M. Liquidation and Dissolution
Author | M.H. Ogilvie |
Profession | LSM, B.A., LL.B., M.A., D.Phil., D.D., F.R.S.C. Of the Bars of Ontario and Nova Scotia Chancellor's Professor and Professor of Law, Carleton University |
Pages | 139-146 |
Page 139
Over the past century, bank failures have been rare in Canada, and the few banks that have failed have been smaller institutions, such as the Home Bank in 1923, the Bank of Western Canada in 1967, and the Canadian Commercial Bank and the Northland Bank in 1985. However, the failure of a number of trust and loan companies in the 1980s was a reminder of the necessity for constant vigilance in the financial institutions sector generally. The continual assessment of the powers and operations of OSFI reflects that requirement. OSFI’s role of day-to-day monitoring, providing prudential advice as required, and stepping in, should the need arise, to secure the solvency of financial institutions should ensure that no bank will fail. However, should a bank or any other financial institution experience solvency difficulties, the necessary statutory framework for their resolution is found in the Bank Act, as well as in the Winding-Up and Restructuring Act (WURA).499
The Bank Act makes provision for the orderly winding-up of a solvent bank, and WURA provides for a bank that is insolvent within the meaning of WURA.500
The Bank Act provides for the voluntary liquidation of a bank without assets; simple voluntary liquidations of banks; court supervised liquidations; and taking control by the Superintendent.
First, a bank that has no property and no liabilities may be dissolved by letters patent by the Minister of Finance if the application has been approved by a shareholder special resolution or a resolution of all the directors if there are no shareholders.501
The bank ceases to exist on the day stated in the letters patent.502
This type of liquidation would likely be sought where a bank had never carried on business after incorpora-
Page 140
tion,503but it could also be sought by any bank that had disposed of all its assets and honoured all of its commitments prior to the application, so that the statutory requirements had been satisfied.504
Secondly, any bank with assets may apply for a voluntary dissolution under the Bank Act either at the proposal of its directors or by a shareholder proposal.505
Once the shareholders have approved by special resolution that a solvent bank be dissolved, the bank may apply to the Minister for letters patent, and once approved, the bank shall cease to carry on business except everything necessary to complete the voluntary liquidation,506including notifying each known claimant and creditor of the bank, placing public notices in the Canada Gazette and various general circulation newspapers, collecting property, disposing of property, discharging its obligations, and distributing its remaining property to shareholders according to their respective rights.507
Once these steps are completed, the Minister shall issue the letters patent dissolving the bank, which ceases to exist on the day stated in the letters patent.508
A voluntary liquidation of a solvent bank does not require any form of oversight or supervision; rather, the directors and officers are entrusted with the orderly dissolution subject only to Ministerial approval.509
The third type of dissolution provided by the Bank Act is a court-supervised dissolution.510
During the voluntary liquidation of a solvent bank, the Superintendent or any interested person may apply to a court for the continuance of the voluntary liquidation under court supervision.511
Where the applicant is not the Superintendent, the Superintendent is to be notified of the application and may appear at the hearing of the application.512
A court is empowered to make any order it thinks fit in connection with the liquidation and dissolution of the bank once it is satisfied that the bank is able to provide for the
Page 141
discharge of all its obligations.513
Once a court makes the liquidation order, the bank shall cease to carry on business except for the business required for the orderly liquidation.514
The court shall appoint the liquidator at the time of making the order or thereafter, and the court may appoint a director, officer, or shareholder of the bank or of any other bank as the liquidator.515
The liquidator may delegate any of the statutory powers of a liquidator to the directors or shareholders,516and the duties and powers of the liquidator as set out in the Bank Act517are essentially the standard duties and powers of any liquidator to do all things necessary to execute the liquidation. Once the court has made the order to liquidate and appointed the liquidator, the powers of the directors and shareholders are vested in the liquidator subject to any specific authorization by the court.518
The costs of the liquidation are to be paid out of the property of the bank.519
The liquidator is entitled to rely in good faith on the financial statements of the bank; written auditor’s reports; and opinions, reports, and statements of any professional advisor, such as a lawyer or accountant, retained by the liquidator.520
The liquidator must apply to the court within one year of appointment for approval of the final accounts and the order to distribute the remaining property, if any, to the shareholders, or else to apply for an extension of time.521
Prior to this application, the liquidator must notify the Superintendent, each shareholder or incorporator, and any person who provided a security or fidelity bond for the liquidation,522and the liquidator must publish notice in the Canada Gazette and in general circulation newspapers in each province in which the bank has transacted business in the previous twelve months.523
Should the liquidator fail to make application to the court, a shareholder or incorporator may apply to a court to order
Page 142
the liquidator to show cause why a final accounting and distribution should not be made.524
Once the court has approved the final accounts, the court shall order the bank to apply to the Minister for letters patent dissolving the bank; give directions about the custody and disposal of the bank’s records; and discharge the liquidator but for a duty to deliver a certified copy of the Minister’s order to the Superintendent.525
On application, the Minister may issue letters patent dissolving the bank, which shall cease to exist on the date of the issuance of the letters patent.526
Throughout the liquidation process, the liquidator is under a statutory duty to provide all information to the Superintendent as the Superintendent requires.527
Certain statutory liabilities continue after the dissolved bank has ceased to exist as a legal entity. First, any civil, criminal, or administrative action commenced prior to dissolution or within two years after the date of the dissolution may be continued, and any property of the bank is available to satisfy an order or judgment.528
Secondly, any shareholder or incorporator to whom property has been distributed is liable in such actions to the extent of the amount received in the distribution for a period of two years after the date of dissolution.529
Thirdly, a court may order a class action against shareholders or incorporators as a class.530
Any property of a dissolved bank which has not been disposed of at dissolution rests in the Crown in right of Canada,531and any unclaimed money payable to a creditor, shareholder, or incorporator of a bank shall be paid to the Minister,532who shall forward these to the Bank of Canada,533together with all documentation relating to the entitlement of these payees.534
Once payment is made to the Bank of Canada, the
Page 143
liquidator, the bank, and the Minister are discharged from liability, and the Bank of Canada becomes solely liable to any claimant.535
The fourth process for which the Bank Act makes provision for a solvent bank in difficulties is for the Superintendent to take control.536
The Superintendent may take control in various states of affairs where it appears that the interests of the creditors, depositors, and shareholders are materially prejudiced537and may have control of the assets for a period of up to sixteen days with a view either to correct the situation and return control to the directors or to request a winding-up of the bank under WURA.538
During the Superintendent’s control, the legal role of the directors is suspended,539and when the period of control expires, that role is resumed unless a winding-up is requested.540
The Superintendent would normally request that the Attorney General commence the winding-up of a bank when it is insolvent, and so the question becomes that of defining insolvency. While earlier Bank Acts contained definitions of insolvency in relation to banks, the present Act does not. Rather, the insolvency law for banks as for other business corporations is found in WURA.541
Pursuant to section 3 of WURA, a bank is deemed to be insolvent in the following circumstances: (i) inability to pay debts as they become due; (ii) meeting with creditors for the purpose of compounding debts; (iii) admits an inability to meet liabilities; (iv) deals with any of its property with intent to defraud, delay, or defeat creditors; (v) acts in such manner that any of its property is seized by any...
To continue reading
Request your trial