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Explanatory Note

CHAPTER 8

An Act to create
a comprehensive system of rules
for the transfer of securities
that is consistent with such rules
across North America and to make consequential amendments
to various Acts

Assented to May 18, 2006

Note: This Act amends or repeals more than one Act. For the legislative history of these Acts, see Public Statutes – Detailed Legislative History on www.e-Laws.gov.on.ca.

CONTENTS

PART I
INTERPRETATION AND
GENERAL PROVISIONS

1.

2.

3.

4.

5.

6.

7.

8.

9.

Definitions

Meaning of valid security

Notice

Obligation of good faith

Variation of Act by agreement

Principles of law and equity apply

Clearing agency rules prevail

Application to Crown

Existing proceedings

PART II
GENERAL MATTERS CONCERNING SECURITIES AND OTHER FINANCIAL ASSETS

Classification of Obligations and Interests

10.

11.

12.

13.

14.

15.

16.

Share, equity interest

Mutual fund security

Interest in partnership, limited liability company

Bill of exchange, promissory note

Depository bill, depository note

Clearing house option

Futures contract

Acquisition of Financial Assets or Interests in Them

17.

Acquisition of financial assets

Notice of Adverse Claims

18.

19.

20.

21.

22.

What constitutes notice of adverse claim

Notice of transfer

Delay

Statement on security certificate

Registration of financing statement

Control of Financial Assets

23.

24.

25.

26.

27.

28.

Purchaser’s control of certificated security

Purchaser’s control of uncertificated security

Purchaser’s control of security entitlement

Securities intermediary’s control of security entitlement

Agreement re control of uncertificated security

Agreement re control of security entitlement

Endorsements, Instructions and Entitlement Orders

29.

30.

31.

32.

Effectiveness of endorsement, etc.

Effectiveness of endorsement, etc., made by representative

Endorsement, etc., remains effective

Date when effectiveness is determined

Warranties Applicable to Direct Holdings

33.

34.

35.

36.

37.

38.

39.

40.

Warranties on transfer of certificated security

Warranties on transfer of uncertificated security

Warranties on endorsement of security certificate

Warranties on instruction re uncertificated security

Warranty on presentation of security certificate

Warranties by agent delivering certificated security

Warranties on redelivery of security certificate

Broker’s warranties

Warranties Applicable to Indirect Holdings

41.

42.

43.

Warranties on entitlement order

Warranties on security credited to securities account

Securities intermediary’s warranties

Conflict of Laws

44.

45.

46.

Conflict of laws

Matters governed by law of securities intermediary’s jurisdiction

Adverse claim governed by law of jurisdiction of security certificate

Seizure

47.

48.

49.

50.

51.

Seizure governed by laws re civil enforcement of judgments

Seizure of interest in certificated security

Seizure of interest in uncertificated security

Seizure of interest in security entitlement

Notice of seizure to secured party

Enforceability of Contracts and Rules of Evidence

52.

53.

Enforceability of contracts

Rules of evidence re certificated security

Securities Intermediaries — Liability and
Status as Purchasers for Value

54.

55.

Securities intermediary’s liability to adverse claimant

Securities intermediary as purchaser for value

PART III
ISSUE AND ISSUER

56.

57.

58.

59.

60.

61.

62.

63.

64.

65.

66.

67.

Terms of a security

Enforcement of security

Lack of genuineness of certificated security

Other defences

Right to cancel contract

Staleness as notice of defect or defence

Effect of issuer’s restriction on transfer

Completion of security certificate

Rights and duties of issuer re registered owners

Warranties by person signing security certificate

Issuer’s lien

Overissue

PART IV
TRANSFER OF CERTIFICATED AND UNCERTIFICATED SECURITIES

Delivery and Rights of Purchaser

68.

69.

70.

Delivery of security

Rights of purchaser

Protected purchaser

Endorsements and Instructions

71.

72.

73.

74.

75.

76.

77.

78.

Form of endorsement

Endorsement of part of a security certificate

When endorsement constitutes transfer of security

Endorsement missing

Notice of adverse claim on endorsement

Obligations of endorser

Completion of instruction

Obligations of person originating an instruction

Signature Guarantees and Other Requisites
for Registration of Transfer

79.

80.

81.

82.

83.

84.

85.

Warranties by guarantor of endorser’s signature

Warranties by guarantor of signature of originator of instruction

Warranties by special guarantor of signature of originator of instruction

Warranty re rightfulness of transfer by guarantor

Guarantee may not be condition to registration of transfer

Liability of guarantor, endorser and originator

Purchaser’s right to requisites for registration of transfer

PART V
REGISTRATION

86.

87.

88.

89.

90.

91.

92.

93.

94.

Duty of issuer to register transfer

Assurances re endorsement or instruction

Demand that issuer not register transfer

Duty of issuer re demand to not register transfer

Liability of issuer re demand to not register transfer

Wrongful registration of transfer

Replacement of security certificate lost, etc.

Obligation to notify issuer of lost, destroyed or wrongfully taken security certificate

Obligation of authenticating trustee, transfer agent, etc.

PART VI
SECURITY ENTITLEMENTS

95.

96.

97.

98.

99.

100.

101.

102.

103.

104.

105.

Acquisition of security entitlement

Protection of entitlement holders from adverse claim

Property interest of entitlement holders in financial asset

Duty of securities intermediary re financial asset

Duty of securities intermediary re payments and distributions

Duty of securities intermediary to exercise rights

Duty of securities intermediary to comply with entitlement order

Duty of securities intermediary re entitlement holder’s direction

Duties of securities intermediary – general

Rights of purchaser re adverse claim

Priority of entitlement holders to financial asset

PART VII
CONSEQUENTIAL AMENDMENTS TO THE BUSINESS CORPORATIONS ACT

106.-122.

Business Corporations Act

PART VIII
CONSEQUENTIAL AMENDMENTS TO THE PERSONAL PROPERTY SECURITY ACT

123.-141.

Personal Property Security Act

PART IX
CONSEQUENTIAL AMENDMENTS
TO OTHER ACTS

142.

143.

144.

Credit Unions and Caisses Populaires Act, 1994

Execution Act

Securities Act

PART X
COMMENCEMENT AND SHORT TITLE

145.

146.

Commencement

Short title

___________

Her Majesty, by and with the advice and consent of the Legislative Assembly of the Province of Ontario, enacts as follows:

PART I
INTERPRETATION AND GENERAL PROVISIONS

Definitions

1.  (1)  In this Act,

“adverse claim” means a claim that,

(a) the claimant has a property interest in a financial asset, and

(b) it is a violation of the rights of the claimant for another person to hold, transfer or deal with the financial asset; (“opposition”)

“appropriate person” means,

(a) with respect to an endorsement, the person specified by a security certificate or by an effective special endorsement to be entitled to the security,

(b) with respect to an instruction, the registered owner of an uncertificated security,

(c) with respect to an entitlement order, the entitlement holder,

(d) in the case of a person referred to in clause (a), (b) or (c) being deceased, that person’s successor taking under the law, other than this Act, or that person’s personal representative acting for the estate of the deceased person,

(e) in the case of a person referred to in clause (a), (b) or (c) lacking capacity, that person’s guardian or other similar representative who has power under the law, other than this Act, to transfer the security or other financial asset; (“personne compétente”)

“bearer form” means, in respect of a certificated security, a form in which the security is payable to the bearer of the security certificate according to the security certificate’s terms but not by reason of an endorsement; (“au porteur”)

“broker” means a dealer as defined in the Securities Act; (“courtier”)

“certificated security” means a security that is represented by a certificate; (“valeur mobilière avec certificat”)

“clearing agency” means a person,

(a) that carries on a business or activity as a clearing agency or clearing house within the meaning of the Securities Act or the securities regulatory law of another province or territory in Canada,

(b) that is recognized or otherwise regulated as a clearing agency or clearing house by the Ontario Securities Commission or by a securities regulatory authority of another province or territory in Canada, and

(c) that is a securities and derivatives clearing house for the purposes of section 13.1 of the Payment Clearing and Settlement Act (Canada) or whose clearing and settlement system is designated under Part I of that Act; (“agence de compensation”)

“communicate” means,

(a) send a signed writing, or

(b) transmit information by any other means agreed to by the person transmitting the information and the person receiving the information,

and “communication” has a corresponding meaning; (“communiquer”, “communication”)

“control” has the meaning set out in sections 23 to 26; (“maîtrise”)

“corporation” means any body corporate whether or not it is incorporated under the laws of Ontario; (“société”)

“delivery”, with respect to a certificated or uncertificated security, has the meaning set out in section 68, and “deliver” has a corresponding meaning; (“livraison”, “livrer”)

“effective”, in relation to an endorsement, instruction or entitlement order, has the meaning set out in sections 29 to 32, and “effectiveness”, “ineffective” and “ineffectiveness” have corresponding meanings; (“valide”, “validité”, “invalide”, “invalidité”)

“endorsement” means a signature that, alone or accompanied by other words, is made on a security certificate in registered form or on a separate document for the purpose of assigning, transferring or redeeming the security or granting a power to assign, transfer or redeem the security; (“endossement”)

“entitlement holder” means a person identified in the records of a securities intermediary as the person having a security entitlement against the securities intermediary and includes a person who acquires a security entitlement by virtue of clause 95 (1) (b) or (c); (“titulaire du droit”)

“entitlement order” means a notice communicated to a securities intermediary directing the transfer or redemption of a financial asset to which the entitlement holder has a security entitlement; (“ordre relatif à un droit”)

“financial asset” means, except as otherwise provided in sections 10 to 16,

(a) a security,

(b) an obligation of a person that,

(i) is, or is of a type, dealt in or traded on financial markets, or

(ii) is recognized in any other market or area in which it is issued or dealt in as a medium for investment,

(c) a share, participation or other interest in a person, or in property or an enterprise of a person, that,

(i) is, or is of a type, dealt in or traded on financial markets, or

(ii) is recognized in any other market or area in which it is issued or dealt in as a medium for investment,

(d) any property that is held by a securities intermediary for another person in a securities account if the securities intermediary has expressly agreed with the other person that the property is to be treated as a financial asset under this Act, or

(e) a credit balance in a securities account, unless the securities intermediary has expressly agreed with the person for whom the account is maintained that the credit balance is not to be treated as a financial asset under this Act; (“actif financier”)

“genuine” means free of forgery or counterfeiting; (“authentique”)

“government” means,

(a) the Crown in right of Canada or in right of Ontario or another province of Canada,

(b) the government of a territory in Canada,

(c) a municipality in Canada, or

(d) the government of a foreign country or of any political subdivision of it; (“gouvernement”)

“in collusion” means in concert, by conspiratorial arrangement or by agreement for the purpose of violating a person’s rights in respect of a financial asset; (“collusion”)

“instruction” means a notice communicated to the issuer of an uncertificated security that directs that the transfer of the security be registered or that the security be redeemed; (“instructions”)

“issuer”,

(a) with respect to a registration of a transfer of a security, means a person on whose behalf transfer books are maintained,

(b) with respect to an obligation on or a defence to a security, includes,

(i) a person who places or authorizes the placing of the person’s name on a security certificate, other than as authenticating trustee, registrar, transfer agent or the like, to evidence,

(A) a share, participation or other interest in the person’s property or in an enterprise, or

(B) the person’s duty to perform an obligation represented by the security certificate,

(ii) a person who creates a share, participation or other interest in the person’s property or in an enterprise, or undertakes an obligation, that is an uncertificated security,

(iii) a person who directly or indirectly creates a fractional interest in the person’s rights or property, if the fractional interest is represented by a security certificate,

(iv) a guarantor, to the extent of the guarantor’s guarantee, whether or not the guarantor’s obligation is noted on a security certificate, and

(v) a person that becomes responsible for, or in place of, another person described as an issuer in this definition; (“émetteur”)

“knowledge” means actual knowledge, and “know” and “known” have corresponding meanings; (“connaissance”, “connaître”, “connu”)

“overissue” means the issue of securities in excess of the amount that the issuer is authorized to issue; (“émission excédentaire”)

“person” means an individual, including an individual in his or her capacity as trustee, executor, administrator or other representative, a sole proprietorship, a partnership, an unincorporated association, an unincorporated syndicate, an unincorporated organization, a trust, including a business trust, a corporation, a government or agency of a government or any other legal or commercial entity; (“personne”)

“protected purchaser” means a purchaser of a certificated or uncertificated security, or of an interest in the security, who,

(a) gives value,

(b) does not have notice of any adverse claim to the security, and

(c) obtains control of the security; (“acquéreur protégé”)

“purchase” means a taking by sale, discount, negotiation, mortgage, hypothec, pledge, security interest, issue or reissue, gift or any other voluntary transaction that creates an interest in property; (“acquisition”, “acquérir”)

“purchaser” means a person who takes by purchase; (“acquéreur”)

“registered form” means, in respect of a certificated security, a form in which,

(a) the security certificate specifies a person entitled to the security, and

(b) a transfer of the security may be registered on books maintained for that purpose by or on behalf of the issuer, or the security certificate states that it may be so registered; (“nominatif”)

“representative” means any person empowered to act for another, including an agent, an officer of a corporation or association and a trustee, executor or administrator of an estate; (“représentant”)

“secured party” means a secured party as defined in the Personal Property Security Act; (“créancier garanti”)

“securities account” means an account to which a financial asset is or may be credited in accordance with an agreement under which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the rights that constitute the financial asset; (“compte de titres”)

“securities intermediary” means,

(a) a clearing agency, or

(b) a person, including a broker, bank or trust company, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity; (“intermédiaire en valeurs mobilières”)

“security” means, except as otherwise provided in sections 10 to 16, an obligation of an issuer or a share, participation or other interest in an issuer or in property or an enterprise of an issuer,

(a) that is represented by a security certificate in bearer form or registered form, or the transfer of which may be registered on books maintained for that purpose by or on behalf of the issuer,

(b) that is one of a class or series, or by its terms is divisible into a class or series, of shares, participations, interests or obligations, and

(c) that,

(i) is, or is of a type, dealt in or traded on securities exchanges or securities markets, or

(ii) is a medium for investment and by its terms expressly provides that it is a security for the purposes of this Act; (“valeur mobilière”)

“security certificate” means a certificate representing a security, but does not include a certificate in electronic form; (“certificat de valeur mobilière”)

“security entitlement” means the rights and property interest of an entitlement holder with respect to a financial asset that are specified in Part VI; (“droit intermédié”)

“security interest” means a security interest as defined in the Personal Property Security Act; (“sûreté”)

“unauthorized” means, when used with reference to a signature or endorsement, a signature or endorsement that is made without actual, implied or apparent authority or that is forged; (“non autorisé”)

“uncertificated security” means a security that is not represented by a certificate; (“valeur mobilière sans certificat”)

“value” means any consideration sufficient to support a simple contract and includes an antecedent debt or liability. (“contrepartie”)

Interpretation – financial asset

(2)  As the context requires, “financial asset” means either the interest itself or the means by which a person’s claim to it is evidenced, including a certificated or uncertificated security, a security certificate and a security entitlement.

Interpretation limited to this Act

(3)  The characterization of a person, business or transaction for the purposes of this Act does not determine the characterization of the person, business or transaction for the purposes of any other statute, law, regulation or rule.

Meaning of valid security

2.  A security is valid if it is issued in accordance with the applicable law described in subsection 44 (1) and the constating provisions governing the issuer.

Notice

3.  (1)  For the purposes of this Act, a person has notice of a fact if,

(a) the person has knowledge of it;

(b) the person has received a notice of it; or

(c) information comes to the person’s attention under circumstances in which a reasonable person would take cognizance of it.

Giving a notice

(2)  A person gives a notice to another person by taking such steps as may be reasonably required to inform the other person in the ordinary course, whether or not the other person comes to know of it.

Receiving a notice

(3)  A person receives a notice when,

(a) the notice comes to the person’s attention;

(b) in the case of a notice under a contract, the notice is duly delivered to the place of business through which the contract was made; or

(c) the notice is duly delivered to any other place held out by that person as the place for receipt of those notices.

When notice is effective for a transaction

(4)  Notice, knowledge or a notice received by an organization is effective for a particular transaction from the time when it is brought to the attention of the individual conducting the transaction and, in any event, from the time when it would have been brought to the attention of that individual if the organization had exercised due diligence.

Same

(5)  For the purpose of subsection (4), an organization exercises due diligence if it maintains reasonable routines for communicating significant information to the individual conducting the transaction and there is reasonable compliance with those routines.

Same

(6)  For the purpose of subsection (4), due diligence does not require an individual acting for the organization to communicate information unless,

(a) that communication is part of the individual’s regular duties; or

(b) the individual has reason to know of the transaction and that the transaction would be materially affected by the information.

Obligation of good faith

4.  (1)  Every contract to which this Act applies and every duty imposed by this Act imposes an obligation of good faith in its performance or enforcement.

Definition of good faith

(2)  In this section,

“good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.

Variation of Act by agreement

5.  (1)  Subject to subsection (2), the effect of provisions of this Act may be varied by agreement.

Same

(2)  The obligations of good faith, diligence, reasonableness and care imposed by this Act may not be disclaimed by agreement, but the parties may by agreement determine the standards by which the performance of such obligations is to be measured so long as such standards are not manifestly unreasonable.

Principles of law and equity apply

6.  Except in so far as they are inconsistent with this Act, the principles of law and equity supplement this Act and continue to apply, including,

(a) the law merchant;

(b) the law relating to the capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion and mistake; and

(c) other validating or invalidating rules of law.

Clearing agency rules prevail

7.  (1)  A rule adopted by a clearing agency governing rights and obligations between the clearing agency and its participants or between participants in the clearing agency is effective even if the rule conflicts with this Act or the Personal Property Security Act and affects another person who does not consent to the rule.

Limitation

(2)  Subsection (1) applies only to a clearing agency that has been recognized or exempted from recognition under section 21.2 of the Securities Act.

Application to Crown

8.  (1)  Subject to subsections (2) and (3), this Act applies to the Crown in right of Canada, the Crown in right of Ontario and the Crown in right of any other province of Canada, and any agencies of them.

Crown privileges, immunities

(2)  Nothing in this Act shall be construed as affecting any privilege or immunity, at common law, in equity or under any other Act, of the Crown in right of Canada, the Crown in right of Ontario or the Crown in right of any other province of Canada, or of any servant of the Crown.

Securities issued by governments before Act is in force

(3)  The provisions of this Act that apply to an issuer of a security do not apply to a government or any agency of it as an issuer in respect of a security issued before this section comes into force, except as otherwise expressly provided in the terms and conditions of the security.

Existing proceedings

9.  This Act does not affect a legal proceeding that was commenced before this section comes into force.

PART II
GENERAL MATTERS CONCERNING SECURITIES AND OTHER FINANCIAL ASSETS

Classification of Obligations and Interests

Share, equity interest

10.  A share or similar equity interest issued by a corporation, business trust or similar entity is a security.

Mutual fund security

11.  (1)  A mutual fund security is a security.

Definitions

(2)  In this section,

“mutual fund security” means a share, unit or similar equity interest issued by an open-end mutual fund, but does not include an insurance policy, endowment policy or annuity contract issued by an insurance company; (“titre de fonds commun de placement”)

“open-end mutual fund” means an entity that makes a distribution to the public of its shares, units or similar equity interests and that carries on the business of investing the consideration it receives for the shares, units or similar equity interests it issues, all or substantially all of which shares, units or similar equity interests are redeemable on the demand of their holders or owners. (“fonds commun de placement à capital variable”)

Interest in partnership, limited liability company

12.  (1)  An interest in a partnership or limited liability company is not a security unless,

(a) that interest is dealt in or traded on securities exchanges or in securities markets;

(b) the terms of that interest expressly provide that the interest is a security for the purposes of this Act; or

(c) that interest is a mutual fund security within the meaning of section 11.

Same

(2)  An interest in a partnership or limited liability company is a financial asset if it is held in a securities account.

Definition

(3)  In this section,

“limited liability company” means an unincorporated association, other than a partnership, formed under the laws of another jurisdiction, that grants to each of its members limited liability with respect to the liabilities of the association.

Bill of exchange, promissory note

13.  A bill of exchange or promissory note to which the Bills of Exchange Act (Canada) applies is not a security, but is a financial asset if it is held in a securities account.

Depository bill, depository note

14.  A depository bill or depository note to which the Depository Bills and Notes Act (Canada) applies is not a security, but is a financial asset if it is held in a securities account.

Clearing house option

15.  (1)  A clearing house option or similar obligation is not a security, but is a financial asset.

Definition

(2)  In this section,

“clearing house option” means a clearing house option as defined in the Personal Property Security Act.

Futures contract

16.  (1)  A futures contract is not a security or a financial asset.

Definition

(2)  In this section,

“futures contract” means a futures contract as defined in the Personal Property Security Act.

Acquisition of Financial Assets or Interests in Them

Acquisition of financial assets

Security

17.  (1)  A person acquires a security or an interest in a security under this Act if,

(a) the person is a purchaser to whom a security is delivered under section 68; or

(b) the person acquires a security entitlement to the security under section 95.

Other financial assets

(2)  A person acquires a financial asset, other than a security, or an interest in such a financial asset under this Act if the person acquires a security entitlement to the financial asset.

Rights on acquisition of security entitlement

(3)  A person who acquires a security entitlement to a security or other financial asset has the rights specified in Part VI, but is a purchaser of any security, security entitlement or other financial asset held by a securities intermediary only to the extent provided in section 97.

Operation of Act re other laws

(4)  Unless the context of another statute, law, regulation, rule or agreement shows that a different meaning is intended, a person who is required by that statute, law, regulation, rule or agreement to transfer, deliver, present, surrender, exchange or otherwise put in the possession of another person a security or other financial asset satisfies that requirement by causing the other person to acquire an interest in the security or other financial asset as set out in subsection (1) or (2).

Notice of Adverse Claims

What constitutes notice of adverse claim

18.  A person has notice of an adverse claim if,

(a) the person knows of the adverse claim;

(b) the person is aware of facts sufficient to indicate that there is a significant probability that the adverse claim exists and deliberately avoids information that would establish the existence of the adverse claim; or

(c) the person has a duty, imposed by statute or regulation, to investigate whether an adverse claim exists and the investigation, if carried out, would establish the existence of the adverse claim.

Notice of transfer

19.  (1)  Having knowledge that a financial asset, or an interest in a financial asset, is being or has been transferred by a representative does not impose any duty of inquiry into the rightfulness of the transaction and is not notice of an adverse claim.

Same

(2)  Despite subsection (1), a person has notice of an adverse claim if that person knows that,

(a) a representative has transferred a financial asset, or an interest in a financial asset, in a transaction; and

(b) the transaction is, or the proceeds of the transaction are being used,

(i) for the individual benefit of the representative, or

(ii) otherwise in breach of a duty owed by the representative.

Delay

20.  An act or event that creates a right to immediate performance of the principal obligation represented by a security certificate, or that sets a date on or after which a security certificate is to be presented or surrendered for redemption or exchange, does not by itself constitute notice of an adverse claim except in the case of a transfer that takes place more than,

(a) one year after a date set for presentation or surrender for redemption or exchange; or

(b) six months after a date set for payment of money against presentation or surrender of the security certificate, if money was available for payment on that date.

Statement on security certificate

21.  (1)  A purchaser of a certificated security has notice of an adverse claim if the security certificate,

(a) whether in bearer form or registered form, has been endorsed “for collection” or “for surrender” or for some other purpose not involving a transfer; or

(b) is in bearer form and has on it an unambiguous statement that it is the property of a person other than the transferor.

Same

(2)  For the purposes of clause (1) (b), the mere writing of a name on a security certificate does not by itself constitute an unambiguous statement that the security certificate is the property of a person other than the transferor.

Registration of financing statement

22.  The registration of a financing statement under the Personal Property Security Act is not notice of an adverse claim.

Control of Financial Assets

Purchaser’s control of certificated security

23.  (1)  A purchaser has control of a certificated security that is in bearer form if the certificated security is delivered to the purchaser.

Same

(2)  A purchaser has control of a certificated security that is in registered form if the certificated security is delivered to the purchaser and,

(a) the security certificate is endorsed to the purchaser or in blank by an effective endorsement; or

(b) the security certificate is registered in the name of the purchaser at the time of the original issue or registration of transfer by the issuer.

Purchaser’s control of uncertificated security

24.  (1)  A purchaser has control of an uncertificated security if,

(a) the uncertificated security is delivered to the purchaser; or

(b) the issuer has agreed that the issuer will comply with instructions that are originated by the purchaser without the further consent of the registered owner.

Same

(2)  A purchaser to whom subsection (1) applies in relation to an uncertificated security has control of the uncertificated security even if the registered owner retains the right,

(a) to make substitutions for the uncertificated security;

(b) to originate instructions to the issuer; or

(c) to otherwise deal with the uncertificated security.

Purchaser’s control of security entitlement

25.  (1)  A purchaser has control of a security entitlement if,

(a) the purchaser becomes the entitlement holder;

(b) the securities intermediary has agreed that it will comply with entitlement orders that are originated by the purchaser without the further consent of the entitlement holder; or

(c) another person has control of the security entitlement on behalf of the purchaser or, having previously obtained control of the security entitlement, acknowledges that the person has control on behalf of the purchaser.

Same

(2)  A purchaser to whom subsection (1) applies in relation to a security entitlement has control of the security entitlement even if the entitlement holder retains the right,

(a) to make substitutions for the security entitlement;

(b) to originate entitlement orders to the securities intermediary; or

(c) to otherwise deal with the security entitlement.

Securities intermediary’s control of security entitlement

26.  If an interest in a security entitlement is granted by the entitlement holder to the entitlement holder’s own securities intermediary, the securities intermediary has control of the security entitlement.

Agreement re control of uncertificated security

27.  (1)  An issuer shall not enter into an agreement of the kind referred to in clause 24 (1) (b) without the consent of the registered owner.

Same

(2)  An issuer that has entered into an agreement of the kind referred to in clause 24 (1) (b) is not required to confirm the existence of the agreement to another person unless requested to do so by the registered owner.

Same

(3)  An issuer is not required to enter into an agreement of the kind referred to in clause 24 (1) (b) even if the registered owner so requests.

Agreement re control of security entitlement

28.  (1)  A securities intermediary shall not enter into an agreement of the kind referred to in clause 25 (1) (b) without the consent of the entitlement holder.

Same

(2)  A securities intermediary that has entered into an agreement of the kind referred to in clause 25 (1) (b) is not required to confirm the existence of the agreement to another person unless requested to do so by the entitlement holder.

Same

(3)  A securities intermediary is not required to enter into an agreement of the kind referred to in clause 25 (1) (b) even if the entitlement holder so requests.

Endorsements, Instructions and Entitlement Orders

Effectiveness of endorsement, etc.

29.  An endorsement, instruction or entitlement order is effective if,

(a) it is made by the appropriate person;

(b) it is made by a person who, in the case of an endorsement or instruction, has the power under the law of agency to transfer the security, or in the case of an entitlement order, has the power under the law of agency to transfer the financial asset, on behalf of the appropriate person, including,

(i) in the case of an instruction referred to in clause 24 (1) (b), the person who has control of the uncertificated security, or

(ii) in the case of an entitlement order referred to in clause 25 (1) (b), the person who has control of the security entitlement; or

(c) the appropriate person has ratified it or is otherwise precluded from asserting its ineffectiveness.

Effectiveness of endorsement, etc., made by representative

30.  An endorsement, instruction or entitlement order made by a representative is effective even if,

(a) the representative has failed to comply with a controlling instrument or with the law of the jurisdiction governing the representative’s rights and duties, including any law requiring the representative to obtain court approval of the transaction; or

(b) the representative’s action in making the endorsement, instruction or entitlement order or using the proceeds of the transaction is otherwise a breach of duty owed by the representative.

Endorsement, etc., remains effective

31.  If a security is registered in the name of or specially endorsed to a person described as a representative, or if a securities account is maintained in the name of a person described as a representative, an endorsement, instruction or entitlement order made by the person is effective even if the person is no longer serving in that capacity.

Date when effectiveness is determined

32.  (1)  The effectiveness of an endorsement, instruction or entitlement order is determined as of the date that the endorsement, instruction or entitlement order is made.

Not made ineffective by change of circumstances

(2)  An endorsement, instruction or entitlement order does not become ineffective by reason of any later change of circumstances.

Warranties Applicable to Direct Holdings

Warranties on transfer of certificated security

33.  A person who transfers a certificated security to a purchaser for value warrants to the purchaser and, if the transfer is by endorsement, also warrants to any subsequent purchaser, that,

(a) the security certificate is genuine and has not been materially altered;

(b) the transferor does not know of any fact that might impair the validity of the security;

(c) there is no adverse claim to the security;

(d) the transfer does not violate any restriction on transfer;

(e) if the transfer is by endorsement, the endorsement is made by the appropriate person or, if the endorsement is by an agent, the agent has actual authority to act on behalf of the appropriate person; and

(f) the transfer is otherwise effective and rightful.

Warranties on transfer of uncertificated security

34.  (1)  A person who originates an instruction for registration of transfer of an uncertificated security to a purchaser for value warrants to the purchaser that,

(a) the instruction is made by the appropriate person or, if the instruction is made by an agent, the agent has actual authority to act on behalf of the appropriate person;

(b) the security is valid;

(c) there is no adverse claim to the security; and

(d) at the time that the instruction is presented to the issuer,

(i) the purchaser will be entitled to the registration of transfer,

(ii) the transfer will be registered by the issuer free from all liens, security interests, restrictions and claims other than those specified in the instruction,

(iii) the transfer will not violate any restriction on transfer, and

(iv) the transfer will otherwise be effective and rightful.

Same

(2)  A person who transfers an uncertificated security to a purchaser for value and does not originate an instruction in connection with the transfer warrants to the purchaser that,

(a) the security is valid;

(b) there is no adverse claim to the security;

(c) the transfer does not violate any restriction on transfer; and

(d) the transfer is otherwise effective and rightful.

Warranties on endorsement of security certificate

35.  A person who endorses a security certificate warrants to the issuer that,

(a) there is no adverse claim to the security; and

(b) the endorsement is effective.

Warranties on instruction re uncertificated security

36.  A person who originates an instruction for the registration of transfer of an uncertificated security warrants to the issuer that,

(a) the instruction is effective; and

(b) at the time that the instruction is presented to the issuer, the purchaser will be entitled to the registration of transfer.

Warranty on presentation of security certificate

37.  A person who presents a certificated security for the registration of transfer or for payment or exchange warrants to the issuer that the person is entitled to the registration, payment or exchange, but a purchaser for value and without notice of adverse claims to whom transfer is registered warrants to the issuer only that the person has no knowledge of any unauthorized signature in a necessary endorsement.

Warranties by agent delivering certificated security

38.  If,

(a) a person acts as agent of another person in delivering a certificated security to a purchaser;

(b) the identity of the principal was known to the person to whom the security certificate was delivered; and

(c) the security certificate delivered by the agent was received by the agent from the principal or from another person at the direction of the principal,

the person delivering the security certificate warrants, to the purchaser, only that the delivering person has authority to act for the principal and does not know of any adverse claim to the certificated security.

Warranties on redelivery of security certificate

39.  A secured party who redelivers a security certificate received, or after payment and on order of the debtor delivers the security certificate to another person, makes only the warranties of an agent set out in section 38.

Broker’s warranties

40.  (1)  Except as otherwise provided in section 38, a broker acting for a customer makes to the issuer and a purchaser the warranties set out in sections 33 to 37.

Same

(2)  A broker that delivers a security certificate to the broker’s customer makes to the customer the warranties set out in section 33 and has the rights and privileges of a purchaser provided under sections 33, 38 and 39.

Same

(3)  A broker that causes the broker’s customer to be registered as the owner of an uncertificated security makes to the customer the warranties set out in section 34 and has the rights and privileges of a purchaser provided under section 34.

Additional warranties

(4)  The warranties of and in favour of the broker acting as an agent are in addition to applicable warranties given by and in favour of the customer.

Warranties Applicable to Indirect Holdings

Warranties on entitlement order

41.  A person who originates an entitlement order to a securities intermediary warrants to the securities intermediary,

(a) that the entitlement order is made by the appropriate person or, if the entitlement order is made by an agent, that the agent has actual authority to act on behalf of the appropriate person; and

(b) that there is no adverse claim to the security entitlement.

Warranties on security credited to securities account

42.  (1)  A person who delivers a security certificate to a securities intermediary for credit to a securities account makes to the securities intermediary the warranties set out in section 33.

Same

(2)  A person who originates an instruction with respect to an uncertificated security directing that the uncertificated security be credited to a securities account makes to the securities intermediary the warranties set out in section 34.

Securities intermediary’s warranties

43.  (1)  If a securities intermediary delivers a security certificate to its entitlement holder, the securities intermediary makes to the entitlement holder the warranties set out in section 33.

Same

(2)  If a securities intermediary causes its entitlement holder to be registered as the owner of an uncertificated security, the securities intermediary makes to the entitlement holder the warranties set out in section 34.

Conflict of Laws

Conflict of laws

Law governing validity of security

44.  (1)  The validity of a security is governed by the following laws:

1. If the issuer is incorporated under a law of Canada, the law, other than the conflict of law rules, of Canada.

2. If the issuer is the Crown in right of Canada, the law, other than the conflict of law rules, of Canada.

3. If the issuer is the Crown in right of a province in Canada, the law, other than the conflict of law rules, of the province.

4. If the issuer is the Commissioner of a territory in Canada, the law, other than the conflict of law rules, of the territory.

5. In any other case, the law, other than the conflict of law rules, of the jurisdiction under which the issuer is incorporated or otherwise organized.

Law governing other matters re securities

(2)  The law, other than the conflict of law rules, of the issuer’s jurisdiction governs,

(a) the rights and duties of the issuer with respect to the registration of transfer;

(b) the effectiveness of the registration of transfer by the issuer;

(c) whether the issuer owes any duties to an adverse claimant to a security; and

(d) whether an adverse claim can be asserted against a person,

(i) to whom the transfer of a certificated or uncertificated security is registered, or

(ii) who obtains control of an uncertificated security.

Issuer may specify law of another jurisdiction

(3)  The following issuers may specify the law of another jurisdiction as the law governing the matters referred to in clauses (2) (a) to (d):

1. An issuer incorporated or otherwise organized under the law of Ontario.

2. The Crown in right of Ontario.

Law governing enforceability of security

(4)  Whether a security is enforceable against an issuer despite a defence or defect described in sections 57 to 59 is governed by the following laws:

1. If the issuer is incorporated under a law of Canada, the law, other than the conflict of law rules, of the province or territory in Canada in which the issuer has its registered or head office.

2. If the issuer is the Crown in right of Canada, the law, other than the conflict of law rules, of the issuer’s jurisdiction.

3. If the issuer is the Crown in right of a province in Canada, the law, other than the conflict of law rules, of the province.

4. If the issuer is the Commissioner of a territory in Canada, the law, other than the conflict of law rules, of the territory.

5. In any other case, the law, other than the conflict of law rules, of the jurisdiction under which the issuer is incorporated or otherwise organized.

Definition

(5)  In this section,

“issuer’s jurisdiction” means the jurisdiction determined in accordance with the following rules:

1. If the issuer is incorporated under a law of Canada, the province or territory in Canada in which the issuer has its registered or head office or, if permitted by the law of Canada, another jurisdiction specified by the issuer.

2. If the issuer is the Crown in right of Canada, the jurisdiction specified by the issuer.

3. If the issuer is the Crown in right of a province in Canada, the province or, if permitted by the law of that province, another jurisdiction specified by the issuer.

4. If the issuer is the Commissioner of a territory in Canada, the territory or, if permitted by the law of that territory, another jurisdiction specified by the issuer.

5. In any other case, the jurisdiction under which the issuer is incorporated or otherwise organized or, if permitted by the law of that jurisdiction, another jurisdiction specified by the issuer.

Matters governed by law of securities intermediary’s jurisdiction

45.  (1)  The law, other than the conflict of law rules, of the securities intermediary’s jurisdiction governs,

(a) acquisition of a security entitlement from the securities intermediary;

(b) the rights and duties of the securities intermediary and entitlement holder arising out of a security entitlement;

(c) whether the securities intermediary owes any duty to a person who has an adverse claim to a security entitlement; and

(d) whether an adverse claim may be asserted against a person who,

(i) acquires a security entitlement from the securities intermediary, or

(ii) purchases a security entitlement, or interest in it, from an entitlement holder.

Definition – securities intermediary’s jurisdiction

(2)  In this section,

“securities intermediary’s jurisdiction” means the jurisdiction determined in accordance with the following rules:

1. If an agreement between a securities intermediary and its entitlement holder governing the securities account expressly provides that a particular jurisdiction is the securities intermediary’s jurisdiction for the purposes of the law of that jurisdiction, this Act or any provision of this Act, the jurisdiction expressly provided for is the securities intermediary’s jurisdiction.

2. If paragraph 1 does not apply and an agreement between the securities intermediary and its entitlement holder governing the securities account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the securities intermediary’s jurisdiction.

3. If neither paragraph 1 nor 2 applies and an agreement between a securities intermediary and its entitlement holder governing the securities account expressly provides that the securities account is maintained at an office in a particular jurisdiction, that jurisdiction is the securities intermediary’s jurisdiction.

4. If none of the preceding paragraphs applies, the securities intermediary’s jurisdiction is the jurisdiction in which the office identified in an account statement as the office serving the entitlement holder’s account is located.

5. If none of the preceding paragraphs applies, the securities intermediary’s jurisdiction is the jurisdiction in which the chief executive office of the securities intermediary is located.

Same

(3)  In determining a securities intermediary’s jurisdiction, the following matters are not to be taken into account:

1. The physical location of certificates representing financial assets.

2. If an entitlement holder has a security entitlement with respect to a financial asset, the jurisdiction in which the issuer of the financial asset is incorporated or otherwise organized.

3. The location of facilities for data processing or other record keeping concerning the securities account.

Adverse claim governed by law of jurisdiction of security certificate

46.  The law, other than the conflict of law rules, of the jurisdiction in which a security certificate is located at the time of delivery governs whether an adverse claim may be asserted against a person to whom the security certificate is delivered.

Seizure

Seizure governed by laws re civil enforcement of judgments

47.  Subject to any necessary modifications for the purposes of permitting the operation of sections 48 to 51, the laws governing the civil enforcement of judgments apply to seizures described in those sections.

Seizure of interest in certificated security

48.  (1)  Except as otherwise provided in subsection (2) and in section 51, the interest of a judgment debtor in a certificated security may be seized only by actual seizure of the security certificate by a sheriff.

Same

(2)  A certificated security for which the security certificate has been surrendered to the issuer may be seized by a sheriff serving a notice of seizure on the issuer at the issuer’s chief executive office.

Seizure of interest in uncertificated security

49.  Except as otherwise provided in section 51, the interest of a judgment debtor in an uncertificated security may be seized only by a sheriff serving a notice of seizure on the issuer at the issuer’s chief executive office.

Seizure of interest in security entitlement

50.  Except as otherwise provided in section 51, the interest of a judgment debtor in a security entitlement may be seized only by a sheriff serving a notice of seizure on the securities intermediary with whom the judgment debtor’s securities account is maintained.

Notice of seizure to secured party

51.  The interest of a judgment debtor in any of the following may be seized by a sheriff serving a notice of seizure on the secured party:

1. A certificated security for which the security certificate is in the possession of a secured party.

2. An uncertificated security registered in the name of a secured party.

3. A security entitlement maintained in the name of a secured party.

Enforceability of Contracts and Rules of Evidence

Enforceability of contracts

52.  A contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is some writing signed or record authenticated by a person against whom enforcement is sought.

Rules of evidence re certificated security

53.  (1)  The evidentiary rules set out in this section apply to a legal proceeding on a certificated security against the issuer of that security.

Admission of signatures

(2)  Unless specifically denied in the pleadings, each signature on a security certificate or in a necessary endorsement is admitted.

Same

(3)  A signature on a security certificate is presumed to be genuine and authorized but, if the effectiveness of the signature is put in issue, the burden of establishing that it is genuine and authorized is on the party claiming under the signature.

Recovery on certificate

(4)  If signatures on a security certificate are admitted or established, the production of the security certificate entitles a holder to recover on the security certificate unless the defendant establishes a defence or defect that goes to the validity of the security.

Establishing that defence or defect cannot be asserted

(5)  If it is shown that a defence or defect that goes to the validity of the security exists, the plaintiff has the burden of establishing that the defence or defect cannot be asserted against,

(a) the plaintiff; or

(b) a person under whom the plaintiff claims.

Definitions

(6)  In this section,

“defendant” includes respondent; (“défendeur”)

“plaintiff” means a person attempting to recover on a security certificate in a legal proceeding, whether described in that proceeding as a plaintiff, appellant, claimant, petitioner, applicant or any other term. (“demandeur”)

Securities Intermediaries — Liability and Status as Purchasers for Value

Securities intermediary’s liability to adverse claimant

54.  (1)  Subject to subsection (3), a securities intermediary that has transferred a financial asset in accordance with an effective entitlement order is not liable to a person having an adverse claim to, or a security interest in, the financial asset.

Same

(2)  Subject to subsection (3), a broker or other agent or bailee who has dealt with a financial asset at the direction of a customer or principal is not liable to a person having an adverse claim to, or a security interest in, the financial asset.

Same

(3)  A securities intermediary referred to in subsection (1) or a broker or other agent or bailee referred to in subsection (2) is liable to a person having an adverse claim to, or a security interest in, the financial asset if the securities intermediary, broker or other agent or bailee, as the case may be, did one or more of the following:

1. Took the action described in subsection (1) or (2) after having been served with an injunction, restraining order or other legal process issued by a court of competent jurisdiction enjoining the securities intermediary, broker or other agent or bailee, as the case may be, from doing so and after having had a reasonable opportunity to obey or otherwise abide by the injunction, restraining order or other legal process.

2. Acted in collusion with the wrongdoer in violating the rights of the person who has the adverse claim or the person who has the security interest.

3. In the case of a security certificate that has been stolen, acted with notice of the adverse claim.

Securities intermediary as purchaser for value

55.  (1)  A securities intermediary that receives a financial asset and establishes a security entitlement to the financial asset in favour of an entitlement holder is a purchaser for value of the financial asset.

Same

(2)  A securities intermediary that acquires a security entitlement to a financial asset from another securities intermediary acquires the security entitlement for value if the securities intermediary acquiring the security entitlement establishes a security entitlement to the financial asset in favour of an entitlement holder.

PART III
ISSUE AND ISSUER

Terms of a security

Certificated security

56.  (1)  Even against a purchaser for value and without notice, the terms of a certificated security include,

(a) the terms stated on the security certificate; and

(b) any terms made part of the security by reference on the security certificate to another instrument, indenture or other document or to a statute, regulation, rule, order or the like, to the extent that those terms do not conflict with the terms stated on the security certificate.

Same

(2)  A reference described in clause (1) (b) does not by itself constitute notice to a purchaser for value of a defect that goes to the validity of the security, even if the security certificate expressly states that a person accepting it admits notice.

Uncertificated security

(3)  The terms of an uncertificated security include those stated in any instrument, indenture or other document or in a statute, regulation, rule, order or the like under which the security is issued.

Enforcement of security

Unauthorized signature

57.  (1)  An unauthorized signature placed on a security certificate before or in the course of issue is ineffective except that the signature is effective in favour of a purchaser for value of the certificated security if the purchaser is without notice of the lack of authority and the signing has been done by,

(a) an authenticating trustee, registrar, transfer agent or other person entrusted by the issuer with the signing of the security certificate or of any similar security certificate or with the immediate preparation for signing of any of those security certificates; or

(b) an employee of the issuer, or of any persons referred to in clause (a), entrusted with responsible handling of the security certificate.

Limitation re unauthorized signature – securities issued by governments

(2)  Where an unauthorized signature described in subsection (1) is placed on a security certificate issued by a government or agency of it, the signature is ineffective except that the signature is effective in favour of a purchaser for value of the certificated security if the purchaser is without notice of the lack of authority and the signing has been done by an employee of the issuer entrusted with responsible handling of the security certificate.

Defect going to validity

(3)  A security issued with a defect going to its validity is enforceable against the issuer if held by a purchaser for value and without notice of the defect and, in the case of such a security issued by a government or agency of it, if there has been substantial compliance with the legal requirements governing the issue.

Lack of genuineness of certificated security

58.  Except as otherwise provided in subsection 57 (1) or (2), lack of genuineness of a certificated security is a complete defence, even against a purchaser for value and without notice of the lack of genuineness.

Other defences

59.  All other defences of the issuer of a security that are not referred to in sections 56 to 58, including non-delivery and conditional delivery of a security, are ineffective against a purchaser for value who has taken the security without notice of the particular defence.

Right to cancel contract

60.  Nothing in sections 56 to 59 affects the right of a party to a “when, as and if issued” contract or a “when distributed” contract to cancel the contract in the event of a material change in the character of the security that is the subject of the contract or in the plan or arrangement under which the security is to be issued or distributed.

Staleness as notice of defect or defence

61.  (1)  After an act or event that creates a right to immediate performance of the principal obligation represented by a certificated security or that sets a date on or after which the security is to be presented or surrendered for redemption or exchange, a purchaser is deemed to have notice of any defect in the security’s issue or of any defence of the issuer,

(a) if,

(i) the act or event requires that, on presentation or surrender of the security certificate, money be paid, a certificated security be delivered or a transfer of an uncertificated security be registered,

(ii) the money or security is available on the date set for payment or exchange, and

(iii) the purchaser takes delivery of the security more than one year after the date referred to in subclause (ii); or

(b) if,

(i) the act or event is not one to which clause (a) applies, and

(ii) the purchaser takes delivery of the security more than two years after the date on which performance became due or the date set for presentation or surrender.

Exception

(2)  Subsection (1) does not apply to a call that has been revoked.

Effect of issuer’s restriction on transfer

62.  A restriction on the transfer of a security imposed by the issuer, even if otherwise lawful, is ineffective against a person without knowledge of the restriction unless,

(a) the security is a certificated security and the restriction is noted conspicuously on the security certificate; or

(b) the security is an uncertificated security and the registered owner has been given a notice of the restriction by a person required to give such notice in order to make the restriction effective.

Completion of security certificate

63.  (1)  If a security certificate contains the signatures necessary to the security’s issue or transfer but is incomplete in any other respect,

(a) any person may complete the security certificate by filling in the blanks in accordance with the person’s authority; and

(b) even if any of the blanks are incorrectly filled in, the security certificate as completed is enforceable by a purchaser who took the security certificate for value and without notice of the incorrectness.

Same

(2)  A complete security certificate that has been improperly altered, even if fraudulently, remains enforceable, but only according to its original terms.

Rights and duties of issuer re registered owners

64.  (1)  Before due presentation for registration of transfer of a certificated security in registered form or the receipt of an instruction requesting registration of transfer of an uncertificated security, an issuer or indenture trustee may treat the registered owner as the person exclusively entitled,

(a) to vote;

(b) to receive notices;

(c) to receive any interest, dividend or other payments; and

(d) to otherwise exercise all the rights and powers of an owner.

Same

(2)  Nothing in this Act affects the liability of the registered owner of a security for a call, assessment or the like.

Warranties by person signing security certificate

65.  (1)  A person signing a security certificate as authenticating trustee, registrar, transfer agent or the like warrants to a purchaser for value of the certificated security, if the purchaser is without notice of a particular defect in respect of that security, that,

(a) the security certificate is genuine;

(b) the person’s own participation in the issue of the security is within the person’s capacity and within the scope of the authority received by the person from the issuer; and

(c) the person has reasonable grounds to believe that the certificated security is in the form and within the amount the issuer is authorized to issue.

Limitation

(2)  Unless otherwise agreed, a person signing a security certificate under subsection (1) does not assume responsibility for the validity of the security in any respect other than that set out in subsection (1).

Issuer’s lien

66.  A lien in favour of an issuer on a certificated security is valid against a purchaser only if the right of the issuer to the lien is noted conspicuously on the security certificate.

Overissue

67.  (1)  Except as otherwise provided in subsections (2) and (3), the provisions of this Act that make a security enforceable against an issuer despite a defence or defect or that compel a security’s issue or reissue do not apply to the extent that the application of such provision would result in an overissue.

Same

(2)  If an identical security not constituting an overissue is reasonably available for purchase, a person entitled to issue of a security, or a person entitled to enforce a security against an issuer despite a defence or defect as provided under section 57, 58 or 59 or under a similar law of another jurisdiction, may compel the issuer to purchase the security and deliver it, if certificated, or register its transfer, if uncertificated, against surrender of any security certificate the person holds.

Same

(3)  If an identical security not constituting an overissue is not reasonably available for purchase, a person entitled to issue of a security, or a person entitled to enforce a security against an issuer despite a defence or defect as provided under section 57, 58 or 59 or under a similar law of another jurisdiction, may recover from the issuer the price that the last purchaser for value paid for the security with interest from the date of the person’s demand.

Same

(4)  An overissue is deemed not to have occurred if appropriate action has cured the overissue.

PART IV
TRANSFER OF CERTIFICATED AND UNCERTIFICATED SECURITIES

Delivery and Rights of Purchaser

Delivery of security

Certificated security

68.  (1)  Delivery of a certificated security to a purchaser occurs when,

(a) the purchaser acquires possession of the security certificate;

(b) another person, other than a securities intermediary, either,

(i) acquires possession of the security certificate on behalf of the purchaser, or

(ii) having previously acquired possession of the security certificate, acknowledges that the person holds the security certificate for the purchaser; or

(c) a securities intermediary acting on behalf of the purchaser acquires possession of the security certificate, the security certificate is in registered form and the security certificate is,

(i) registered in the name of the purchaser,

(ii) payable to the order of the purchaser, or

(iii) specially endorsed to the purchaser by an effective endorsement and has not been endorsed to the securities intermediary or in blank.

Uncertificated security

(2)  Delivery of an uncertificated security to a purchaser occurs when,

(a) the issuer registers the purchaser as the registered owner, on the original issue or the registration of transfer; or

(b) another person, other than a securities intermediary, either,

(i) becomes the registered owner of the uncertificated security on behalf of the purchaser, or

(ii) having previously become the registered owner, acknowledges that the person holds the uncertificated security for the purchaser.

Rights of purchaser

69.  (1)  Except as otherwise provided in subsections (2) and (3), a purchaser of a certificated or uncertificated security acquires all rights in the security that the transferor had or had power to transfer.

Same

(2)  A purchaser of a limited interest in a security acquires rights only to the extent of the interest purchased.

Same

(3)  A purchaser of a certificated security who as a previous holder had notice of an adverse claim does not improve that purchaser’s position by virtue of taking from a protected purchaser.

Protected purchaser

70.  A protected purchaser, in addition to acquiring the rights of a purchaser, also acquires the purchaser’s interest in the security free of any adverse claim.

Endorsements and Instructions

Form of endorsement

71.  (1)  An endorsement may be in blank or special.

Endorsement in blank

(2)  An endorsement in blank includes an endorsement to bearer.

Special endorsement

(3)  For an endorsement to be a special endorsement, the endorsement must specify to whom the security is to be transferred or who has power to transfer the security.

Conversion from blank to special

(4)  A holder may convert an endorsement in blank to a special endorsement.

Endorsement of part of a security certificate

72.  An endorsement of a security certificate, if the endorsement purports to be in respect of only some of the units represented by the certificate, is effective to the extent of the endorsement if the units are intended by the issuer to be separately transferable.

When endorsement constitutes transfer of security

73.  An endorsement of a security certificate, whether special or in blank, does not constitute a transfer of the security,

(a) until the delivery of the security certificate on which the endorsement appears; or

(b) if the endorsement is on a separate document, until the delivery of both the security certificate and the document on which the endorsement appears.

Endorsement missing

74.  If a security certificate in registered form has been delivered to a purchaser without a necessary endorsement, the purchaser may become a protected purchaser only when the endorsement is supplied, but against the transferor, the transfer is complete on delivery and the purchaser has a specifically enforceable right to have any necessary endorsement supplied.

Notice of adverse claim on endorsement

75.  A purported endorsement of a security certificate in bearer form may constitute notice of an adverse claim to the security certificate, but the purported endorsement does not otherwise affect any right that the holder has.

Obligations of endorser

76.  Unless otherwise agreed, a person making an endorsement makes only the warranties set out in sections 33 and 35 and does not warrant that the security will be honoured by the issuer.

Completion of instruction

77.  If an instruction has been originated by the appropriate person but is incomplete in any other respect, any person may complete the instruction in accordance with the person’s authority and the issuer may rely on the instruction as completed, even if it has been completed incorrectly.

Obligations of person originating an instruction

78.  Unless otherwise agreed, a person originating an instruction makes only the warranties set out in sections 34 and 36 and does not warrant that the security will be honoured by the issuer.

Signature Guarantees and Other Requisites for Registration of Transfer

Warranties by guarantor of endorser’s signature

79.  A person who guarantees a signature of an endorser of a security certificate warrants that, at the time of signing,

(a) the signature was genuine;

(b) the signer was the appropriate person to endorse or, if the signature is by an agent, the agent had actual authority to act on behalf of the appropriate person; and

(c) the signer had legal capacity to sign.

Warranties by guarantor of signature of originator of instruction

80.  (1)  A person who guarantees a signature of the originator of an instruction warrants that, at the time of signing,

(a) the signature was genuine;

(b) if the person specified in the instruction as being the registered owner was, in fact, the registered owner, the signer was the appropriate person to originate the instruction or, if the signature is by an agent, the agent had actual authority to act on behalf of the appropriate person; and

(c) the signer had legal capacity to sign.

Limitation

(2)  A person who guarantees a signature of the originator of an instruction does not by that guarantee warrant that the person who is specified in the instruction as the registered owner is in fact the registered owner.

Warranties by special guarantor of signature of originator of instruction

81.  A person who specially guarantees the signature of an originator of an instruction makes the warranties of a signature guarantor under section 80 and also warrants that, at the time that the instruction is presented to the issuer,

(a) the person specified in the instruction as the registered owner of the uncertificated security will be the registered owner; and

(b) the transfer of the uncertificated security requested in the instruction will be registered by the issuer free from all liens, security interests, restrictions and claims other than those specified in the instruction.

Warranty re rightfulness of transfer by guarantor

82.  (1)  A guarantor under section 79 or 80 or a special guarantor under section 81 does not otherwise warrant the rightfulness of the transfer.

Same

(2)  A person who guarantees an endorsement of a security certificate makes the warranties of a signature guarantor under section 79 and also warrants the rightfulness of the transfer in all respects.

Same

(3)  A person who guarantees an instruction that requests the transfer of an uncertificated security makes the warranties of a special signature guarantor under section 81 and also warrants the rightfulness of the transfer in all respects.

Guarantee may not be condition to registration of transfer

83.  An issuer shall not require a special guarantee of signature, a guarantee of endorsement or a guarantee of instruction as a condition to the registration of transfer.

Liability of guarantor, endorser and originator

84.  (1)  The warranties under sections 79 to 82 are made to a person taking or dealing with the security in reliance on the guarantee and the guarantor is liable to the person for any loss resulting from any breach of those warranties.

Same

(2)  An endorser or an originator of an instruction whose signature, endorsement or instruction has been guaranteed is liable to a guarantor for any loss suffered by the guarantor resulting from any breach of the warranties of the guarantor.

Purchaser’s right to requisites for registration of transfer

85.  (1)  Unless otherwise agreed, the transferor of a security shall, on demand, supply the purchaser with proof of authority to transfer or with any other requisite necessary to obtain registration of the transfer of the security.

Exception

(2)  Despite subsection (1), if the transfer is not for value, a transferor need not comply with a demand made under subsection (1) unless the purchaser pays the necessary expenses.

Transferor’s failure to comply

(3)  If the transferor fails within a reasonable time to comply with the demand made under subsection (1), the purchaser may reject or rescind the transfer.

PART V
REGISTRATION

Duty of issuer to register transfer

86.  (1)  If a certificated security in registered form is presented to an issuer with a request to register a transfer of the certificated security or an instruction is presented to an issuer with a request to register a transfer of an uncertificated security, the issuer shall register the transfer as requested if,

(a) under the terms of the security, the proposed transferee is eligible to have the security registered in that person’s name;

(b) the endorsement or instruction is made by the appropriate person or by an agent who has actual authority to act on behalf of the appropriate person;

(c) reasonable assurance is given that the endorsement or instruction is genuine and authorized;

(d) any applicable law relating to the collection of taxes has been complied with;

(e) the transfer does not violate any restriction on transfer imposed by statute or by the issuer in accordance with section 62;

(f) in the case of a demand made under section 88 that the issuer not register a transfer,

(i) the demand has not become effective under section 88, or

(ii) the issuer has complied with section 89, but legal process has not been obtained or an indemnity bond has not been provided to the issuer in accordance with section 90; and

(g) the transfer is rightful or is to a protected purchaser.

Liability for not registering transfer

(2)  If, under subsection (1), an issuer is under a duty to register a transfer of a security, the issuer is liable to a person presenting a certificated security or an instruction for registration, or to that person’s principal, for any loss resulting from unreasonable delay in registration or the failure or refusal to register the transfer.

Assurances re endorsement or instruction

87.  (1)  An issuer may require the following assurance that each necessary endorsement or each instruction is genuine and authorized:

1. In all cases, a guarantee of the signature of the person making the endorsement or originating the instruction, including, in the case of an instruction, reasonable assurance of identity.

2. If the endorsement is made or the instruction is originated by an agent, appropriate assurance of actual authority to act.

3. If the endorsement is made or the instruction is originated by a fiduciary or successor referred to in clause (d) or (e) of the definition of “appropriate person” in subsection 1 (1), appropriate evidence of appointment or incumbency.

4. If there is more than one fiduciary or successor referred to in clause (d) or (e) of the definition of “appropriate person” in subsection 1 (1), reasonable assurance that all who are required to sign have done so.

5. If the endorsement is made or the instruction is originated by a person not referred to in paragraph 2, 3 or 4, assurance appropriate to the case corresponding as nearly as may be to the assurance required by paragraph 2, 3 or 4.

Same

(2)  An issuer may elect to require reasonable assurance beyond that specified in this section.

Definitions

(3)  In this section,

“appropriate evidence of appointment or incumbency” means,

(a) in the case of a fiduciary appointed or qualified by a court, a document issued by or under the direction or supervision of the court or an officer of the court and dated within 60 days before the date of presentation for transfer,

(b) in any other case,

(i) a copy of a document showing the appointment,

(ii) a certificate certifying the appointment issued by or on behalf of a person reasonably believed by the issuer to be a responsible person, or

(iii) in the absence of a document or certificate referred to in subclause (i) or (ii), other evidence that the issuer reasonably considers appropriate; (“preuve appropriée de la nomination ou du mandat”)

“fiduciary” means any person acting in a fiduciary capacity, and includes a personal representative acting for the estate of a deceased person; (“représentant”)

“guarantee” means a guarantee signed by or on behalf of a person reasonably believed by the issuer to be a responsible person. (“garantie”)

Same

(4)  For the purposes of the definition of “guarantee” in subsection (3), an issuer may adopt any standards with respect to responsibility so long as those standards are not manifestly unreasonable.

Demand that issuer not register transfer

88.  (1)  A person who is the appropriate person to make an endorsement or to originate an instruction may demand that the issuer not register a transfer of a security by communicating a notice to the issuer setting out,

(a) the identity of the registered owner;

(b) the issue of which the security is a part; and

(c) an address of the person making the demand to which communications may be sent.

Effectiveness of demand

(2)  A demand made under subsection (1) becomes effective when the issuer has had a reasonable opportunity to act on the demand, having regard to the time and manner of receipt of the demand by the issuer.

Duty of issuer re demand to not register transfer

89.  (1)  If, after a demand made under section 88 becomes effective, a certificated security in registered form is presented to an issuer with a request to register a transfer or an instruction is presented to an issuer with a request to register a transfer of an uncertificated security, the issuer shall promptly give a notice as described in subsection (2) to the following persons:

1. The person who initiated the demand, at the address provided in the demand.

2. The person who presented the security for the registration of transfer or originated the instruction requesting the registration of transfer.

Substance of notice

(2)  A notice given by an issuer under subsection (1) must state,

(a) that the certificated security has been presented for the registration of transfer or the instruction for the registration of transfer of the uncertificated security has been received;

(b) that a demand that the issuer not register a transfer had previously been received; and

(c) that the issuer will withhold registration of transfer for a period of time stated in the notice in order to provide the person who initiated the demand an opportunity to obtain legal process or to provide an indemnity bond referred to in section 90.

Time limit for withholding registration of transfer

(3)  The period of time that may be provided for under clause (2) (c) shall not exceed 30 days from the date the notice was given and the issuer may specify a shorter period of time in the notice so long as the shorter period of time being specified is not manifestly unreasonable.

Liability of issuer re demand to not register transfer

90.  (1)  An issuer is not liable, to a person who initiated a demand under section 88 that the issuer not register a transfer, for any loss that the person suffers as a result of the registration of a transfer in accordance with an effective endorsement or instruction if the person who initiated the demand does not, within the time stated in the issuer’s notice given under section 89, either,

(a) obtain an appropriate restraining order, injunction or other process from a court of competent jurisdiction enjoining the issuer from registering the transfer; or

(b) provide the issuer with an indemnity bond sufficient in the issuer’s judgment to protect the issuer and any transfer agent, registrar or other agent of the issuer involved from any loss that those persons may suffer by refusing to register the transfer.

Same

(2)  Nothing in subsection (1) or in section 88 or 89 relieves an issuer from liability for registering a transfer under an endorsement or instruction that was not effective.

Wrongful registration of transfer

91.  (1)  Except as otherwise provided in section 93, an issuer is liable for wrongful registration of transfer if,

(a) the issuer has registered a transfer of a security to a person not entitled to the security; and

(b) the transfer was registered by the issuer,

(i) under an ineffective endorsement or instruction,

(ii) after a demand that the issuer not register a transfer became effective under section 88 and the issuer did not comply with section 89,

(iii) after the issuer had been served with an injunction, restraining order or other legal process referred to in section 90 enjoining the issuer from registering the transfer and the issuer had a reasonable opportunity to obey or otherwise abide by the injunction, restraining order or other legal process, or

(iv) acting in collusion with the wrongdoer.

Liability

(2)  An issuer that is liable for the wrongful registration of transfer under subsection (1) shall, on demand, provide the person entitled to the security with,

(a) a like certificated or uncertificated security, as the case may be; and

(b) any payments or distributions that the person did not receive as a result of the wrongful registration.

Overissue

(3)  If the provision of a security under subsection (2) would result in an overissue, the issuer’s liability to provide the person with a like security is governed by section 67.

Limitation

(4)  Except as otherwise provided in subsection (1) or in any applicable law of Canada or of any province or territory of Canada relating to the collection of taxes, an issuer is not liable to an owner or other person suffering loss as a result of the registration of transfer of a security if the registration was made under an effective endorsement or instruction.

Replacement of security certificate lost, etc.

92.  (1)  If an owner of a certificated security, whether in registered form or bearer form, claims that the security certificate has been lost, destroyed or wrongfully taken, the issuer shall issue a new security certificate if the owner,

(a) so requests before the issuer has notice that the lost, destroyed or wrongfully taken security certificate has been acquired by a protected purchaser;

(b) provides the issuer with an indemnity bond sufficient in the issuer’s judgment to protect the issuer from any loss that the issuer may suffer by issuing a new certificate; and

(c) satisfies any other reasonable requirements imposed by the issuer.

Where protected purchaser presents certificate after replacement issued

(2)  If, after the issue of a new security certificate, a protected purchaser of the original security certificate presents the original security certificate for the registration of transfer, the issuer,

(a) shall register the transfer unless the registration would result in an overissue, in which case the issuer’s liability is governed by section 67;

(b) may exercise the rights the issuer may have under the indemnity bond referred to in clause (1) (b); and

(c) may recover the new security certificate from a person to whom it was issued or from any person, other than a protected purchaser, taking under that person.

Obligation to notify issuer of lost, destroyed or wrongfully taken security certificate

93.  An owner of a security may not assert against the issuer a claim for wrongful registration of transfer under section 91 or a claim to a new security certificate under section 92 if,

(a) a security certificate has been lost, apparently destroyed or wrongfully taken and the owner fails to give a notice to the issuer of that fact within a reasonable time after the owner has notice of it; and

(b) the issuer registers a transfer of the security before receiving a notice of the loss, apparent destruction or wrongful taking of the security certificate.

Obligation of authenticating trustee, transfer agent, etc.

94.  A person acting as authenticating trustee, registrar, transfer agent or other agent for an issuer in the registration of a transfer of the issuer’s securities, in the issue of new security certificates or uncertificated securities or in the cancellation of surrendered security certificates has the same obligation to the holder or owner of a certificated or uncertificated security with regard to the particular function performed as the issuer has in regard to that function.

PART VI
SECURITY ENTITLEMENTS

Acquisition of security entitlement

95.  (1)  Except as otherwise provided in subsections (3) and (4), a person acquires a security entitlement if a securities intermediary,

(a) indicates by book entry that a financial asset has been credited to the person’s securities account;

(b) receives a financial asset from the person or acquires a financial asset for the person and, in either case, accepts it for credit to the person’s securities account; or

(c) becomes obligated under another statute, law, regulation or rule to credit a financial asset to the person’s securities account.

Same

(2)  If a condition of subsection (1) has been met, a person has a security entitlement even if the securities intermediary does not itself hold the financial asset.

Holding financial asset directly

(3)  A person is to be treated as holding a financial asset directly rather than as having a security entitlement with respect to the financial asset if a securities intermediary holds the financial asset for that person and the financial asset,

(a) is registered in the name of, payable to the order of or specially endorsed to that person; and

(b) has not been endorsed to the securities intermediary or in blank.

Issuance of security

(4)  Issuance of a security is not establishment of a security entitlement.

Protection of entitlement holders from adverse claim

96.  A legal proceeding based on an adverse claim to a financial asset, however framed, may not be brought against a person who acquires a security entitlement under section 95 for value and without notice of the adverse claim.

Property interest of entitlement holders in financial asset

97.  (1)  To the extent necessary for a securities intermediary to satisfy all security entitlements with respect to a particular financial asset, all interests in that financial asset held by the securities intermediary,

(a) are held by the securities intermediary for the entitlement holders;

(b) are not the property of the securities intermediary; and

(c) are not subject to claims of creditors of the securities intermediary, except as otherwise provided in section 105.

Proportionate interest

(2)  An entitlement holder’s property interest with respect to a particular financial asset under subsection (1) is a proportionate property interest in all interests in that financial asset held by the securities intermediary, without regard to,

(a) the time that the entitlement holder acquired the security entitlement; or

(b) the time that the securities intermediary acquired the interest in that financial asset.

Enforcement of property interest against securities intermediary

(3)  An entitlement holder’s property interest with respect to a particular financial asset under subsection (1) may be enforced against the securities intermediary only by the exercise of the entitlement holder’s rights under sections 99 to 102.

Enforcement of property interest against purchaser

(4)  An entitlement holder’s property interest with respect to a particular financial asset under subsection (1) may be enforced against a purchaser of the financial asset, or interest in it, only if,

(a) bankruptcy or insolvency proceedings have been initiated by or against the securities intermediary;

(b) the securities intermediary does not have sufficient interests in the financial asset to satisfy the security entitlements of all of its entitlement holders to that financial asset;

(c) the securities intermediary violated its obligations under section 98 by transferring the financial asset, or interest in it, to the purchaser; and

(d) the purchaser is not protected under subsection (7).

Recovery by trustee or liquidator

(5)  For the purposes of subsection (4), a trustee or other liquidator acting on behalf of all entitlement holders having security entitlements with respect to a particular financial asset may recover the financial asset, or interest in it, from the purchaser.

Recovery by entitlement holder

(6)  If the trustee or other liquidator elects not to pursue the right provided under subsection (5), an entitlement holder whose security entitlement remains unsatisfied has the right to recover the entitlement holder’s interest in the financial asset from the purchaser.

Protection of purchaser for value

(7)  A legal proceeding based on the entitlement holder’s property interest with respect to a particular financial asset under subsection (1), however framed, may not be brought against any purchaser of a financial asset, or interest in it, who,

(a) gives value;

(b) obtains control or possession; and

(c) does not act in collusion with the securities intermediary in violating the securities intermediary’s obligations under section 98.

Duty of securities intermediary re financial asset

98.  (1)  A securities intermediary shall promptly obtain and then maintain a financial asset in a quantity corresponding to the aggregate of all security entitlements that the securities intermediary has established in favour of its entitlement holders with respect to that financial asset.

Same

(2)  The securities intermediary may maintain the financial assets referred to in subsection (1) directly or through one or more other securities intermediaries.

Same

(3)  Except to the extent otherwise agreed to by its entitlement holder, a securities intermediary may not grant any security interests in a financial asset it is obligated to maintain under subsection (1).

Standard of care

(4)  A securities intermediary satisfies the duty imposed under subsection (1) if,

(a) the securities intermediary acts with respect to the duty as agreed to by the entitlement holder and the securities intermediary; or

(b) in the absence of an agreement referred to in clause (a), the securities intermediary exercises due care in accordance with reasonable commercial standards to obtain and maintain the financial asset.

Exception

(5)  This section does not apply to a clearing agency that is itself the obligor of an option or similar obligation to which its entitlement holders have security entitlements.

Duty of securities intermediary re payments and distributions

99.  (1)  A securities intermediary shall take action to obtain a payment or distribution made by the issuer of a financial asset.

Same

(2)  A securities intermediary is obligated to its entitlement holder for a payment or distribution made by the issuer of a financial asset if the payment or distribution is received by the securities intermediary.

Standard of care

(3)  A securities intermediary satisfies the duty imposed under subsection (1) if,

(a) the securities intermediary acts with respect to the duty as agreed to by the entitlement holder and the securities intermediary; or

(b) in the absence of an agreement referred to in clause (a), the securities intermediary exercises due care in accordance with reasonable commercial standards to attempt to obtain the payment or distribution.

Duty of securities intermediary to exercise rights

100.  (1)  A securities intermediary shall exercise rights with respect to a financial asset if directed to do so by an entitlement holder.

Standard of care

(2)  A securities intermediary satisfies the duty imposed under subsection (1) if,

(a) the securities intermediary acts with respect to the duty as agreed to by the entitlement holder and the securities intermediary; or

(b) in the absence of an agreement referred to in clause (a), the securities intermediary either,

(i) places the entitlement holder in a position to exercise the rights directly, or

(ii) exercises due care in accordance with reasonable commercial standards to follow the direction of the entitlement holder.

Duty of securities intermediary to comply with entitlement order

101.  (1)  A securities intermediary shall comply with an entitlement order if,

(a) the entitlement order is originated by the appropriate person;

(b) the securities intermediary has had a reasonable opportunity to assure itself that the entitlement order is genuine and authorized; and

(c) the securities intermediary has had a reasonable opportunity to comply with the entitlement order.

Liability if financial asset wrongly transferred

(2)  If a securities intermediary transfers a financial asset under an ineffective entitlement order, the securities intermediary shall,

(a) re-establish a security entitlement in favour of the person entitled to it; and

(b) pay or credit any payments or distributions that the person did not receive as a result of the wrongful transfer.

Same

(3)  If a securities intermediary does not re-establish a security entitlement in accordance with subsection (2), the securities intermediary is liable to the entitlement holder for damages.

Standard of care

(4)  A securities intermediary satisfies the duty imposed under subsection (1) if,

(a) the securities intermediary acts with respect to the duty as agreed to by the entitlement holder and the securities intermediary; or

(b) in the absence of an agreement referred to in clause (a), the securities intermediary exercises due care in accordance with reasonable commercial standards to comply with the entitlement order.

Duty of securities intermediary re entitlement holder’s direction

102.  (1)  A securities intermediary shall act at the direction of an entitlement holder,

(a) to change a security entitlement into another available form of holding for which the entitlement holder is eligible; or

(b) to cause the financial asset to be transferred to a securities account of the entitlement holder with another securities intermediary.

Standard of care

(2)  A securities intermediary satisfies the duty imposed under subsection (1) if,

(a) the securities intermediary acts with respect to the duty as agreed to by the entitlement holder and the securities intermediary; or

(b) in the absence of an agreement referred to in clause (a), the securities intermediary exercises due care in accordance with reasonable commercial standards to follow the direction of the entitlement holder.

Duties of securities intermediary – general

Compliance with other statute, etc.

103.  (1)  If the substance of a duty imposed on a securities intermediary under section 98, 99, 100, 101 or 102 is the subject of another statute, regulation or rule, compliance with that other statute, regulation or rule satisfies the duty.

Limits on securities intermediary’s duties

(2)  The obligation of a securities intermediary to perform the duties imposed under sections 98 to 102 is subject to,

(a) the rights of the securities intermediary arising out of a security interest, whether that security interest arises under a security agreement with the entitlement holder or otherwise; and

(b) the rights of the securities intermediary under another statute, law, regulation, rule or agreement to withhold performance of its duties as a result of unfulfilled obligations of the entitlement holder to the securities intermediary.

Actions prohibited by law

(3)  Nothing in sections 98 to 102 requires a securities intermediary to take any action that is prohibited by another statute, regulation or rule.

Commercially reasonable standard

(4)  To the extent that specific standards for the performance of any duties of a securities intermediary or the exercise of the rights of an entitlement holder are not specified by another statute, regulation or rule or by agreement between the securities intermediary and the entitlement holder, the securities intermediary shall perform its duties and the entitlement holder shall exercise the entitlement holder’s rights in a commercially reasonable manner.

Rights of purchaser re adverse claim

104.  (1)  In a case not covered by the priority rules under the Personal Property Security Act or the rules set out in subsection (3), a legal proceeding based on an adverse claim to a financial asset or a security entitlement, however framed, may not be brought against a person who purchases a security entitlement, or interest in it, from an entitlement holder if that purchaser,

(a) gives value;

(b) does not have notice of the adverse claim; and

(c) obtains control.

Same

(2)  If a legal proceeding based on an adverse claim could not have been brought against an entitlement holder under section 96, a legal proceeding based on the adverse claim may not be brought against a person who purchases a security entitlement, or interest in it, from the entitlement holder.

Priority rules

(3)  In a case not covered by the priority rules under the Personal Property Security Act, the following rules apply:

1. A purchaser for value of a security entitlement, or interest in it, who obtains control has priority over a purchaser of a security entitlement, or interest in it, who does not obtain control.

2. Except as otherwise provided in subsection (4), purchasers who have control rank according to priority in time of,

i. the purchaser’s becoming the person for whom the securities account in which the security entitlement is carried is maintained, if the purchaser obtained control under clause 25 (1) (a),

ii. the securities intermediary’s agreement to comply with the purchaser’s entitlement orders with respect to security entitlements carried or to be carried in the securities account in which the security entitlement is carried, if the purchaser obtained control under clause 25 (1) (b), or

iii. if the purchaser obtained control through another person under clause 25 (1) (c), the time on which priority would be based under this subsection if the other person were the purchaser.

Same

(4)  A securities intermediary as purchaser has priority over a conflicting purchaser who has control unless otherwise agreed by the securities intermediary.

Priority of entitlement holders to financial asset

105.  (1)  Except as otherwise provided in subsections (2) and (3), if a securities intermediary does not have sufficient interests in a particular financial asset to satisfy both the securities intermediary’s obligations to entitlement holders who have security entitlements to that financial asset and the securities intermediary’s obligation to a creditor of the securities intermediary who has a security interest in that financial asset, the claims of entitlement holders, other than the creditor, have priority over the claim of the creditor.

When creditor has priority

(2)  A claim of a creditor of a securities intermediary who has a security interest in a financial asset held by a securities intermediary has priority over claims of the securities intermediary’s entitlement holders who have security entitlements with respect to that financial asset if the creditor has control over the financial asset.

Same

(3)  If a clearing agency does not have sufficient financial assets to satisfy both the clearing agency’s obligations to entitlement holders who have security entitlements with respect to a financial asset and the clearing agency’s obligation to a creditor of the clearing agency who has a security interest in that financial asset, the claim of the creditor has priority over the claims of entitlement holders.

PART VII
CONSEQUENTIAL AMENDMENTS TO THE BUSINESS CORPORATIONS ACT

106.  (1)  The definition of “beneficial interest” or “beneficial ownership” in subsection 1 (1) of the Business Corporations Act is repealed and the following substituted:

“beneficial interest” or “beneficial ownership” includes ownership through a trustee, legal representative, agent or other intermediary and, in the case of a security, includes the interest of an entitlement holder, as defined in the Securities Transfer Act, 2006, with respect to that security, but does not include the interest of an entitlement holder that is a securities intermediary, as defined in the Securities Transfer Act, 2006, that has established a security entitlement, as defined in the Securities Transfer Act, 2006, in favour of its entitlement holder with respect to that security; (“intérêt bénéficiaire”, “propriété bénéficiaire”)

(2)  Subsection 1 (1) of the Act is amended by adding the following definition:

“registered form” means registered form as defined in the Securities Transfer Act, 2006; (“nominatif”)

(3)  The definition of “security” in subsection 1 (1) of the Act is repealed and the following substituted:

“security” means a share of any class or series of shares or a debt obligation of a body corporate; (“valeur mobilière”)

(4)  Subsection 1 (1) of the Act is amended by adding the following definitions:

“security certificate” means a certificate evidencing a security; (“certificat de valeur mobilière”)

“uncertificated security” means an uncertificated security as defined in the Securities Transfer Act, 2006; (“valeur mobilière sans certificat”)

107.  Section 40 of the Act is repealed and the following substituted:

Lien on share

40.  (1)  The articles or by-laws of a corporation or, in the case of a corporation other than an offering corporation, a unanimous shareholder agreement, may provide that the corporation has a lien on a share registered in the name of a shareholder or the shareholder’s legal representative for a debt of that shareholder to the corporation, including an amount unpaid in respect of a share issued by a body corporate on the date it was continued under this Act.

Exception

(2)  Subsection (1) does not apply to any class or series of shares listed and posted for trading on a stock exchange in or outside Canada.

Enforcement of lien

(3)  A corporation may enforce a lien referred to in subsection (1) in accordance with its articles, by-laws or unanimous shareholder agreement.

108.  (1)  Subsection 42 (1) of the Act is amended by striking out “A corporation” at the beginning and substituting “An offering corporation”.

(2)  Subsection 42 (2) of the Act is amended by striking out the portion before clause (a) and substituting the following:

No public offer if transfer, etc., restricted — exceptions

(2)  A corporation that has imposed restrictions on the transfer or ownership of a class or series of its shares shall not offer any of its shares of that class or series, or any shares convertible into shares of that class or series, to the public unless the restrictions are necessary,

. . . . .

109.  The heading to Part VI of the Act is repealed and the following substituted:

PART VI
CORPORATE SECURITIES

110.  Section 53 of the Act is repealed and the following substituted:

Application of Securities Transfer Act, 2006

53.  Except as otherwise provided in this Act, the transfer or transmission of a security is governed by the Securities Transfer Act, 2006.

111.  Section 54 of the Act is repealed and the following substituted:

Certificated or uncertificated securities

54.  (1)  A security issued by a corporation may be represented by a security certificate or may be an uncertificated security.

Uncertificated securities

(2)  Unless otherwise provided by the corporation’s articles, the directors of a corporation may provide by resolution that any or all classes and series of its shares or other securities shall be uncertificated securities, provided that such resolution shall not apply to securities represented by a certificate until such certificate is surrendered to the corporation.

Notice to holder of uncertificated security

(3)  Within a reasonable time after the issuance or transfer of an uncertificated security, the corporation shall send to the registered owner of the uncertificated security a written notice containing the information required to be stated on a share certificate pursuant to subsections 56 (1) and (2).

Parity of rights

(4)  Except as otherwise expressly provided or authorized by law, the rights and obligations of the registered owners of uncertificated securities and the rights and obligations of the holders of certificated securities of the same class and series shall be identical.

Fee

(5)  A corporation may charge a fee, not exceeding the prescribed amount, for a security certificate issued in respect of a transfer.

Joint holders

(6)  A corporation required to issue a security certificate is not required to issue more than one security certificate in respect of securities held jointly by several persons, and delivery to one of several joint holders is sufficient delivery to all.

Definition

(7)  In this section,

“certificated security” means a certificated security as defined in the Securities Transfer Act, 2006.

112.  Section 55 of the Act is repealed and the following substituted:

Signing of security certificates

55.  (1)  A security certificate shall be signed by at least one of the following persons:

1. A director or officer of the corporation.

2. A registrar, transfer agent or branch transfer agent of the corporation, or an individual on their behalf.

3. A trustee who certifies it in accordance with a trust indenture.

Same

(2)  A signature required by subsection (1) may be printed or otherwise mechanically reproduced on the security certificate.

Same

(3)  If a security certificate contains a printed or mechanically reproduced signature of a person, the corporation may issue the security certificate even if the person has ceased to be a director or an officer of the corporation, and the security certificate is as valid as if the person were a director or an officer at the date of its issue.

113.  (1)  Subsection 56 (1) of the Act is repealed and the following substituted:

Contents of share certificate

(1)  There shall be stated on the face of each share certificate issued by a corporation,

(a) the name of the corporation;

(b) the words “Incorporated under the law of the Province of Ontario”, “Subject to the Ontario Business Corporations Act” or words of like effect;

(c) the name of the person to whom it was issued; and

(d) the number and class of shares and the designation of any class or series that the certificate represents.

(2)  Subsections 56 (3), (4), (5) and (10) of the Act are repealed.

114.  (1)  Section 57 of the Act is amended by adding the following subsection:

Same

(1.1)  A corporation may issue the fractional share described in subsection (1) as an uncertificated security registered or recorded in records maintained by or on behalf of the corporation or by or on behalf of a registrar, transfer agent, branch transfer agent or issuing or other authenticating agent of the corporation by the making of an appropriate entry in the records of the corporation or its registrar, transfer agent, branch transfer agent or other issuing or authenticating agent.

(2)  Subsection 57 (2) of the Act is repealed and the following substituted:

Scrip certificates

(2)  The directors may attach conditions to any scrip certificates issued by a corporation or its registrar, transfer agent, branch transfer agent or other issuing or authenticating agent, including conditions that,

(a) the scrip certificates become void if not exchanged for a certificate, or an uncertificated security, representing a full share before a specified date; and

(b) any shares for which such scrip certificates are exchangeable may, despite any pre-emptive right, be issued by the corporation to any person and the proceeds thereof distributed rateably to the holders of the scrip certificates.

115.  Section 58 of the Act is repealed and the following substituted:

Overissue

58.  (1)  When there has been an overissue within the meaning of the Securities Transfer Act, 2006 and the corporation subsequently amends its articles or trust indenture to increase any maximum number of securities to a number equal to or in excess of the maximum number of securities previously authorized plus the amount of the securities overissued, the securities so overissued, and any act taken by any person in reliance upon the validity of such overissued securities, are valid from the date of their issue.

Non-application of ss. 30, 31, 32, 35

(2)  A purchase or payment in accordance with subsection 67 (2) or (3) of the Securities Transfer Act, 2006 is not a purchase or payment to which section 30, 31, 32 or 35 of this Act applies.

116.  Sections 59 to 66 of the Act are repealed.

117.  (1)  Subsection 67 (2) of the Act is amended by striking out the portion before clause (a) and substituting the following:

Representatives, etc., may exercise rights of security holder

(2)  A corporation whose articles or unanimous shareholder agreement restrict the right to transfer its securities shall, and any other corporation may, treat a person referred to in clause (a), (b) or (c) as a registered security holder entitled to exercise all the rights of the security holder that the person represents, if that person furnishes evidence as described in section 87 of the Securities Transfer Act, 2006 to the corporation that the person is,

. . . . .

(2)  Subsection 67 (3) of the Act is amended by striking out “the issuer” wherever it appears and substituting in each case “the corporation”.

(3)  Subsection 67 (4) of the Act is amended by striking out “An issuer” at the beginning and substituting “A corporation”.

(4)  Subsection 67 (5) of the Act is repealed and the following substituted:

Repudiation by minor

(5)  If a minor exercises any rights of ownership in the securities of a corporation, no subsequent repudiation or avoidance is effective against the corporation.

(5)  Subsection 67 (6) of the Act is amended by striking out “the issuer” and substituting “the corporation”.

(6)  Subsection 67 (7) of the Act is amended by striking out “the issuer” in the portion before clause (a) and substituting “the corporation”.

(7)  Subclause 67 (7) (d) (ii) of the Act is amended by striking out “section 73” and substituting “section 29 of the Securities Transfer Act, 2006”.

(8)  Clause 67 (7) (e) of the Act is amended by striking out “section 87” and substituting “section 87 of the Securities Transfer Act, 2006”.

(9)  Subsection 67 (8) of the Act is amended by striking out “the issuer” in the portion before clause (a) and substituting “the corporation”.

(10)  The English version of clause 67 (8) (a) of the Act is repealed and the following substituted:

(a) any security certificate that was owned by the deceased holder; and

(11)  Subsection 67 (9) of the Act is amended by striking out “an issuer” and substituting “a corporation”.

118.  Sections 68 to 91 of the Act are repealed.

119.  (1)  Subsection 108 (4) of the Act is amended by striking out “Subject to subsection 56 (3)” at the beginning.

(2)  Section 108 of the Act is amended by adding the following subsections:

Issuance or shares subject to unanimous shareholder agreement

(7)  If a unanimous shareholder agreement is in effect at the time a share is issued by a corporation to a person other than an existing shareholder,

(a) that person shall be deemed to be a party to the agreement whether or not that person had actual knowledge of it when the share was issued;

(b) the issue of the share does not operate to terminate the agreement; and

(c) if that person is a purchaser for value without notice of the agreement, that person may rescind the contract under which the shares were acquired by giving notice to that effect to the corporation within 60 days after the person actually receives a complete copy of the agreement.

Transfer of shares subject to unanimous shareholder agreement

(8)  If a unanimous shareholder agreement is in effect when a person who was not otherwise a party to the agreement acquires a share of the corporation, other than under subsection (1),

(a) the person who acquired the share shall be deemed to be a party to the agreement whether or not that person had actual knowledge of it when he or she acquired the share; and

(b) neither the acquisition of the share nor the registration of that person as a shareholder operates to terminate the agreement.

Notice of objection

(9)  If a person referred to in subsection (8) is a purchaser for value without notice of the unanimous shareholder agreement and the transferor’s share certificate, if any, did not contain a reference to the unanimous shareholder agreement, the transferee may, within 60 days after he or she actually receives a complete copy of the agreement, send to the corporation and the transferor a notice of objection.

Rights of transferee

(10)  If a person sends a notice of objection under subsection (9), that person is entitled to,

(a) rescind the contract under which the shares were acquired by giving notice to that effect to the corporation and the transferor within 60 days after the transferee actually receives a complete copy of the unanimous shareholder agreement; or

(b) demand that the transferor pay the transferee the fair value of the shares held by the transferee, determined as of the close of business on the day on which the transferor delivers the notice of objection to the corporation, in which case subsections 185 (4), (18) and (19) apply, with the necessary modifications, as if the transferor were the corporation.

Deficiency

(11)  A transferee who is entitled to be paid the fair value of the transferee’s shares under clause (10) (b) also has the right to recover from the transferor the amount by which the value of the consideration paid for those shares exceeds their fair value.

120.  Subsection 141 (3) of the Act is repealed.

121.  Subsection 180 (8) of the Act is amended by striking out “Subject to subsection 56 (3)” at the beginning.

122.  Subsection 188 (3) of the Act is repealed and the following substituted:

Notice

(3)  In the case of a take-over bid, concurrently with sending the offeror’s notice under subsection (2), the offeror shall send or deliver to the offeree corporation a copy of the offeror’s notice, which constitutes a demand under subsection 88 (1) of the Securities Transfer Act, 2006, that the offeree corporation not register a transfer with respect to each share held by a dissenting offeree.

PART VIII
CONSEQUENTIAL AMENDMENTS TO THE PERSONAL PROPERTY SECURITY ACT

123.  (1)  The definition of “account” in subsection 1 (1) of the Personal Property Security Act is repealed and the following substituted:

“account” means a monetary obligation not evidenced by chattel paper or an instrument, whether or not it has been earned by performance, but does not include investment property; (“compte”)

(2)  Subsection 1 (1) of the Act is amended by adding the following definitions:

“broker” means a broker as defined in the Securities Transfer Act, 2006; (“courtier”)

“certificated security” means a certificated security as defined in the Securities Transfer Act, 2006; (“valeur mobilière avec certificat”)

“clearing house” means an organization through which trades in options or standardized futures are cleared and settled; (“chambre de compensation”)

“clearing house option” means an option, other than an option on futures, issued by a clearing house to its participants; (“option de chambre de compensation”)

“entitlement holder” means an entitlement holder as defined in the Securities Transfer Act, 2006; (“titulaire du droit”)

“entitlement order” means an entitlement order as defined in the Securities Transfer Act, 2006; (“ordre relatif à un droit”)

“financial asset” means a financial asset as defined in the Securities Transfer Act, 2006; (“actif financier”)

“futures account” means an account maintained by a futures intermediary in which a futures contract is carried for a futures customer; (“compte de contrats à terme”)

“futures contract” means a standardized future or an option on futures, other than a clearing house option, that is,

(a) traded on or subject to the rules of a futures exchange recognized or otherwise regulated by the Ontario Securities Commission or by a securities regulatory authority of another province or territory of Canada, or

(b) traded on a foreign futures exchange and carried on the books of a futures intermediary for a futures customer; (“contrat à terme”)

“futures customer” means a person for which a futures intermediary carries a futures contract on its books; (“client de contrats à terme”, “client”)

“futures exchange” means an association or organization operated to provide the facilities necessary for the trading of standardized futures or options on futures; (“Bourse de contrats à terme”)

“futures intermediary” means a person that,

(a) is registered as a dealer permitted to trade in futures contracts, whether as principal or agent, under the securities laws or commodity futures laws of a province or territory of Canada, or

(b) is a clearing house recognized or otherwise regulated by the Ontario Securities Commission or by a securities regulatory authority of another province or territory of Canada; (“intermédiaire en contrats à terme”)

(3)  The definitions of “goods”, “instrument” and “intangible” in subsection 1 (1) of the Act are repealed and the following substituted:

“goods” means tangible personal property other than chattel paper, documents of title, instruments, money and investment property, and includes fixtures, growing crops, the unborn young of animals, timber to be cut, and minerals and hydrocarbons to be extracted; (“objets”)

“instrument” means,

(a) a bill, note or cheque within the meaning of the Bills of Exchange Act (Canada) or any other writing that evidences a right to the payment of money and is of a type that in the ordinary course of business is transferred by delivery with any necessary endorsement or assignment, or

(b) a letter of credit and an advice of credit if the letter or advice states that it must be surrendered upon claiming payment thereunder,

but does not include a writing that constitutes part of chattel paper, a document of title or investment property; (“effet”)

“intangible” means all personal property, including choses in action, that is not goods, chattel paper, documents of title, instruments, money or investment property; (“bien immatériel”)

(4)  Subsection 1 (1) of the Act is amended by adding the following definitions:

“investment property” means a security, whether certificated or uncertificated, security entitlement, securities account, futures contract or futures account; (“bien de placement”)

“option” means an agreement that provides the holder with the right, but not the obligation, to do one or more of the following on terms or at a price established by or determinable by reference to the agreement at or by a time established by the agreement:

1. Receive an amount of cash determinable by reference to a specified quantity of the underlying interest of the option.

2. Purchase a specified quantity of the underlying interest of the option.

3. Sell a specified quantity of the underlying interest of the option; (“option”)

“option on futures” means an option the underlying interest of which is a standardized future; (“option sur contrats à terme”)

(5)  The definitions of “personal property”, “proceeds” and “purchase-money security interest” in subsection 1 (1) of the Act are repealed and the following substituted:

“personal property” means chattel paper, documents of title, goods, instruments, intangibles, money and investment property, and includes fixtures but does not include building materials that have been affixed to real property; (“bien meuble”)

“proceeds” means identifiable or traceable personal property in any form derived directly or indirectly from any dealing with collateral or the proceeds therefrom, and includes,

(a) any payment representing indemnity or compensation for loss of or damage to the collateral or proceeds therefrom,

(b) any payment made in total or partial discharge or redemption of an intangible, chattel paper, an instrument or investment property, and

(c) rights arising out of, or property collected on, or distributed on account of, collateral that is investment property; (“produit”)

“purchase-money security interest” means,

(a) a security interest taken or reserved in collateral, other than investment property, to secure payment of all or part of its price, or

(b) a security interest taken in collateral, other than investment property, by a person who gives value for the purpose of enabling the debtor to acquire rights in or to the collateral, to the extent that the value is applied to acquire the rights; (“sûreté en garantie du prix d’acquisition”)

(6)  Subsection 1 (1) of the Act is amended by adding the following definitions:

“securities account” means a securities account as defined in the Securities Transfer Act, 2006; (“compte de titres”)

“securities intermediary” means a securities intermediary as defined in the Securities Transfer Act, 2006; (“intermédiaire en valeurs mobilières”)

(7)  The definition of “security” in subsection 1 (1) of the Act is repealed and the following substituted:

“security” means a security as defined in the Securities Transfer Act, 2006; (“valeur mobilière”)

(8)  Subsection 1 (1) of the Act is amended by adding the following definitions:

“security certificate” means a security certificate as defined in the Securities Transfer Act, 2006; (“certificat de valeur mobilière”)

“security entitlement” means a security entitlement as defined in the Securities Transfer Act, 2006; (“droit intermédié”)

“standardized future” means an agreement traded on a futures exchange pursuant to standardized conditions contained in the by-laws, rules or regulations of the futures exchange, and cleared and settled by a clearing house, to do one or more of the following at a price established by or determinable by reference to the agreement and at or by a time established by or determinable by reference to the agreement:

1. Make or take delivery of the underlying interest of the agreement.

2. Settle the obligation in cash instead of delivery of the underlying interest; (“contrat à terme normalisé”)

“uncertificated security” means an uncertificated security as defined in the Securities Transfer Act, 2006; (“valeur mobilière sans certificat”)

(9)  Subsection 1 (2) of the Act is repealed and the following substituted:

Determination of control

(2)  For the purposes of this Act,

(a) a secured party has control of a certificated security if the secured party has control in the manner provided under section 23 of the Securities Transfer Act, 2006;

(b) a secured party has control of an uncertificated security if the secured party has control in the manner provided under section 24 of the Securities Transfer Act, 2006;

(c) a secured party has control of a security entitlement if the secured party has control in the manner provided under section 25 or 26 of the Securities Transfer Act, 2006;

(d) a secured party has control of a futures contract if,

(i) the secured party is the futures intermediary with which the futures contract is carried, or

(ii) the futures customer, secured party and futures intermediary have agreed that the futures intermediary will apply any value distributed on account of the futures contract as directed by the secured party without further consent by the futures customer; and

(e) a secured party having control of all security entitlements or futures contracts carried in a securities account or futures account has control over the securities account or futures account.

124.  (1)  Subsection 4 (1) of the Act is amended by striking out “This Act does not apply” at the beginning and substituting “Except as otherwise provided under this Act, this Act does not apply”.

(2)  Clause 4 (1) (c) of the Act is repealed and the following substituted:

(c) to a transfer of an interest or claim in or under any policy of insurance or contract of annuity, other than a contract of annuity held by a securities intermediary for another person in a securities account;

125.  Clause 5 (1) (b) of the Act is amended by striking out “a security”.

126.  Section 7 of the Act is repealed and the following substituted:

Conflict of laws – law of debtor’s jurisdiction

7.  (1)  The validity,

(a) of a security interest in,

(i) an intangible, or

(ii) goods that are of a type that are normally used in more than one jurisdiction, if the goods are equipment or inventory leased or held for lease by a debtor to others; and

(b) of a non-possessory security interest in an instrument, a negotiable document of title, money and chattel paper,

shall be governed by the law of the jurisdiction where the debtor is located at the time the security interest attaches.

Change of location

(2)  If a debtor relocates to another jurisdiction, a security interest perfected in accordance with the applicable law as provided in subsection (1) continues perfected until the earliest of,

(a) 60 days after the day the debtor relocates to another jurisdiction;

(b) 15 days after the day the secured party receives notice that the debtor has relocated to another jurisdiction; and

(c) the day that perfection ceases under the previously applicable law.

Location of debtor

(3)  For the purposes of this section and section 7.1, a debtor shall be deemed to be located at the debtor’s place of business if there is one, at the debtor’s chief executive office if there is more than one place of business, and otherwise at the debtor’s principal place of residence.

Conflict of laws – validity of security interest in investment property

7.1  (1)  The validity of a security interest in investment property shall be governed by the law, at the time the security interest attaches,

(a) of the jurisdiction where the certificate is located if the collateral is a certificated security;

(b) of the issuer’s jurisdiction if the collateral is an uncertificated security;

(c) of the securities intermediary’s jurisdiction if the collateral is a security entitlement or a securities account;

(d) of the futures intermediary’s jurisdiction if the collateral is a futures contract or a futures account.

Same

(2)  Except as otherwise provided in subsection (4), perfection, the effect of perfection or of nonperfection and the priority of a security interest in investment property shall be governed by the law,

(a) of the jurisdiction in which the certificate is located if the collateral is a certificated security;

(b) of the issuer’s jurisdiction if the collateral is an uncertificated security;

(c) of the securities intermediary’s jurisdiction if the collateral is a security entitlement or a securities account;

(d) of the futures intermediary’s jurisdiction if the collateral is a futures contract or a futures account.

Determination of jurisdiction

(3)  For the purposes of this section,

(a) the location of the debtor is determined by subsection 7 (3);

(b) the issuer’s jurisdiction is determined under section 44 of the Securities Transfer Act, 2006;

(c) the securities intermediary’s jurisdiction is determined under section 45 of the Securities Transfer Act, 2006.

Same

(4)  For the purposes of this section, the following rules determine a futures intermediary’s jurisdiction:

1. If an agreement between the futures intermediary and futures customer governing the futures account expressly provides that a particular jurisdiction is the futures intermediary’s jurisdiction for purposes of the law of that jurisdiction, this Act or any provision of this Act, the jurisdiction expressly provided for in the agreement is the futures intermediary’s jurisdiction.

2. If paragraph 1 does not apply and an agreement between the futures intermediary and futures customer governing the futures account expressly provides that the agreement shall be governed by the law of a particular jurisdiction, that jurisdiction is the futures intermediary’s jurisdiction.

3. If neither paragraph 1 nor 2 applies and an agreement between the futures intermediary and futures customer governing the futures account expressly provides that the futures account is maintained at an office in a particular jurisdiction, that jurisdiction is the futures intermediary’s jurisdiction.

4. If none of the preceding paragraphs applies, the futures intermediary’s jurisdiction is the jurisdiction in which the office identified in an account statement as the office serving the futures customer’s account is located.

5. If none of the preceding paragraphs applies, the futures intermediary’s jurisdiction is the jurisdiction in which the chief executive office of the futures intermediary is located.

Matters governed by law of debtor’s jurisdiction

(5)  The law of the jurisdiction in which the debtor is located governs,

(a) perfection of a security interest in investment property by registration;

(b) perfection of a security interest in investment property granted by a broker or securities intermediary where the secured party relies on attachment of the security interest as perfection; and

(c) perfection of a security interest in a futures contract or futures account granted by a futures intermediary where the secured party relies on attachment of the security interest as perfection.

Perfection of security interest

(6)  A security interest perfected pursuant to the law of the jurisdiction designated in subsection (5) remains perfected until the earliest of,

(a) 60 days after the day the debtor relocates to another jurisdiction;

(b) 15 days after the day the secured party knows the debtor has relocated to another jurisdiction; and

(c) the day that perfection ceases under the previously applicable law.

Same

(7)  A security interest in investment property which is perfected under the law of the issuer’s jurisdiction, the securities intermediary’s jurisdiction or the futures intermediary’s jurisdiction, as applicable, remains perfected until the earliest of,

(a) 60 days after a change of the applicable jurisdiction to another jurisdiction;

(b) 15 days after the day the secured party knows of the change of the applicable jurisdiction to another jurisdiction; and

(c) the day that perfection ceases under the previously applicable law.

127.  Subsection 8 (1) of the Act is repealed and the following substituted:

Procedural and substantive issues

(1)  Despite sections 5, 6, 7 and 7.1,

(a) procedural issues involved in the enforcement of the rights of a secured party against collateral are governed by the law of the jurisdiction in which the enforcement rights are exercised; and

(b) substantive issues involved in the enforcement of the rights of a secured party against collateral are governed by the proper law of the contract between the secured party and the debtor.

128.  Part I of the Act is amended by adding the following section:

Interpretation – law of jurisdiction

8.1  For the purposes of sections 5 to 8, a reference to the law of a jurisdiction is a reference to the internal law of that jurisdiction, excluding its conflict of law rules.

129.  Section 11 of the Act is repealed and the following substituted:

Attachment required to enforce security interest

11.  (1)  A security interest is not enforceable against a third party unless it has attached.

When security interest attaches to collateral

(2)  Subject to section 11.1, a security interest, including a security interest in the nature of a floating charge, attaches to collateral only when value is given, the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party and,

(a) the debtor has signed a security agreement that contains,

(i) a description of the collateral sufficient to enable it to be identified, or

(ii) a description of collateral that is a security entitlement, securities account or futures account, if it describes the collateral by any of those terms or as investment property or if it describes the underlying financial asset or futures contract;

(b) the collateral is not a certificated security and is in the possession of the secured party or a person on behalf of the secured party other than the debtor or the debtor’s agent pursuant to the debtor’s security agreement;

(c) the collateral is a certificated security in registered form and the security certificate has been delivered to the secured party under section 68 of the Securities Transfer Act, 2006 pursuant to the debtor’s security agreement; or

(d) the collateral is investment property and the secured party has control under subsection 1 (2) pursuant to the debtor’s security agreement.

Same

(3)  If the parties have agreed to postpone the time for attachment, the security interest attaches at the agreed time instead of at the time determined under subsection (2).

Attachment in securities account

(4)  The attachment of a security interest in a securities account is also attachment of a security interest in the security entitlements carried in the securities account.

Attachment in futures account

(5)  The attachment of a security interest in a futures account is also attachment of a security interest in the futures contracts carried in the futures account.

Attachment of security interest to security entitlement

11.1  (1)  A security interest in favour of a securities intermediary attaches to a person’s security entitlement if,

(a) the person buys a financial asset through the securities intermediary in a transaction in which the person is obligated to pay the purchase price to the securities intermediary at the time of the purchase; and

(b) the securities intermediary credits the financial asset to the buyer’s securities account before the buyer pays the securities intermediary.

Attachment of security interest to security or other financial asset

(2)  A security interest in favour of a person that delivers a certificated security or other financial asset represented by a writing attaches to the security or other financial asset if,

(a) the security or other financial asset is,

(i) in the ordinary course of business transferred by delivery with any necessary endorsement or assignment, and

(ii) delivered under an agreement between persons in the business of dealing with such securities or financial assets; and

(b) the agreement calls for delivery against payment.

Agreement

(3)  If the parties have agreed to postpone the time for attachment, the security interest attaches at the agreed time instead of at the time determined under subsection (1) or (2).

Obligation to pay for financial asset secured

(4)  The security interest described in subsection (1) secures the person’s obligation to pay for the financial asset.

Obligation to pay for delivery secured

(5)  The security interest described in subsection (2) secures the obligation to make payment for the delivery.

130.  Part II of the Act is amended by adding the following section:

Rights of secured party with control of investment property as collateral

17.1  (1)  Unless otherwise agreed by the parties and despite section 17, a secured party having control under subsection 1 (2) of investment property as collateral,

(a) may hold as additional security any proceeds received from the collateral;

(b) shall either apply money or funds received from the collateral to reduce the secured obligation or remit such money or funds to the debtor; and

(c) may create a security interest in the collateral.

Same

(2)  Despite subsection (1) and section 17, a secured party having control under subsection 1 (2) of investment property as collateral may sell, transfer, use or otherwise deal with the collateral in the manner and to the extent provided in the security agreement.

131.  Part III of the Act is amended by adding the following sections:

Perfection of security interest

Securities account

19.1  (1)  Perfection of a security interest in a securities account also perfects a security interest in the security entitlements carried in the securities account.

Futures account

(2)  Perfection of a security interest in a futures account also perfects a security interest in the futures contracts carried in the futures account.

Perfection of security interest on attachment

19.2  (1)  A security interest arising in the delivery of a financial asset under subsection 11.1 (2) is perfected when it attaches.

Same

(2)  A security interest in investment property created by a broker or securities intermediary is perfected when it attaches.

Same

(3)  A security interest in a futures contract or a futures account created by a futures intermediary is perfected when it attaches.

132.  (1)  Subclauses 20 (1) (a) (ii) and (iii) of the Act are repealed and the following substituted:

(ii) a person who causes the collateral to be seized through execution, attachment, garnishment, charging order, equitable execution or other legal process, or

(iii) all persons entitled by the Creditors’ Relief Act or otherwise to participate in the distribution of the property over which a person described in subclause (ii) has caused seizure of the collateral, or the proceeds of such property;

(2)  Clause 20 (1) (c) of the Act is repealed and the following substituted:

(c) in chattel paper, documents of title, instruments or goods is not effective against a transferee thereof who takes under a transaction that does not secure payment or performance of an obligation and who gives value and receives delivery thereof without knowledge of the security interest;

(3)  Clause 20 (1) (d) of the Act is amended by striking out “a transfer” and substituting “a transaction”.

133.  Section 22 of the Act is repealed and the following substituted:

Perfection

By possession or repossession

22.  (1)  Possession or repossession of the collateral by the secured party, or on the secured party’s behalf by a person other than the debtor or the debtor’s agent, perfects a security interest in,

(a) chattel paper;

(b) goods;

(c) instruments;

(d) negotiable documents of title; and

(e) money,

but only while it is actually held as collateral.

By delivery

(2)  A secured party may perfect a security interest in a certificated security by taking delivery of the certificated security under section 68 of the Securities Transfer Act, 2006.

Same

(3)  A security interest in a certificated security in registered form is perfected by delivery when delivery of the certificated security occurs under section 68 of the Securities Transfer Act, 2006 and remains perfected by delivery until the debtor obtains possession of the security certificate.

134.  Part III of the Act is amended by adding the following section:

Perfection by control of collateral

22.1  (1)  A security interest in investment property may be perfected by control of the collateral under subsection 1 (2).

Same

(2)  A security interest in investment property is perfected by control under subsection 1 (2) from the time the secured party obtains control and remains perfected by control until,

(a) the secured party does not have control; and

(b) one of the following occurs:

(i) if the collateral is a certificated security, the debtor has or acquires possession of the security certificate,

(ii) if the collateral is an uncertificated security, the issuer has registered or registers the debtor as the registered owner, or

(iii) if the collateral is a security entitlement, the debtor is or becomes the entitlement holder.

135.  (1)  Subsection 24 (1) of the Act is repealed.

(2)  Clause 24 (2) (a) of the Act is amended by striking out “a security” and substituting “a certificated security”.

(3)  Subsection 24 (3) of the Act is amended by striking out “(1) or”.

136.  Subsections 28 (6), (7) and (8) of the Act are repealed and the following substituted:

Securities

(6)  A purchaser of a security, other than a secured party, who,

(a) gives value;

(b) does not know that the transaction constitutes a breach of a security agreement granting a security interest in the security to a secured party that does not have control of the security; and

(c) obtains control of the security,

acquires the security free from the security interest.

Same

(7)  A purchaser referred to in subsection (6) is not required to determine whether a security interest has been granted in the security or whether the transaction constitutes a breach of a security agreement.

No action against purchaser for value without notice of breach

(8)  An action based on a security agreement creating a security interest in a financial asset, however framed, may not be brought against a person who acquires a security entitlement under section 95 of the Securities Transfer Act, 2006 for value and did not know that there has been a breach of the security agreement.

Same

(9)  A person who acquires a security entitlement under section 95 of the Securities Transfer Act, 2006 is not required to determine whether a security interest has been granted in a financial asset or whether there has been a breach of the security agreement.

Same

(10)  If an action based on a security agreement creating a security interest in a financial asset could not be brought against an entitlement holder under subsection (8), it may not be brought against a person who purchases a security entitlement, or an interest in it, from the entitlement holder.

137.  Part III of the Act is amended by adding the following section:

Rights of protected purchaser

28.1  (1)  This Act does not limit the rights that a protected purchaser of a security has under the Securities Transfer Act, 2006.

Same

(2)  The interest of a protected purchaser of a security under the Securities Transfer Act, 2006 takes priority over an earlier security interest, even if perfected, to the extent provided in that Act.

Same

(3)  This Act does not limit the rights of or impose liability on a person to the extent that the person is protected against the assertion of a claim under the Securities Transfer Act, 2006.

138.  Part III of the Act is amended by adding the following section:

Priority rules for security interests in investment property

30.1  (1)  The rules in this section govern priority among conflicting security interests in the same investment property.

Secured party with control

(2)  A security interest of a secured party having control of investment property under subsection 1 (2) has priority over a security interest of a secured party that does not have control of the investment property.

Certificated security perfected by delivery

(3)  A security interest in a certificated security in registered form which is perfected by taking delivery under subsection 22 (2) and not by control under section 22.1 has priority over a conflicting security interest perfected by a method other than control.

Rank by priority in time

(4)  Except as otherwise provided in subsections (5) and (6), conflicting security interests of secured parties each of which has control under subsection 1 (2) rank according to priority in time of,

(a) if the collateral is a security, obtaining control;

(b) if the collateral is a security entitlement carried in a securities account,

(i) the secured party’s becoming the person for which the securities account is maintained, if the secured party obtained control under clause 25 (1) (a) of the Securities Transfer Act, 2006,

(ii) the securities intermediary’s agreement to comply with the secured party’s entitlement orders with respect to security entitlements carried or to be carried in the securities account, if the secured party obtained control under clause 25 (1) (b) of the Securities Transfer Act, 2006, or

(iii) if the secured party obtained control through another person under clause 25 (1) (c) of the Securities Transfer Act, 2006, when the other person obtained control; or

(c) if the collateral is a futures contract carried with a futures intermediary, the satisfaction of the requirement for control specified in subclause 1 (2) (d) (ii) with respect to futures contracts carried or to be carried with the futures intermediary.

Securities intermediary

(5)  A security interest held by a securities intermediary in a security entitlement or a securities account maintained with the securities intermediary has priority over a conflicting security interest held by another secured party.

Futures intermediary

(6)  A security interest held by a futures intermediary in a futures contract or a futures account maintained with the futures intermediary has priority over a conflicting security interest held by another secured party.

Interests granted by broker, intermediary

(7)  Conflicting security interests granted by a broker, securities intermediary or futures intermediary which are perfected without control under subsection 1 (2) rank equally.

Priority determined under s. 30

(8)  In all other cases, priority among conflicting security interests in investment property shall be governed by section 30.

139.  Section 56 of the Act is amended by adding the following subsection:

No outstanding secured obligation

(7)  Where there is no outstanding secured obligation, and the secured party is not committed to make advances, incur obligations or otherwise give value, a secured party having control of investment property under clause 25 (1) (b) of the Securities Transfer Act, 2006 or subclause 1 (2) (d) (ii) of this Act shall, within 10 days after receipt of a written demand by the debtor, send to the securities intermediary or futures intermediary with which the security entitlement or futures contract is maintained a written record that releases the securities intermediary or futures intermediary from any further obligation to comply with entitlement orders or directions originated by the secured party.

140.  (1)  Subsection 59 (1) of the Act is repealed and the following substituted:

Rights and remedies of secured party

(1)  Where the debtor is in default under a security agreement, the secured party has the rights and remedies provided in the security agreement and the rights and remedies provided in this Part and, when in possession or control of the collateral, the rights, remedies and duties provided in section 17 or 17.1, as the case may be.

(2)  Subsection 59 (5) of the Act is amended by striking out “the provisions of section 17, and sections 63 to 66” and substituting “the provisions of sections 17, 17.1 and 63 to 66”.

141.  Part VII of the Act is amended by adding the following section:

Transition re Securities Transfer Act, 2006

84.  (1)  The provisions of the Securities Transfer Act, 2006, including the provisions in Part VIII of that Act, do not affect an action or other proceeding commenced before this section comes into force.

Same

(2)  No further action is required to continue perfection of a security interest in a security if,

(a) the security interest in the security was a perfected security interest immediately before this section comes into force; and

(b) the action by which the security interest was perfected would suffice to perfect the security interest under this Act.

Same

(3)  A security interest in a security remains perfected for a period of four months after this section comes into force and continues to be perfected thereafter where appropriate action to perfect the security interest under this Act is taken within that period if,

(a) the security interest in the security was a perfected security interest immediately before this section comes into force; but

(b) the action by which the security interest was perfected would not suffice to perfect the security interest under this Act.

Same

(4)  A financing statement or financing change may be registered under this Act within the four-month period referred to in subsection (3) to continue that perfection, or thereafter to perfect, if,

(a) the security interest was a perfected security interest immediately before this section comes into force; and

(b) the security interest can be perfected by registration under this Act.

PART IX
CONSEQUENTIAL AMENDMENTS TO OTHER ACTS

Credit Unions and Caisses Populaires Act, 1994

142.  Section 74 of the Credit Unions and Caisses Populaires Act, 1994 is repealed and the following substituted:

Application of Securities Transfer Act, 2006

74.  The Securities Transfer Act, 2006 applies, with necessary modifications, with respect to the transfer of securities, other than membership shares.

Execution Act

143.  (1)  Sections 14, 15 and 16 of the Execution Act are repealed and the following substituted:

Seizure of execution debtor’s interest in security, security entitlement

14.  (1)  The interest of an execution debtor in a security or security entitlement may be seized by the sheriff in accordance with sections 47 to 51 of the Securities Transfer Act, 2006.

When effective

(2)  If a seizure under subsection (1) is by notice to an issuer or securities intermediary, the seizure becomes effective when the issuer or securities intermediary has had a reasonable opportunity to act on the seizure, having regard to the time and manner of receipt of the notice.

Seizure includes dividends, other rights to payment

(3)  Every seizure and sale made by the sheriff shall include all dividends, distributions, interest and other rights to payment in respect of the security, if issued by an issuer incorporated or otherwise organized under Ontario law, or in respect of the security entitlement and, after the seizure becomes effective, the issuer or securities intermediary shall not pay the dividends, distributions or interest or give effect to other rights to payment to or on behalf of anyone except the sheriff or a person who acquires or takes the security or security entitlement from the sheriff.

Definitions

(4)  In this section and sections 15, 16 and 19, “endorsement”, “entitlement order”, “instruction”, “issuer”, “securities intermediary”, “security” and “security entitlement” have the meanings given to such terms in the Securities Transfer Act, 2006.

Sheriff may deal with seized interest in security, security entitlement

15.  (1)  If an execution debtor’s interest in a security or security entitlement is seized by a sheriff, the sheriff shall be deemed to be the appropriate person under the Securities Transfer Act, 2006 for the purposes of dealing with or disposing of the seized property and, for the duration of the seizure, the execution debtor is not the appropriate person under that Act for the purposes of dealing with or disposing of the seized property.

Same

(2)  Upon seizure of an execution debtor’s interest in a security or a security entitlement, the sheriff may,

(a) do anything that would otherwise have to be done by the execution debtor; or

(b) execute or endorse any document that would otherwise have to be executed or endorsed by the execution debtor.

Certificate of sheriff’s authority

(3)  If the sheriff makes or originates an endorsement, instruction or entitlement order as the appropriate person pursuant to subsection (1), the sheriff shall provide the issuer or securities intermediary with a certificate of the sheriff stating that the sheriff has the authority under this Act to make that endorsement, instruction or entitlement order and any subsequent endorsements, instructions and entitlement orders in respect of the same execution debt.

Restrictions on transfer of seized security

Application

16.  (1)  This section applies if the interest of an execution debtor in a security is seized by a sheriff and the jurisdiction that governs the validity of the security under section 44 of the Securities Transfer Act, 2006 is Ontario.

Sheriff bound by restriction

(2)  Subject to subsection (4), if the transfer of the seized security is restricted by the terms of the security, a restriction imposed by the issuer or a unanimous shareholder agreement governed by the law of Ontario, the sheriff is bound by the restriction.

Person entitled to acquire or redeem seized security

(3)  Subject to subsection (4), if a person would otherwise be entitled to acquire or redeem the seized security for a predetermined price or at a price fixed by reference to a predetermined formula, that person is entitled to acquire or redeem the security.

If restriction or entitlement is intended to defraud creditors or others

(4)  On application by the sheriff or any interested person, if the Superior Court of Justice considers that a restriction on the transfer of the seized security or a person’s entitlement to acquire or redeem the seized security was made with intent to defeat, hinder, delay or defraud creditors or others, the court may make any order that that the court considers appropriate regarding the seized security, including an order doing one or more of the following:

1. Directing the method or terms of sale of the seized security, or the method of realizing the value of the seized security other than through sale.

2. Directing the issuer to pay dividends, distributions or interest to the sheriff even though the sheriff is not the registered owner of the security.

3. Directing the issuer to register the transfer of the seized security to a person despite a restriction on the transfer of the security described in subsection (2) or the entitlement of another person to acquire or redeem the security described in subsection (3).

4. Directing that all or part of a unanimous shareholder agreement does not apply to a person who acquires or takes a seized security from the sheriff.

5. Directing that the issuer be dissolved and its proceeds disposed of according to law.

Sheriff may bring application for oppression remedy

(5)  The sheriff may bring an application under section 248 of the Business Corporations Act as if he or she were a complainant under that section, whether or not an application is brought under subsection (4) of this section.

Joined with application for oppression remedy

(6)  An application under subsection (4) may be joined with an application for an oppression remedy under section 248 of the Business Corporations Act.

Transferee deemed party to shareholder agreement

(7)  Unless otherwise ordered by the court pursuant to subsection (4), a person who acquires or takes a seized security from the sheriff shall be deemed to be a party to any unanimous shareholder agreement regarding the management of the business and affairs of the issuer or the exercise of voting rights attached to the seized security to which the execution debtor was a party at the time of the seizure, if the unanimous shareholder agreement contains provisions intended to preclude the execution debtor from transferring the security except to a person who agrees to be a party to that unanimous shareholder agreement.

Limitation

(8)  Despite subsection (7) and any provision in a unanimous shareholder agreement to the contrary, a person who acquires or takes a seized security from the sheriff is not liable to make any financial contribution to the corporation or provide any guarantee or indemnity of the corporation’s debts or obligations.

Definition

(9)  In this section,

“seized security” means the interest of an execution debtor in a security that is seized.

(2)  Section 19 of the Act is amended by adding the following subsection:

Exception

(7)  This section does not apply to the interest of an execution debtor in a security or security entitlement described in section 14.

Securities Act

144.  The definition of “clearing agency” in subsection 1 (1) of the Securities Act is repealed and the following substituted:

“clearing agency” means a person or company that,

(a) acts as an intermediary in paying funds or delivering securities, or both, in connection with trades and other transactions in securities,

(b) provides centralized facilities for the clearing of trades and other transactions in securities, including facilities for comparing data respecting the terms of settlement of a trade or transaction, or

(c) provides centralized facilities as a depository of securities,

but does not include,

(d) the Canadian Payments Association or its successors,

(e) a stock exchange or a quotation and trade reporting system,

(f) a registered dealer, or

(g) a bank, trust company, loan corporation, insurance company, treasury branch, credit union or caisse populaire that, in the normal course of its authorized business in Canada, engages in an activity described in clause (a), but does not also engage in an activity described in clause (b) or (c); (“agence de compensation”)

PART X
COMMENCEMENT AND SHORT TITLE

Commencement

145.  (1)  Subject to subsection (2), this Act comes into force on the day it receives Royal Assent.

Same

(2)  Sections 1 to 144 come into force on a day to be named by proclamation of the Lieutenant Governor.

Short title

146.  The short title of this Act is the Securities Transfer Act, 2006.

Français

Explanatory Note

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