Issuance of Shares or Membership Shares in Consideration of Property

Document Properties

• Publication Type: Transaction Instructions
• Revised: October 2017
• Index DA No: 1
• Category: Deemed Approval

Legislative Authorities

• Sections 65, 79.1 and 709 of the Bank Act (BA)
• Section 68 of the Trust and Loan Companies Act (TLCA)
• Sections 69 and 748 of the Insurance Companies Act (ICA)
• Section 74 of the Cooperative Credit Associations Act (CCAA)

Information Requirements

The applicant is generally expected to provide:

1. a description of the transaction or series of transactions (the transaction), including:
   1. the rationale^{Footnote 1} for the transaction,
   2. a description of the property that the applicant would receive, including a substantiation for the value of the property that demonstrates that the applicant would receive fair consideration^{Footnote 2} for the shares or membership shares to be issued,^{Footnote 3}
   3. the number and type of shares or membership shares that would be issued, and the rationale supporting the value of these shares or membership shares,^{Footnote 4} and
   4. the name of the counterparty and, if applicable, a description of the nature of the applicant’s affiliation with the counterparty;
2. a confirmation from a senior officer^{Footnote 5} that the:
   1. applicant would receive fair consideration^{Footnote 6} for the shares or membership shares to be issued, and
   2. where the counterparty is a related party,
      1. the transaction will not result in the applicant having material ongoing financial exposure to a related party^{Footnote 7} (or, alternatively, provide a description of the exposure and of the measures or other safeguards that will be put in place to mitigate the exposure), and
      2. the transaction will not have a detrimental effect on the financial position or risk profile of the applicant^{Footnote 8};
3. a description of the basis on which the assessment of each of the elements referred to in item 2 was made;
4. details regarding the level of internal approval required with regard to the transaction (e.g., board of directors, board committee or senior management), based on the applicant's policies, as well as evidence that the transaction was approved at the appropriate level (e.g., relevant excerpts from the minutes of the meeting during which the transaction was approved); and
5. an analysis of the effect of the transaction on the financial position and risk profile of the applicant, including:
   1. details regarding the projected changes to the applicant’s balance sheet – where the transaction is material to the applicant, these details are expected to be in the form of a comparative pro forma balance sheet (pre- and post-transaction) including relevant assumptions,
   2. details regarding the projected changes to the applicant’s capital position and liquidity position^{Footnote 9} – where the transaction is material to the applicant, these details are expected to be in the form of a comparative pro forma capital position and liquidity position (pre- and post-transaction) that confirms compliance with the applicant’s internal target(s) and with OSFI’s requirements applicable to the applicant, together with relevant assumptions and a breakdown of:
      1. in the case of a deposit-taking institution, all elements used to calculate:
         1. the capital ratios, in accordance with the Capital Adequacy Requirements Guideline,
         2. the leverage ratio, in accordance with the Leverage Requirements Guideline, and
         3. the liquidity coverage ratio, in accordance with the Liquidity Adequacy Requirements Guideline,
      2. in the case of a life insurance company, all elements used to calculate the Life Insurance Capital Adequacy Test, or
      3. in the case of a property and casualty insurance company, all elements of the Minimum Capital Test or the Mortgage Insurer Capital Adequacy Test, as applicable, and
   3. a confirmation that, following the transaction, the applicant will be in compliance with its relevant policies, including those related to liquidity, capital management, risk management and investments.

Administrative Guidance

1. The property consideration to be received in the transaction should be no less than the fair equivalent of the money that the applicant would have received if the shares or membership shares had been issued for money. OSFI may, where appropriate, commission an independent evaluation at the applicant’s expense to confirm this.
2. Depending on the type, and value of, the property consideration, the applicant may also require an approval under the applicable provisions of the legislation pertaining to investments or ownership.
3. No approval is required under the Legislative Authorities in respect of the issuance of shares or membership shares (“New Shares”) in accordance with terms and conditions of other issued and outstanding shares or membership shares that provide for conversion into the New Shares.^{Footnote 10} Where a conversion occurs by other means, or in the context of a share exchange, OSFI is generally of the view that approval is required under the Legislative Authorities in respect of the issuance of New Shares.
4. OSFI generally considers the following elements when assessing applications where the counterparty is a related party:
   1. No ongoing financial exposure: The transaction should generally not result in the applicant having material ongoing financial exposure to a related party, unless adequate mitigation measures or other safeguards have been put in place. Where there will be material financial exposure, it should generally only continue for a short period of time. OSFI generally considers an applicant to have ongoing financial exposure to a related party where it has a receivable from the related party, holds securities of the related party, has provided a guarantee for the benefit of the related party or holds a guarantee from the related party; and
   2. No detrimental effect: The transaction should not have a detrimental effect on the financial position or risk profile of the applicant. In this regard, OSFI will generally assess the impact of the transaction on the applicant’s business, asset mix, capital, income and liquidity position.
5. If the shares or membership shares will be issued to a related party, the applicant may also require an approval under the applicable provisions of the legislation pertaining to self-dealing. However, where the shares or membership shares will be issued in exchange for shares of another body corporate, a separate approval under the legislative self-dealing regime is not required.^{Footnote 11}
6. The following email address should be used for the initial submission of documents in support of requests for approval(s) that are addressed in this document: approvals-approbations@osfi-bsif.gc.ca. Once the initial submission has been received, a case officer will be assigned to the matter. Thereafter, all case-related documents and correspondence should be directed to the case officer.
7. Requests for approval(s) addressed in this document are not subject to a service charge.^{Footnote 12}