Deeming a party to be a related party

Document Properties

• Type of Publication: Ruling^{Footnote 1}
• Category: Self-dealing
• No: 2001-03

Issue:

To assess whether, under certain circumstances, a company is a related party of a bank for the purposes of subsection 486(5) of the Bank Act (BA).

Background:

This case involved two separate yet simultaneous transactions. Under Transaction A, an affiliate of the bank proposed to purchase all the outstanding capital stock of an entity. Under Transaction B, which would occur simultaneous with Transaction A, the bank proposed to acquire a portion of the business of the entity. Given that both transactions would occur at the same time, the bank sought OSFI’s views on whether, pursuant to subsection 486(5) of the BA, the entity would be deemed to be a related party of the bank in respect of Transaction B.

Considerations:

Transactions A and B would occur at the same time. On completion of Transaction A, the entity would become a related party of the bank.

Conclusion:

Given that both Transaction A and Transaction B would occur at the same time and that on completion of Transaction A the entity would become a related party of the bank, OSFI concluded that the bank would enter into the transaction with the entity in contemplation of the entity becoming a related party of the bank. Therefore, pursuant to subsection 486(5) of the BA, the entity would be deemed to be a related party of the bank in respect of Transaction B.

Legislative References:

Subsection 486(5) of the BA provides that where, in contemplation of a person becoming a related party of the bank, the bank enters into a transaction with the person, the person is deemed to be a related party of the bank in respect of that transaction.

Table of Concordance:

The table of concordance makes cross-references to other provisions of federally regulated financial institution legislation that may be of relevance to the reader.