non-application

    (3) This Part does not apply to proceedings under Part III.

  • Marginal note:Termination, netting or setting off or compensation

    (4) Nothing in this Part affects the rights of a party to a contract, including an eligible financial contract, with respect to termination, netting or setting off or compensation.

  • Marginal note:Secured creditors

    (5) The operation of this Part is subject to the rights of secured creditors.

  • 1997, c. 12, s. 118
  • 2004, c. 25, s. 98(E)
  • 2007, c. 29, s. 102
  • 2017, c. 26, s. 10

Marginal note:Conflicts

 All the provisions of this Act, in so far as they are applicable, apply in respect of bankruptcies under this Part, but if a conflict arises between the application of the provisions of this Part and the other provisions of this Act, the provisions of this Part prevail.

  • 1997, c. 12, s. 118

Marginal note:Applications re securities firm

  •  (1) In addition to any creditor who may file an application in accordance with sections 43 to 45, an application for a bankruptcy order against a securities firm may be filed by

    • (a) a securities commission established under an enactment of a province, if

      • (i) the securities firm has committed an act of bankruptcy referred to in section 42 or subsection (2) of this section within the six months before the filing of the application and while the securities firm was licensed or registered by the securities commission to carry on business in Canada, and

      • (ii) in the case in which the act of bankruptcy was that referred to in subsection (2), the suspension referred to in that subsection is in effect when the application is filed;

    • (b) a securities exchange recognized by a provincial securities commission, if

      • (i) the securities firm has committed an act of bankruptcy referred to in section 42 or subsection (2) of this section within the six months before the filing of the application and while the securities firm was a member of the securities exchange, and

      • (ii) in the case in which the act of bankruptcy was that referred to in subsection (2), the suspension referred to in that subsection is in effect when the application is filed;

    • (c) a customer compensation body, if

      • (i) the securities firm has committed an act of bankruptcy referred to in section 42 or subsection (2) of this section within the six months before the filing of the application and while the securities firm had customers whose securities accounts were protected, in whole or in part, by the customer compensation body, and

      • (ii) in the case in which the act of bankruptcy was that referred to in subsection (2), the suspension referred to in that subsection is in effect when the application is filed; and

    • (d) a person who, in respect of property of a securities firm, is a receiver within the meaning of subsection 243(2), a receiver-manager, a liquidator or any other person with similar functions appointed under a federal or provincial enactment relating to securities that provides for the appointment of that other person, if the securities firm has committed an act of bankruptcy referred to in section 42 within the six months before the filing of the application.

  • Marginal note:Interpretation

    (2) For the purposes of paragraphs (1)(a) to (c),

    • (a) the suspension by a securities commission referred to in paragraph (1)(a) of a securities firm’s registration to trade in securities, or

    • (b) the suspension by a securities exchange referred to in paragraph (1)(b) of a securities firm’s membership in that exchange

    constitutes an act of bankruptcy if the suspension is due to the failure of the firm to meet capital adequacy requirements.

  • Marginal note:Service on securities commission

    (3) If

    • (a) a securities exchange files an application under paragraph (1)(b), or

    • (b) a customer compensation body files an application under paragraph (1)(c),

    a copy of the application must be served on the securities commission, if any, having jurisdiction in the locality of the securities firm where the application was filed, before

    • (c) any prescribed interval preceding the hearing of the application, or

    • (d) any shorter interval that may be fixed by the court and that precedes the hearing of the application.

  • 1997, c. 12, s. 118
  • 2004, c. 25, s. 99
  • 2005, c. 47, s. 118

Marginal note:Statement of customer account

 The trustee of the estate of a securities firm shall send to customers a statement of customer accounts with the firm together with the notice under subsection 102(1).

  • 1997, c. 12, s. 118

Marginal note:Deferred customers

  •  (1) Where the trustee is of the opinion that a customer should be treated as a deferred customer, the trustee shall apply to the court for a ruling on the matter and shall send the customer a copy of the application, together with a statement of the reasons why the customer should be so treated, and the court may, on such notice as it considers appropriate, make such order as it considers appropriate in the circumstances.

  • Marginal note:Application by customer compensation body

    (2) Where securities accounts of customers are protected by a customer compensation body, the customer compensation body may apply to the court for a ruling as to whether a customer should be treated as a deferred customer and, in the case of such an application,

    • (a) the customer compensation body shall send the customer a copy of the application together with a statement setting out the reasons why the customer should be so treated; and

    • (b) the court may, on such notice as it considers appropriate, make such order as it considers appropriate in the circumstances.

  • 1997, c. 12, s. 118

Marginal note:Trustee powers

 The trustee may, in respect of a bankruptcy under this Part, without the permission of inspectors until inspectors are appointed and thereafter with the permission of inspectors,

  • (a) exercise a power of attorney in respect of and transfer any security vested in the trustee;

  • (b) sell securities, other than customer name securities;

  • (c) purchase securities;

  • (d) discharge any security on securities vested in the trustee;

  • (e) complete open contractual commitments;

  • (f) maintain customers’ securities accounts and meet margin calls;

  • (g) distribute cash and securities to customers;

  • (h) transfer securities accounts to another securities firm, to the extent practicable, comply with customer requests regarding the disposal of open contractual commitments and the transfer of open contractual commitments to another securities firm, and enter into agreements to indemnify the other securities firm against shortages of cash or securities in transferred accounts;

  • (i) liquidate any securities account without notice; and

  • (j) sell, without tender, assets of the securities firm essential to the carrying on of its business.

  • 1997, c. 12, s. 118
  • 2004, c. 25, s. 100
  • 2015, c. 3, s. 10(F)

Marginal note:Determination of customer name securities

 The trustee shall

  • (a) determine which of the securities in customers’ securities accounts are to be dealt with as customer name securities and those that are not to be dealt with as such; and

  • (b) advise customers with securities determined to be customer name securities of the determination as soon as possible thereafter.

  • 1997, c. 12, s. 118

Distribution of Estate

Marginal note:Vesting of securities, etc., in trustee

  •  (1) If a securities firm becomes bankrupt, the following securities and cash vest in the trustee:

    • (a) securities owned by the securities firm;

    • (b) securities and cash held by any person for the account of the securities firm; and

    • (c) securities and cash held by the securities firm for the account of a customer, other than customer name securities.

  • Marginal note:Establishment of a customer pool fund and a general fund

    (2) Where a securities firm becomes bankrupt and property vests in a trustee under subsection (1) or under other provisions of this Act, the trustee shall establish

    • (a) a fund, in this Part called the “customer pool fund”, including therein

      • (i) securities, including those obtained after the date of the bankruptcy, but excluding customer name securities and excluding eligible financial contracts to which the firm is a party, that are held by or for the account of the firm

        • (A) for a securities account of a customer,

        • (B) for an account of a person who has entered into an eligible financial contract with the firm and has deposited the securities with the firm to assure the performance of the person’s obligations under the contract, or

        • (C) for the firm’s own account,

      • (ii) cash, including cash obtained after the date of the bankruptcy, and including

        • (A) dividends, interest and other income in respect of securities referred to in subparagraph (i),

        • (B) proceeds of disposal of securities referred to in subparagraph (i), and

        • (C) proceeds of policies of insurance covering claims of customers to securities referred to in subparagraph (i),

      •  that is held by or for the account of the firm

        • (D) for a securities account of a customer,

        • (E) for an account of a person who has entered into an eligible financial contract with the firm and has deposited the cash with the firm to assure the performance of the person’s obligations under the contract, or

        • (F) for the firm’s own securities account, and

      • (iii) any investments of the securities firm in its subsidiaries that are not referred to in subparagraph (i) or (ii); and

    • (b) a fund, in this Part called the “general fund”, including therein all of the remaining vested property.

  • 1997, c. 12, s. 118
  • 2004, c. 25, s. 101(F)
  • 2005, c. 47, s. 119

Marginal note:Allocation and distribution of cash and securities in customer pool fund

  •  (1) Cash and securities in the customer pool fund shall be allocated in the following priority:

    • (a) for costs of administration referred to in paragraph 136(1)(b), to the extent that sufficient funds are not available in the general fund to pay such costs;

    • (b) to customers, other than deferred customers, in proportion to their net equity; and

    • (c) to the general fund.

  • Marginal note:Where property deposited with securities firm under an EFC

    (1.1) Where

    • (a) a person has, under the terms of an eligible financial contract with the securities firm, deposited property with the firm to assure the performance of the person’s obligations under the contract, and

    • (b) that property is included in the customer pool fund pursuant to paragraph 261(2)(a),

    that person shall share in the distribution of the customer pool fund as if the person were a customer of the firm with a claim for net equity equal to the net value of the property deposited that would have been returnable to the person after deducting any amount owing by the person under the contract.

  • Marginal note:Distribution

    (2) To the extent that securities of a particular type are available in the customer pool fund, the trustee shall distribute them to customers with claims to the securities, in proportion to their claims to the securities, up to the appropriate portion of their net equity, unless the trustee determines that, in the circumstances, it would be more appropriate to sell the securities and distribute the proceeds to the customers with claims to the securities in proportion to their claims to the securities.

  • Marginal note:Compensation in kind

    (2.1) Subject to subsection (2), the trustee may satisfy all or part of a customer’s claim to securities of a particular type by delivering to the customer securities of that type to which the customer was entitled at the date of bankruptcy. For greater certainty, the trustee may, for that purpose, exercise the trustee’s power to purchase securities in accordance with section 259.

  • Marginal note:Allocation of property in the general fund

    (3) Property in the general fund shall be allocated in the following priority:

    • (a) to preferred creditors in the order set out in subsection 136(1);

    • (b) rateably

      • (i) to customers, other than deferred customers, having claims for net equity remaining after distribution of property from the customer pool fund and property provided by a customer compensation body, where applicable, in proportion to claims for net equity remaining,

      • (ii) where applicable, to a customer compensation body to the extent that it paid or compensated customers in respect of their net equity, and

      • (iii) to creditors in proportion to the values of their claims;

    • (c) rateably to creditors referred to in section 137; and

    • (d) to deferred customers, in proportion to their claims for net equity.

  • 1997, c. 12, s. 118
  • 2005, c. 47, s. 120

Marginal note:Delivery of customer name securities

  •  (1) Where a customer is not indebted to a securities firm, the trustee shall deliver to the customer the customer name securities that belong to the customer.

  • Marginal note:Where customer indebted to securities firm

    (2) Where a customer to whom customer name securities belong and who is indebted to the securities firm on account of customer name securities not fully paid for, or on another account, discharges their indebtedness in full, the trustee shall deliver to that customer the customer name securities that belong to the customer.

  • Marginal note:Customer indebted to securities firm

    (3) If a customer to whom customer name securities belong and who is indebted to the securities firm on account of customer name securities not fully paid for, or on another account, does not discharge their indebtedness in full, the trustee may, on notice to the customer, sell sufficient customer name securities to discharge the indebtedness, and those securities are then free of any right, title or interest of the customer. If the trustee so discharges the customer’s indebtedness, the trustee shall deliver any remaining customer name securities to the customer.

  • 1997, c. 12, s. 118
  • 2005, c. 47, s. 121
 
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