Modernizing the Credit Unions and Caisses Populaires Act

Consultation Document

PART I
INTERPRETATION

Definitions

1.  (1)  In this Regulation,

“agricultural loan” means an agricultural loan described in section 49; (“prêt agricole”)

“authorized types of insurance” means the types of insurance listed in subsection 34 (1); (“types d’assurance autorisés”)

“bridge loan” means a bridge loan described in section 50; (“prêt-relais”)

“Capital Adequacy Guideline for Ontario’s Credit Unions and Caisses Populaires” means the publication with that title that is published in The Ontario Gazette by the Corporation, as the publication may be amended from time to time; (“Lignes directrices relatives à la suffisance du capital des caisses populaires et credit unions de l’Ontario”)

“class 1 credit union” means a credit union that is not a class 2 credit union; (“caisse de catégorie 1”)

“class 2 credit union” means a credit union that, according to section 2, is a class 2 credit union; (“caisse de catégorie 2”)

“commercial loan” means a commercial loan described in section 51; (“prêt commercial”)

“guarantee” includes the issuance of a letter of credit; (“garantie”)

“institutional loan” means an institutional loan described in section 52; (“prêt institutionnel”)

“insurer” means an insurer licensed under the Insurance Act; (“assureur”) 

“participating share” means a share of a body corporate that carries the right to participate in the earnings of the body corporate to an unlimited degree and to participate in a distribution of the remaining property of the body corporate on dissolution; (“action participante”)

“personal loan” means a personal loan described in section 53; (“prêt personnel”)

“regulatory capital” means regulatory capital as determined under section 16; (“capital réglementaire”)

“residential mortgage loan” means a residential mortgage loan described in section 54. (“prêt hypothécaire résidentiel”)

“residential property” means an individual condominium residential unit or a building with one to four units where at least one half of the floor area of the building is utilized as one or more private residential dwellings; (“propriété résidentielle”)

“risk weighted assets” means the amount of the risk weighted assets as determined under section 17; (“actif à risques pondérés”)

“total assets” means total assets as determined under section 15.  (“actif total”)

      (2)  For the purposes of this Regulation, a lodgement of title is not a mortgage.

      (3)  For the purposes of this Regulation, two or more persons are connected persons if they satisfy the conditions prescribed in section 66. 

Class 2 credit unions

      2.  (1)  A credit union is a class 2 credit union if either of the following circumstances exist at any time after January 31, 2007:

           1.    The total assets of the credit union as set out in the audited financial statements of the credit union that were placed before its members at the most recent annual meeting are greater than or equal to $50 million.

           2.    The credit union makes one or more commercial loans.

      (2)  A credit union becomes a class 2 credit union under subsection (1) on the first day on which either of the circumstances described in subsection (1) exist. 

      (3)  A credit union that changes the terms and conditions of a commercial loan made on or before January 31, 2007 or refinances such a loan in any other way shall be deemed, for the purposes of paragraph 2 of subsection (1), to have made a commercial loan on the date of the change or refinancing.

      (4)  A credit union also becomes a class 2 credit union if, upon application by the credit union to the Corporation, the Corporation is satisfied that,

         (a)    the credit union has established the policies required by section 189 of the Act with respect to investment and lending;

         (b)    those policies are appropriate for the size and complexity of the credit union;

         (c)    the credit union is in compliance with the Corporation’s by-laws, including the by-law prescribing standards of sound business and financial practices; and

         (d)    the credit union is in compliance with the minimum capital requirements that would apply under this Regulation if the credit union were a class 2 credit union. 

      (5)  Once a credit union becomes a class 2 credit union, it remains a class 2 credit union in perpetuity.

Widely-distributed security

      3.  (1)  A security is widely-distributed,

         (a)    if it is listed or posted for trading on a recognized stock exchange; or

         (b)    if a prospectus relating to the issuance of the security is filed under the laws of a province or a jurisdiction outside Canada.

      (2)  A debt obligation is widely-distributed if no prospectus is required in respect of its distribution under the laws of a province or a jurisdiction outside Canada and,

         (a)    at least 90 per cent of the maximum authorized principal of the debt obligation is held by one or more persons other than the credit union making the loan and its subsidiaries and,

                        (i)    the debt obligation is issued to at least 25 persons other than the credit union and its subsidiaries within six months after the day on which the first of the debt obligations is issued, or

                       (ii)    the debt obligations are issued on a continuous basis and there are, on average, at least 25 holders other than the credit union and its subsidiaries; or

         (b)    when the debt obligation is issued, it meets at least three of the following criteria:

           1.    Its initial term is one year or less.

           2.    It is rated by a rating agency.

           3.    It is distributed through a person authorized to trade in securities.

           4.    It is distributed in accordance with an offering circular or memorandum or a similar document relating to the distribution of securities.

PART II
ESTABLISHING A CREDIT UNION

Articles of incorporation

      4.  (1)  The following information must be set out in the articles of incorporation of a credit union:

           1.    Its name.

           2.    The address of its head office and the name of the municipality or township in Ontario where its principal place of business is located.

           3.    The minimum and maximum number of directors.

           4.    The full name, date of birth, citizenship or landed immigrant status and residential address of each director.

           5.    The classes and maximum number, if any, of shares other than membership shares that the credit union is authorized to issue.

           6.    The rights, privileges, restrictions and conditions, if any, attaching to each class of shares.

           7.    The board’s authority with respect to any class of shares that may be issued in series.

      (2)  Articles filed when a credit union is first incorporated must also set out the full name, date of birth and residential address of each incorporator.

      (3)  Articles approved by the Minister before March 1, 1995 shall be deemed to comply with subsections (1) and (2).

Name

      5.  The Credit Union Central of Canada is a prescribed person for the purposes of section 20 of the Act.

PART III
MEMBERSHIP

Trusts for named beneficiaries

      6.  For the purposes of clause 39 (1) (d) of the Act, deposits made in accordance with the following provisions are prescribed: 

           1.    Subsections 188 (6), (7) and 227 (1) of the Business Corporations Act.

           2.    Section 39 of the Cemeteries Act.

           3.    Subsection 33 (2)  of Regulation 69 of the Revised Regulations of Ontario, 1990 made under the Charitable Institutions Act.

           4.    Subsection 17 (4) of Regulation 74 of the Revised Regulations of Ontario, 1990 made under the Collection Agencies Act.

           5.    Subsection 81 (4) of the Condominium Act, 1998.

           6.    Subsection 143 (5) of the Corporations Act

           7.    Subsection 18 (1) of Regulation 470 of the Revised Regulations of Ontario, 1990 made under the Funeral Directors and Establishments Act.

           8.    Subsection 53 (1) of Regulation 637 of the Revised Regulations of Ontario, 1990 made under the Homes for the Aged and Rest Homes Act.

           9.    Subsection 50 (1) of Ontario Regulation 188/08 and subsection 34 (1) of Ontario Regulation 189/08, both made under the Mortgage Brokerages, Lenders and Administrators Act, 2006.

         10.    Subsection 27 (1) of the Real Estate and Business Brokers Act, 2002.

         11.    Subsection 16 (4) of Regulation 991 of the Revised Regulations of Ontario, 1990 made under the Registered Insurance Brokers Act.

         12.    Rule 3.3.2 of the Mutual Fund Dealers Association of Canada Rules as governed by section 21.1 of the Securities Act.

         13.    Rule 1200.3 of the Investment Industry Regulatory Organization of Canada Dealer Member Rules as governed by section 21.1 of the Securities Act.

         14.    Subsection 27 (3) of Ontario Regulation 26/05 made under the Travel Industry Act, 2002.

Payments re deceased members

      7.  (1)  For the purposes of paragraph 1 of subsection 42 (2) of the Act, the prescribed amount is $50,000.

      (2)  For the purposes of paragraph 2 of subsection 42 (2) of the Act, the prescribed amount is $50,000.

PART IV
CAPITAL STRUCTURE

Number of shares

      8.  For the purposes of subsection 52 (2) of the Act and despite any limit set out in the by-laws of a credit union, the prescribed limit on the number of membership shares that may be issued to a member of the credit union is the sum of,

         (a)    the minimum number of membership shares required under the by-laws of the credit union; and

         (b)    the number of membership shares that would be issued by the credit union for an additional consideration of $1,000, as determined at the time the membership shares are issued.

Membership share certificate

      9.  For the purposes of subsection 52 (6) of the Act, a membership share certificate must include the following information and statements on its face:

           1.    The name of the credit union as it appears in the articles.

           2.    The name of each person to whom the certificate is issued.

           3.    A statement indicating that the credit union is governed by the Credit Unions and Caisses Populaires Act, 1994.

           4.    A statement indicating that the certificate represents membership shares in the credit union and indicating the number of shares.

           5.    A statement indicating that there may be a lien on the shares in favour of the credit union for indebtedness to it.

           6.    A statement indicating that the shares are not guaranteed or insured by the Corporation or another public agency.

           7.    A statement indicating that the certificate is not transferable.

Offering statement

      10.  (1)  For the purposes of subsection 77 (2) of the Act, the following information is prescribed as information that an offering statement must contain:

           1.    The name of the credit union.

           2.    The credit union’s date of incorporation as set out in the articles or, in the case of an amalgamated credit union, its date of amalgamation as set out in its certificate of amalgamation.

           3.    The address of the credit union’s head office.

           4.    The name of each of the credit union’s directors and officers, the municipality in which each resides, the principal occupation of each of them and the title of each officer.

           5.    A description of the business carried on by the credit union and its subsidiaries, if any, and the business each of them intends to carry on.

           6.    The details of the capital structure of the credit union. 

           7.    A description of the material characteristics of the securities being offered.

           8.    The details of the use to which the proceeds from the sale of the securities will be put.

           9.    If the offering is being made in connection with a plan of reorganization, a purchase and sale or an amalgamation, a description of the general effect of these proposed changes and when they will be made.

         10.    The details of the method of selling the securities and of any commission payable or discount allowable on the sale.  If the securities are being sold through an underwriter, include the underwriter’s name and the details of the underwriter’s obligation to take up and pay for the securities.  If the securities are being sold by another method, include separate descriptions of the method of distribution of securities underwritten, securities under option and securities being sold on a best efforts basis and also include the amount of any minimum subscription.

         11.    A description of the market on which the securities may be sold.  If there is no market, a description of how the securities will be redeemed.

         12.    The name of each transfer agent and registrar and the location of each register of transfer.

         13.    The details of any securities or other obligations ranking ahead of the securities being offered.

         14.    A description of any material legal proceeding to which the credit union or its subsidiary is a party.

         15.    A description of any material interest of a director, officer or employee of the credit union or its subsidiary in the operations of the credit union generally or in the securities being offered, including the following:

                          i.    Particulars of any options to purchase shares of the credit union that are held by a director or officer and the name of any director or officer who holds such options.

                         ii.    Particulars of any options to purchase shares of the credit union that are held by all other employees as a group.

         16.    A description of every material contract entered into within two years before the date of the offering statement and a description of any contract entered into, if the contract has a bearing on the securities issue.

         17.    A description of the risk factors of the credit union and the risks associated with the securities being offered.

         18.    A description, to the extent reasonably practicable, of any substantial variations in the operating results of the credit union during the three years before the date of the offering statement and the financial statements that show the variations.

         19.    The amount of any dividends, patronage returns, allocations or other distributions paid, declared or accumulated but unpaid by the credit union during the five years before the date of the offering statement.

         20.    The name and address of the credit union’s auditor.

         21.    A description of any other material facts.  If there are no other material facts, the offering statement must contain the following statement:  “There are no other material facts relating to this issue of securities”. 

         22.    Such other information as is required by the Offering Statement Guideline for Credit Unions and Caisses Populaires published in The Ontario Gazette by the Superintendent, as it may be amended from time to time.

      (2)  The offering statement must include the following documents:

           1.    The audited financial statements of the credit union that were placed before the members at the most recent annual meeting and signed by the chair of the board and the chief executive officer of the credit union.

           2.    Interim unaudited financial statements, reviewed by a person licensed under the Public Accounting Act, 2004,for the period ending not more than 90 days before the date on the offering statement, if the audited financial statements required under paragraph 1 are in respect of a period ending more than 90 days before the date on the offering statement

           3.    If a report, opinion or statement prepared by a person is used in the offering statement, a document signed by the person indicating that the person consents to the use of the report, opinion or statement.

           4.    A copy of the board resolution approving the offering, certified by the corporate secretary to be a true copy.

      (3)  If the credit union was incorporated within 90 days before the date on the offering statement, the offering statement must include pro forma financial statements, including projected balance sheets and income statements of the credit union for at least the first three fiscal years of the credit union instead of the financial statements required under paragraphs 1 and 2 of subsection (2).

      (4)  If the credit union was amalgamated within 90 days before the date on the offering statement, the offering statement must include, instead of the financial statements required under paragraphs 1 and 2 of subsection (2),

         (a)    the audited financial statements of each predecessor credit union that were placed before its members at the most recent annual meeting of the predecessor credit union; 

         (b)    a statement of the assets and liabilities of the amalgamated credit union as of the date of the certificate of amalgamation; and

         (c)    pro forma financial statements, including projected balance sheets and income statements of the amalgamated credit union for at least the first three fiscal years after the amalgamation.

      (5)  The offering statement must include the following statements in conspicuous, bold type on the front cover, in the same language as is used in the statement:

           1.    No official of the Government of the Province of Ontario has considered the merits of the matters addressed in the offering statement.

           2.    The securities being offered are not guaranteed by the Deposit Insurance Corporation of Ontario or any similar public agency.

      (6)  If there is no market on which the securities may be sold, the offering statement must include a statement to that effect in bold type on the front cover.

Notice of offering

      11.  (1)  A credit union may give any person or entity a notice respecting an offering after the offering statement is filed and before the Superintendent issues a receipt.

      (2)  The notice must contain the following information:

           1.    A detailed description of the security that the credit union proposes to issue.

           2.    The price of the security, if the price has been determined.

           3.    The name and address of a person from whom the securities may be purchased.

      (3)  The notice must include the following statements in conspicuous, bold type on the front cover, in the same language as is used in the offering statement:

           1.    This is not an offer to sell the securities described in this document.

           2.    The securities described in this document cannot be sold until after the Superintendent of Financial Services issues a receipt for an offering statement.  You are advised to read the offering statement approved by the Superintendent, because the terms and conditions may be changed significantly.

           3.    The Superintendent may refuse to issue a receipt, in which case the securities described in this document will not be offered for sale.

Statement of material change

      12.  The following information must be set out in a statement of material change respecting an offering statement by a credit union:

           1.    The name of the credit union.

           2.    The date on which the receipt for the offering statement was issued.

           3.    The date on which the material change occurred.

           4.    A description of the material change. 

Transfer of securities issued after receipt for an offering statement

13.  For the purposes of subsection 74.1 (1) of the Act, the Corporation and a league are prescribed as persons to whom a security issued under circumstances described in clause 75 (1) (a) of the Act may be transferred.

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