Vol. 135, No 35 — September 1, 2001

Regulations Amending the Food and Drug Regulations (1292 — Imazamox)

Statutory Authority

Food and Drugs Act

Sponsoring Department

Department of Health

REGULATORY IMPACT ANALYSIS STATEMENT

Description

Imazamox is registered under the Pest Control Products Act as a herbicide for the control of broadleaf weeds and grass in peas, imazethapyr-tolerant rapeseed (canola) and soybeans as a post-emergent treatment. By virtue of subsection B.15.002(1) of the Food and Drug Regulations (the Regulations), the Maximum Residue Limit (MRL) for residues of imazamox in any food is 0.1 parts per million (p.p.m.).

The Pest Management Regulatory Agency (PMRA) of Health Canada has recently approved an application to amend the registration of imazamox in order to allow its use for the control of broadleaf weeds and grass in imidazolinone tolerant wheat as a post-emergent treatment. This proposed regulatory amendment would establish an MRL for residues of imazamox resulting from this use in wheat, in order to permit the sale of food containing these residues. The amendment would also lower the MRLs for peas and rapeseed (canola), establish an MRL for soybeans and establish an MRL in eggs; meat and meat by-products of cattle, goats, horses, poultry and sheep; and milk to cover residues in food derived from animals fed with crops treated with imazamox.

Before making a registration decision regarding a new use of a pest control product, the PMRA conducts the appropriate assessment of the risks and value of the product specific to its proposed use. The registration of the pest control product will be amended if: the data requirements for assessing value and safety have been adequately addressed; the evaluation indicates that the product has merit and value; and the human health and environmental risks associated with its proposed use are acceptable.

The human health risk assessment includes an assessment of dietary risks posed by expected residues of the pest control product, as determined through extensive toxicological studies. An acceptable daily intake (ADI) and/or acute reference dose (ARD) is calculated by applying a safety factor to a no observable adverse effect level or, in appropriate cases, by applying a risk factor which is calculated based on a linear low-dose extrapolation. The potential daily intake (PDI) is calculated from the amount of residue that remains on each food when the pest control product is used according to the proposed label and the intake of that food from both domestic and imported sources in the diet. PDIs are established for various Canadian subpopulations and age groups, including infants, toddlers, children, adolescents and adults. Provided the PDI does not exceed the ADI or ARD for any subpopulation or age group, and the lifetime risk is acceptable, the expected residue levels are established as MRLs under the Food and Drugs Act to prevent the sale of food with higher residue levels. Since, in most cases, the PDI is well below the ADI and lifetime risks are very low when MRLs are originally established, additional MRLs for the pest control product may be added in the future.

After the review of all available data, the PMRA has determined that MRLs for imazamox of 0.1 p.p.m. in soybeans, 0.05 p.p.m. in peas, rapeseed (canola) and wheat, and 0.01 p.p.m. in eggs; meat and meat by-products of cattle, goats, horses, poultry and sheep; and milk would not pose an unacceptable health risk to the public.

Alternatives

Under the Food and Drugs Act, the sale of food containing residues of pest control products at a level less than or equal to 0.1 p.p.m. is permitted unless a lower MRL has been established in Table II, Division 15, of the Food and Drug Regulations. In the case of imazamox, establishment of MRLs for eggs; meat and meat by-products of cattle, goats, horses, poultry and sheep; milk; peas; rapeseed (canola); and wheat is necessary to support the use of a pest control product which has been shown to be both safe and effective, while at the same time preventing the sale of food with unacceptable residues.

Even though the sale of food containing residues of pest control products at a level greater than 0.1 p.p.m. would already be prohibited by virtue of subsection B.15.002(1) of the Food and Drug Regulations, the establishment of an MRL of 0.1 p.p.m. in Table II, Division 15, of the Regulations, for residues of imazamox in soybeans would provide more clarity regarding the applicable MRL and would clearly indicate that the appropriate risk assessment has been completed. This is in keeping with current trends towards increased openness and transparency of regulatory processes and is consistent with current practices of most pesticide regulatory agencies throughout the world.

Benefits and Costs

The above listed uses of imazamox provide joint benefits to consumers and the agricultural industry as a result of improved management of pests. In addition, this proposed regulatory amendment will contribute to a safe, abundant and affordable food supply by allowing the importation and sale of food commodities containing acceptable levels of pesticide residues.

Some costs may be incurred related to the implementation of analytical methods for analysis of imazamox in the foods mentioned above. Resources required are not expected to result in significant costs to the Government.

Consultation

Registration decisions, including dietary risk assessments, made by the PMRA are based on internationally recognized risk management principles, which are largely harmonized among member countries of the Organization for Economic Cooperation and Development. Individual safety evaluations conducted by the PMRA include a review of the assessments conducted at the international level as part of the Joint Food and Agriculture Organization of the United Nations/World Health Organization Food Standards Programme in support of the Codex Alimentarius Commission, as well as MRLs adopted by other national health/ regulatory agencies.

Compliance and Enforcement

Compliance will be monitored through ongoing domestic and/or import inspection programs conducted by the Canadian Food Inspection Agency when the proposed MRLs for imazamox are adopted.

Contact

Geraldine Graham, Alternative Strategies and Regulatory Affairs Division, Pest Management Regulatory Agency, Health Canada, Address Locator 6607D1, 2720 Riverside Drive, Ottawa Ontario K1A 0K9, (613) 736-3692 (Telephone), (613) 736-3659 (Facsimile), geraldine_graham@hc-sc.gc.ca (Electronic mail).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to subsection 30(1) (see footnote a) of the Food and Drugs Act, proposes to make the annexed Regulations Amending the Food and Drug Regulations (1292 — Imazamox).

Interested persons may make representations with respect to the proposed Regulations within 60 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Geraldine Graham, Alternative Strategies and Regulatory Affairs Division, Pest Management Regulatory Agency, Department of Health, Address Locator 6607D1, 2720 Riverside Drive, Ottawa, Ontario K1A 0K9 (Tel.: (613) 736-3692; Fax: (613) 736-3659; e-mail: geraldine_graham@hc-sc.gc.ca).

Persons making representations should identify any of those representations the disclosure of which should be refused under the Access to Information Act, in particular under sections 19 and 20 of that Act, and should indicate the reasons why and the period during which the representations should not be disclosed. They should also identify any representations for which there is consent to disclosure for the purposes of that Act.

Ottawa, August 28, 2001

RENNIE M. MARCOUX
Acting Assistant Clerk of the Privy Council

REGULATIONS AMENDING THE FOOD AND DRUG REGULATIONS (1292 — IMAZAMOX)

AMENDMENT

1. Table II to Division 15 of Part B of the Food and Drug Regulations (see footnote 1) is amended by adding the following after item I.2:

item	I	II	III	IV
Item No.	Common Chemical Name	Chemical Name of Substance	Maximum Residue Limit p.p.m.	Foods
I.2.01	imazamox	2-[4,5-dihydro-4-methyl-4-(1-methylethyl)-5-oxo-1H-imidazol-2-yl]-5-(methoxymethyl)-3-pyridinecarboxylic acid	0.1	Soybeans
			0.05	Peas, rapeseed (canola), wheat
			0.01	Eggs, meat and meat by-products of cattle, goats, horses, poultry and sheep, milk

COMING INTO FORCE

2. These Regulations come into force on the day on which they are registered.

[35-1-o]

Canada Small Business Financing (Establishment and Operation of Capital Leasing Pilot Project) Regulations

Statutory Authority

Canada Small Business Financing Act

Sponsoring Department

Department of Industry

REGULATORY IMPACT ANALYSIS STATEMENT

Description

The Canada Small Business Financing Act (CSBFA) increases the availability of financing for the establishment, expansion, modernization and improvement of small businesses by encouraging lenders in the private sector to make commercial term loans for real property, equipment and leasehold improvements.

The Comprehensive Review of the Small Business Loans Act (SBLA) in 1998 demonstrated the need to investigate the viability of extending the provisions of the legislation to capital leasing. To respond to this need, subsection 13(1) of the CSBFA provides the authority for the establishment and operation of a five-year pilot project for testing whether to guarantee capital leases made to lessees who carry on small businesses. By extending the CSBFA to capital leasing, access to financing for small businesses would be increased and small businesses would benefit from a significant new alternative in having their financing needs supported under the CSBFA. Sections 13 and 14 of the CSBFA provide that the Governor in Council may, on the recommendation of the Minister, make regulations for the establishment and operation of a pilot project on capital leasing and to carry out the purposes and provisions of the CSBFA.

Based on the research and consultations undertaken, the following provides an explanation of the design of the pilot project, which is aimed at filling an underserved gap in the financing market while providing access to incremental financing and meeting the cost-recovery objective.

These draft Regulations provide that for-profit small businesses with annual gross revenues of $5 million or less, excluding agricultural, charitable and religious organizations, are eligible to use the program. The exclusion of these organizations is consistent with the "small business" definition in the CSBFA.

Eligible lessors would include members of the Canadian Payments Association, leasing companies operating in Canada approved by a Canadian bond rating agency for securitization and leasing companies that maintain a rating of "BBB" or better issued by a Canadian bond rating agency. In addition, the Minister may designate other leasing companies as lessors.

In these draft Regulations "capital lease" means a lease which includes an option to transfer ownership of the equipment to the lessee at the end of the lease term. This definition is consistent with that used by the Canadian Institute of Chartered Accountants and by the leasing industry. The pilot project will only apply to capital leases entered into for new or used equipment.

Lessors can finance up to 100 percent of the cost of equipment, which includes the purchase price of the equipment, additional costs necessary to the operation of the equipment, and up to 10 percent of the purchase price for software, but excluding training and maintenance costs. The increase in the financing rate from 90 percent to 100 percent responds to stakeholders' concerns regarding the fact that capital leases usually require no (or minimal) up-front payment from the lessee.

The maximum capital lease amount that can be registered under the capital leasing pilot project remains at $250,000, including all outstanding balances on capital leases and loans made under SBLA and CSBFA to the lessee or related lessee or borrower.

The maximum term for a capital lease would be 10 years.

To be consistent with the normal procedures in the leasing industry, the draft Regulations provide for a list of fees that lessors may charge to lessees but that are not included in the total financing amount of the capital lease.

The Crown's share of the eligible losses on the capital lease would be 85 percent and the lessor's share would be 15 percent.

An up-front 2 percent registration fee may be included in the total financing amount of the capital lease. The 1.25 percent administration fee would be remitted on a quarterly basis and is calculated on the quarterly outstanding balance of the lease.

Due to the higher cost of funds in the leasing industry and to reflect the leasing industry's practices, the draft Regulations provide that the maximum annual rate of interest (referred to as the imputed rate of interest used to calculate the payments in the capital lease) will be the aggregate of 13.25 percent (which includes the administration fee of 1.25 percent) plus the Government of Canada Bond rate. (Currently this totals about 17.25 percent.) However, as this is a highly competitive market, it is expected that there will be a range of rates charged.

Lessors under the pilot project will be required to apply the same due diligence requirements as they do for conventional capital leases. In addition, the fair market value and the economic life of any used equipment would have to be substantiated and documented by the lessor. The draft Regulations also provide authority to audit any CSBFA lease.

The lessor would be required to register or publish, under the applicable provincial laws, its security interest or rights in the leased equipment.

As with the core lending program, lessors will be responsible for the acquisition of equipment to be leased, credit decisions, lease administration, registration of lease with Industry Canada (a lessor has four months, from the date the lease is entered into, to register a capital lease), realization of any security in the event of default and submission of claim for losses.

Industry Canada will register capital leases submitted by lessors, conduct desk audits of and make payments for claims and will also have the responsibility to audit participating lessors. Industry Canada will also be responsible for evaluating the pilot project in order to be able to recommend whether it should form a permanent part of the CSBFA program.

Lessors will have 36 months from the date specified in the notice of default to file a claim. The calculation of the loss includes interest on the outstanding balance at the full imputed rate for the first six months computed from the date in the notice of default and thereafter interest on the outstanding balance at one half of the imputed rate of interest for the next six months. The reduced periods for the payment of interest reflect the stakeholders position that lessors repossess their equipment from lessees and realize on the equipment more rapidly than in situations involving conventional loans. These reduced periods will contribute to the cost-recovery objective of the pilot program given the higher interest rate established in the draft Regulations.

Capital leases may be assigned for the purpose of lease funding. This provision is essential to ensure the participation of medium and large leasing companies. The transfer of a capital lease for the purpose of lease funding would be treated the same way as a transfer between lessors. However, the calculation of the Minister's liability for the transferred capital lease would be limited to 10 percent of the financed amount of the capital lease. The Minister would have to be notified in writing and would approve such a transfer so that the prescribed liability would be maintained for such a capital lease. Such an approval would be given provided the Minister's liability does not exceed the amount already paid to the transferor of the capital lease.

Alternatives

These Regulations carry out the mandate in subsection 13(1) of the CSBFA for the establishment and operation of a five-year pilot project for testing whether to guarantee capital leases. If Industry Canada is to carry out this mandate, it has no option but to regulate. It should be noted, however, that these Regulations only apply to those lessors who choose to participate in the program.

Benefits and Costs

Impact on lessees

This capital leasing pilot project is intended to provide a viable alternative to loans under the CSBFA loan program. In providing this alternative, small businesses are provided with a source of financing that may be better suited to their needs and with an additional financing option in cases where the normal credit scoring approval process cannot be met. Research and consultations have indicated that applications by lessee small businesses form the majority of the 25 percent of such applications which are rejected. This is especially true for those small businesses that have been operating for less than two years. The capital leasing pilot project is intended to fill these gaps in the financing market. By including, in the pilot project, used equipment (with some restrictions), lessees can access new or more affordable assets.

The information requirements, the regulatory measures, including the provision dealing with "related lessees", and the restriction of capital leases to equipment are elements that contribute to a proper management of the program and will aid in controlling losses and claim costs on capital leases.

Impact on lessors

Lessors will benefit by increasing their clientele since they will be able to offer an additional financing product to young businesses which are not currently served by the leasing industry. The draft Regulations provide for the payment of interim claims and provide the same broad provisions for the correction of inadvertent errors made by lessors.

Again, lessors must bear a certain additional administrative burden, which is an unavoidable disadvantage of participation in a prudently managed, cost-recovered program. Lessors will be required to collect and provide information on capital leases and lessees and to remit administration fees of 1.25 percent on a quarterly basis. Under the proposed Regulations, lessors will be required to enter into capital leases and administer those leases with the same due diligence they exercise with respect to conventional capital leases. Since repossession and realization on equipment are speedier than under the loan program, the proposed Regulations provide for reduced periods for the payment of interest.

Impact on government

The proposed Regulations are anticipated to result in overall revenues and net claims costs that are of similar proportion to the claim costs in the CSBFA loan program. The pilot project is designed to meet its cost-recovery target. The draft Regulations involve the same administrative efforts and costs, data collection, reporting and evaluation activities as in the loan program. The provision dealing with "related lessees" will limit the maximum financing amount of capital leases to related lessees and/or borrowers. The Regulations will result in the monitoring of the performance and costs of the program and will provide information on the capital leases, lessors and lessees. The quarterly payment of the administration fees, in addition to the registration fees, and the reduction in the payment of interest when interim claims are submitted will enhance the overall cash management of the program. The incremental administrative costs of the pilot project is estimated to be about $700,000 a year and to require up to five full-time employees.

Environmental impact

A Strategic Environmental Assessment was conducted and the proposed pilot project will have no important impacts (positive or negative) on the environment.

Consultation

The proposed design of the capital leasing pilot project and these draft Regulations have been subject to two rounds of extensive face-to-face consultations and written comments with small and medium-sized businesses (SME), lessors, members of leasing associations, credit unions, small business associations and other stakeholders in the financial services. Consultations were held in the summer of 2000 and in the winter of 2001 in Québec, Montréal, Ottawa, Toronto, Calgary, Edmonton and Vancouver. Approximately 300 stakeholders were invited to attend these consultation meetings.

The proposed design of the capital leasing pilot project was also presented to the House of Commons Standing Committee on Industry, Science and Technology in May 2000. Consultations and discussions have also been held with officials from the Department of Finance, the Treasury Board Secretariat and the Privy Council.

Generally, participants at these consultations were receptive to extending the CSBFA loss-sharing program to capital leases for small businesses. The major concerns were: the maximum interest rate, the calculation of the Minister's liability with respect to each lessor, the administrative burden involved with the pilot project and the development of a comprehensive marketing and communications strategy targeted at lessors, lease funders and SMEs to raise the awareness of the pilot project. These issues have all been extensively addressed in the regulatory package and in the Department's implementation plan.

Compliance and Enforcement

The compliance and enforcement provisions contained in the enabling legislation have been incorporated in the proposed Regulations. They provide for audit and examination of a lessor's documents, records and books of account upon 21 days notice. The lessor would be required to assist auditors designated by the Minister as required, or otherwise the Minister could deny his liability for any payment of claims submitted by the lessor. Failure to comply with information and reporting requirements results in a suspension of claim payments. The Minister may also, on reasonable grounds, withdraw a lessor's designation under the pilot project, in which case he could no longer register capital leases.

A claim that is submitted by a lessor would undergo a desk audit of the lease file to ensure compliance with the Regulations.

While there are no specific enforcement provisions in these proposed Regulations to cover for offences committed resulting from false statements or fraudulent acts, lessors will be informed through guidelines of the applicable provisions of the Criminal Code.

Contacts

Gail Taylor, Director General, Programs and Services Branch, Industry Canada, (613) 952-8075 (Telephone), (613) 952-2635 (Facsimile), taylor.gail@ic.gc.ca (Electronic mail), or Peter Webber, Manager, Small Business Policy Branch, Industry Canada, (613) 941-2684 (Telephone), (613) 954-5492 (Facsimile), webber.peter@ic.gc.ca (Electronic mail).

PROPOSED REGULATORY TEXT

Notice is hereby given that the Governor in Council, pursuant to sections 13 and 14 of the Canada Small Business Financing Act (see footnote b), proposes to make the annexed Canada Small Business Financing (Establishment and Operation of Capital Leasing Pilot Project) Regulations.

Interested persons may make representations with respect to the proposed Regulations to the Minister of Industry within 15 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice and be addressed to Gail Taylor, 235 Queen Street, Room 877A Ottawa, Ontario, K1A 0H5 (tel: (613) 952-8075; fax: (613) 952-2635; Internet: taylor.gail@ ic.gc.ca) or Peter Webber, 235 Queen Street, Room 560A, Ottawa, Ontario, K1A 0H5 (tel: (613) 941-2684; fax: (613) 954-5492; Internet: webber.peter@ic.gc.ca).

Persons making representations should identify any of those representations the disclosure of which should be refused under the Access to Information Act, in particular under sections 19 and 20 of that Act, and should indicate the reasons why and the period during which the representations should not be disclosed. They should also identify any representations for which there is consent to disclosure for the purposes of that Act.

Ottawa, August 28, 2001

RENNIE M. MARCOUX
Acting Assistant Clerk of the Privy Council

CANADA SMALL BUSINESS FINANCING (ESTABLISHMENT AND OPERATION OF CAPITAL LEASING PILOT PROJECT) REGULATIONS

INTERPRETATION

1. (1) The definitions in this subsection apply in these Regulations.

"Act" means the Canada Small Business Financing Act. (Loi)

"aggregate outstanding balance" means the aggregate, calculated on the day on which a capital lease is entered into or is amended as a result of improvements to the equipment, of

(a) the total financing amount of the capital lease,

(b) the outstanding balance of any other capital lease, and

(c) the outstanding loan amount referred to in subsection 4(3) of the Act. (somme des soldes impayés)

"capital lease" means a lease or leasing under which a lessor provides equipment to a lessee for payment and that meets one of the following conditions:

(a) the lease or leasing includes a bargain purchase option or provides for a transfer of ownership of the leased equipment to the lessee at the end of its term;

(b) the term of the lease or leasing is greater than 75% of the economic life of the equipment; and

(c) the net present value of the scheduled payments made under the lease or leasing, calculated in accordance with the imputed rate of interest used in the calculation of the scheduled payments, is 90% or more of the cost of the equipment on the day the lease or leasing was entered into. (contrat de location-acquisition)

"cost of the equipment" means

(a) the purchase price of the new or used equipment provided to the lessee and the additional costs necessary for the operation of the equipment, other than maintenance and training costs;

(b) the cost of software that is not essential to the operation of the equipment to a maximum of 10% of the purchase price of the equipment;

(c) in addition to the costs referred to in paragraphs (a) and (b), in the case of used equipment, the least of the following, namely,

(i) the purchase price of the used equipment,
(ii) the fair market value of the used equipment on the day on which the capital lease was entered into, and
(iii) the appraised value of the used equipment under section 13, if applicable; and

(d) non-refundable taxes and customs duties, if applicable. (coût du matériel)

"lease funder" means a person who purchases or accepts an assignment of a capital lease. (investisseur)

"lessee" means a person who carries on or is about to carry on a small business in Canada and who is a party to a capital lease. It does not include Her Majesty or an agent of Her Majesty in right of Canada or a province, a municipality or a municipal or other public body that performs a function of government. (locataire)

"lessor" means a person who provides equipment to a lessee under a capital lease, and who is either

(a) a member of the Canadian Payments Association established by subsection 3(1) of the Canadian Payments Association Act;

(b) a local cooperative credit society, within the meaning of subsection 2(1) of the Canadian Payments Association Act, that is a member of a central cooperative credit society, within the meaning of that subsection, if the central cooperative credit society is a member of the Canadian Payments Association;

(c) a leasing company incorporated in Canada or a lease funder carrying on business in Canada, with a place of business in Canada, that

(i) maintains a rating of "BBB" or better issued by a Canadian bond rating agency, or
(ii) participates in a securitization program approved by a Canadian bond rating agency; or

(d) any other organization designated by the Minister as a lessor for the purposes of these Regulations. (locateur)

"outstanding balance of a capital lease" means the aggregate of

(a) the amount of any overdue payments,

(b) the net present value of all future payments due under the capital lease, discounted at the imputed rate of interest used in the calculation of the scheduled payments, and

(c) the present value, discounted at the imputed rate of interest used in the calculation of the scheduled payments of the lesser of

(i) the residual value of the equipment set out in the capital lease, and
(ii) the bargain purchase option price of the equipment set out in the capital lease. (solde impayé du contrat de location-acquisition)

"small business" means a business carried on or about to be carried on in Canada for gain or profit with an estimated gross annual revenue

(a) in the case of a business being carried on, not exceeding $5 million for the fiscal year of the business during which a capital lease is approved by a lessor, or a loan is approved by a lender, in respect of the business; or

(b) in the case of a business about to be carried on, that is not expected, at the time a capital lease is approved by a lessor or a loan is approved by a lender in respect of the business, to exceed $5 million for its first fiscal year that is at least 52 weeks in duration.

It does not include the business of farming or a business having as its principal object the furtherance of a charitable or religious purpose. (petite entreprise)

"total financing amount of a capital lease" means the aggregate of

(a) the cost of the equipment that has been financed, and

(b) the registration fee referred to in subsection 15(1), if the fee has been financed and is set out in the capital lease registration form in accordance with paragraph 12(1)(d). (montant total du financement du contrat de location-acquisition)

(2) For the purposes of these Regulations, the provisions of the Income Tax Act apply to the determination of whether a person is dealing at arm's length with another person.

(3) For the purposes of these Regulations, a lessee is related to another lessee or borrower if

(a) either lessee or borrower directly or indirectly controls the other in any manner;

(b) both lessees or both the lessee and the borrower are directly or indirectly controlled in any manner by the same person or group of persons;

(c) the lessee carries on its small business in partnership with a lessee or borrower who carries on another small business; or

(d) the lessee shares management services, administrative services, equipment, facilities or overhead expenses of the business with another lessee or borrower, but is not in partnership with that lessee or borrower.

(4) For the purpose of subsection (3), "control" means the holding of shares of a corporation to which are attached more than 50% of the votes necessary to elect a majority of its directors.

(5) Despite subsection (3), a lessee is not related to another lessee or borrower for the purposes of these Regulations if their businesses are located at different premises and neither derives more than 25% of their actual or projected gross revenues from the other.

(6) For the purposes of these Regulations, a capital lease is considered to have been entered into on the day on which it is signed by the lessee and the lessor.

APPLICATION

2. These Regulations apply only to capital leases that are entered into after the coming into force of these Regulations and that are registered with the Minister in accordance with these Regulations.

ELIGIBILITY

3. (1) The following conditions shall be satisfied in respect of a capital lease:

(a) the capital lease is entered into by a lessor and a lessee who meet the eligibility criterion set out in subsection (2);

(b) the purpose of the capital lease is to provide equipment necessary for the operation of the lessee's small business, namely,

(i) new equipment, or
(ii) used equipment that has an economic life greater than the term of the capital lease.

(2) These Regulations apply only if the aggregate outstanding balance of a capital lease in respect of the lessee or a related lessee or borrower does not exceed $250,000.

4. These Regulations do not apply to a capital lease if the capital lease is to provide

(a) equipment for which the cost of financing by the lessor is greater than 100% of the cost of the equipment;

(b) real property or immovables; or

(c) equipment that is the subject of a conditional sale.

5. Subject to subsection 22(2), the maximum term of a capital lease is 10 years beginning on the day on which the capital lease is entered into.

LIABILITY OF MINISTER

6. (1) Subject to subsection (2), the Minister is liable to pay a lessor any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of a lessee's default on a capital lease.

(2) The Minister may give notice in writing to a lessor of the termination of the Minister's liability in respect of a capital lease entered into by the lessor, to become effective as of the date set out in the notice.

(3) A notice under subsection (2) is not effective unless the date set out in the notice is at least 24 hours after receipt of the notice at the place of business of the lessor.

LIMITATION TO MINISTER'S LIABILITY

7. The liability of the Minister to make any payment to a lessor in respect of losses, sustained as a result of all lessees' defaults on all capital leases entered into by the lessor is limited to the aggregate of

(a) 90% of that part of the aggregate total financing amount of all capital leases entered into by the lessor that does not exceed $250,000,

(b) 50% of that part of the aggregate total financing amount of all capital leases entered into by the lessor that exceeds $250,000 but does not exceed $500,000,

(c) 10% of that part of the aggregate total financing amount of all capital leases entered into by the lessor that exceeds $500,000, and

(d) 10% of the aggregate total financing amount of all capital leases transferred to the lessor as a result of lease funding in accordance with section 37.

8. The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of a lessee's default on a capital lease, if the aggregate outstanding balance in respect of the lessee or a related lessee or borrower exceeds $250,000, when that amount was disclosed to the lessor by the lessee or the lessor had actual knowledge of it on or before the day on which the capital lease was entered into.

LOSS-SHARING RATIO

9. The liability of the Minister in respect of losses sustained as a result of a lessee's default on a capital lease is limited to 85% of the lessor's eligible loss, calculated in accordance with subsection 45(7).

10. The Minister is not liable to make any payment to a lessor unless the lessor has

(a) paid to the Minister the registration fee referred to in subsection 15(1);

(b) paid to the Minister the administration fee referred to in subsection 15(2); and

(c) complied with the other requirements of these Regulations.

CAPITAL LEASE REGISTRATION WITH THE MINISTER

11. (1) Subject to subsection (2), a lessor shall submit a capital lease to the Minister for registration within four months after the day on which the capital lease is entered into.

(2) If non-compliance with subsection (1) is inadvertent, the Minister shall extend the period by two months.

12. (1) The registration of a capital lease shall be done on a form which shall be signed by the lessor and the lessee and shall contain the following information:

(a) the lessor's name, address and transit number;

(b) the lessee's name and the address and telephone number of the small business;

(c) the day on which the capital lease was entered into;

(d) a statement setting out

(i) the total financing amount of the capital lease,
(ii) the registration fee referred to in subsection 15(1), if it is financed,
(iii) the cost of the equipment, and
(iv) if applicable, the residual value of the equipment or the value of the bargain purchase option for the equipment set out in the capital lease;

(e) any charges and insurance premiums referred to in paragraphs 17(1)(a) and (b), that the lessee is required to pay;

(f) the lessor's acknowledgement that the lessee was not required to pay any fees or charges other than those authorized by these Regulations;

(g) the lessee's consent to

(i) the audit, by the Minister, of the capital lease approval and administration file held by the lessor, and
(ii) the release, by the Minister, of information in respect of the lessee's outstanding capital leases, to another lessor to whom the lessee applies for a capital lease;

(h) the lessor's acknowledgement that, before entering into the capital lease, the lessor verified within their organization, that the aggregate outstanding balance in respect of the lessee or a related lessee or borrower did not exceed $250,000;

(i) the lessee's acknowledgement that the aggregate outstanding balance in respect of the lessee or a related lessee or borrower does not exceed $250,000;

(j) the lessee's acknowledgement that the capital lease does not provide for any matter referred to in paragraphs 4(a) to (c); and

(k) the lessor's acknowledgement that, before approving the capital lease, the lessor acted in accordance with the due diligence requirements referred to in section 20.

(2) The capital lease registration form described in subsection (1) shall be accompanied by a capital lease cost form signed by the lessor which contains the following information:

(a) the imputed rate of interest used in the calculation of the scheduled payments; and

(b) a complete breakdown of the calculation of the scheduled payments.

APPRAISAL

13. (1) Subject to subsection (2), the lessor shall obtain an appraisal, made within 180 days before a capital lease is entered into, of the value and economic life of any used equipment that is the subject of the capital lease, if the equipment is provided by a person not dealing at arm's length with the lessor or the lessee.

(2) The appraisal referred to in subsection (1) may only be made by an appraiser who is a member of a professional association that is recognized under a federal or provincial law, or, if there is no such professional association, by another person who carries out the duties of an appraiser. The appraiser shall be at arm's length from the lessor, lessee and the vendor of the equipment.

FEES

14. Every capital lease is subject to the condition that no fee or charge is payable by a lessee other than

(a) the registration fee referred to in subsection 15(1);

(b) the administration fee referred to in subsection 15(2); and

(c) any other fee or charge authorized by these Regulations.

15. (1) A registration fee in respect of a capital lease shall be paid by the lessor to the Minister when the capital lease is submitted for registration. This fee, which is 2% of the cost of the equipment that has been financed, may be included in the total financing amount of the capital lease.

(2) An annual administration fee in respect of a capital lease shall be paid by the lessor to the Minister. It is calculated quarterly at the annual rate of 1.25% on the outstanding balance of the capital lease minus the present value of the lesser of

(a) the residual value of the equipment set out in the capital lease, and

(b) the bargain purchase option price of the equipment set out in the capital lease.

(3) The annual administration fee is payable quarterly, within two months after the end of each quarter.

(4) With each payment under subsection (3), the lessor shall submit to the Minister a statement that substantiates the basis on which the payment was calculated.

(5) When the lessor is unable to provide one or more of the statements required by subsection (4) in respect of a year, the Minister shall notify the lessor

(a) that for that year, the lessor may make the payments referred to in subsection (3), except the payment for the last quarter, on the basis of estimates of the amounts payable; and

(b) that for that year, the lessor shall submit the statement required by subsection (6) rather than the statements required by subsection (4).

(6) On or before June 1 following a year in respect of which a lessor makes the payments referred to in subsection (5), the lessor shall pay any amount owing for the year, or claim any overpayment for the year, and submit to the Minister a statement that substantiates the basis on which the amount of the annual administration fee was calculated.

(7) On application by a lessor within one year after a capital lease registered under section 11 was entered into, the Minister shall

(a) if the lessor has not provided to the lessee all of the equipment that is the subject of the capital lease, refund to the lessor that portion of the registration fee paid that is attributable to the portion of the equipment not provided to the lessee under the capital lease and subtract the value of that portion of the equipment from the total financing amount of the capital lease; or

(b) if the lessor determines that the capital lease is not in compliance with the requirements of these Regulations, refund to the lessor the registration fee and the annual administration fee and delete the total financing amount of the capital lease from the registry, which terminates the Minister's liability in respect of the capital lease.

(8) The lessor shall not charge the lessee for the annual administration fee except through the imposition of an imputed rate of interest.

MAXIMUM ANNUAL IMPUTED INTEREST RATE

16. The maximum annual imputed rate of interest used to calculate the scheduled payments on a capital lease shall not exceed the aggregate of 13.25% and the rate of interest on Government of Canada bonds in effect on the day on which the capital lease is entered into, for a term similar to that of the capital lease.

ADDITIONAL AMOUNTS PAYABLE BY LESSEE

17. A lessor may require a lessee to pay, in addition to the registration fee referred to in subsection 15(1) and the administration fee referred to in subsection 15(2),

(a) any charge to register the lessor's security interest or to publish its rights;

(b) any premium paid by the lessor in respect of a capital lease under a life or disability insurance policy that provides that a benefit is or may become payable to the lessor;

(c) any charge by the lessor for the handling of a cheque presented or issued by a lessee that is subsequently returned because there are not sufficient funds, as stipulated in the capital lease;

(d) any cost related to the inspection of the equipment, if stipulated in the capital lease;

(e) any fee for changes to the capital lease requested by the lessee; and

(f) any expense incurred by the lessor to preserve their security in the event of default.

DESIGNATION OF LESSORS

18. The Minister is authorized to designate organizations as lessors.

MAINTAINING STATUS AS LESSOR

19. A lessor that is a leasing company or a lease funder shall, in order to maintain their status as a lessor, provide proof to the Minister on an annual basis that they

(a) maintain a rating of "BBB" or better issued by a Canadian bond rating agency; or

(b) participate in a securitization program approved by a Canadian bond rating agency.

DUE DILIGENCE REQUIREMENTS

20. Before entering into and administering a capital lease, the lessor shall apply the same due diligence and business procedures as those applicable to a capital lease of the same amount that is not subject to these Regulations, including

(a) obtaining credit references or conducting a credit check on the lessee;

(b) completing an assessment of the ability of the lessee to pay, taking into account all other financial obligations of the lessee;

(c) providing for a term similar to the term of a capital lease of the same amount that is not subject to these Regulations; and

(d) in the case of used equipment, substantiating in writing the fair market value and economic life of the equipment on the day on which the capital lease was entered into.

PAYMENT TERMS

21. (1) A capital lease shall set out the total financing amount, the residual value or the bargain purchase option price of the equipment, the payment terms, the frequency of the scheduled payments and the date on which the capital lease was entered into.

(2) If the term of a capital lease in good standing is less than the maximum period specified in section 5, the lessor may renew it for one or more additional terms, at an imputed rate of interest that does not exceed the maximum annual imputed rate referred to in section 16 as of the renewal date, to an aggregate maximum term of 10 years beginning on the day on which the capital lease was entered into.

REVISION OF PAYMENT TERMS

22. (1) A lessor and a lessee may, at any time, agree to revise the payment terms of a capital lease.

(2) If a lessor and a lessee agree to revise the payment terms of a capital lease by extending the term beyond the maximum period specified in section 5, it is a condition of the Minister's liability under these Regulations that the approval of the Minister shall be obtained in writing prior to the extension. The Minister shall approve the extension if it is likely to decrease the risk of default by the lessee on the capital lease.

IMPROVEMENTS

23. (1) A lessor and a lessee may, at any time, agree to improve the original equipment that is the subject of a capital lease. The improvements do not include the replacement of the original equipment in its entirety.

(2) If a lessor and a lessee agree to improve the original equipment that is the subject of a capital lease and to amend the capital lease, the Minister's liability under these Regulations continues if the capital lease is amended accordingly and if

(a) the capital lease as amended has a term that does not extend beyond the maximum period specified in section 5;

(b) the maximum annual imputed rate of interest used in the calculation of the scheduled payments is the same as the maximum annual imputed rate of interest used in the original capital lease;

(c) the lessor notifies the Minister in writing of the improvements made to the equipment within three months of the day on which the amendment to the capital lease was made, and provides the Minister with the following information, namely,

(i) the detailed cost of the improvements,

(ii) a detailed calculation of the revised payments,

(iii) the additional cost of the equipment that has been financed, and

(iv) the new outstanding balance of the capital lease; and

(d) the lessor sends to the Minister, with the notice referred to in paragraph (c), an additional registration fee that is calculated on the basis of the additional cost of the equipment that has been financed.

FORMS OF SECURITY

24. (1) A lessor shall, when entering into or amending a capital lease, register a security interest in the leased equipment, within the time and in accordance with the form prescribed under the applicable provincial law.

(2) In Quebec, the lessor shall make a publication of their rights in the registry office within the time and in accordance with the form prescribed in the province to be set up against third parties.

25. A lessor may take additional security in the assets of the lessee's small business.

26. The lessor may release any additional security if the capital lease is in good standing.

GUARANTEES AND SURETYSHIPS

27. (1) A lessor may, in addition to the forms of security referred to in sections 24 and 25, take one or more unsecured personal guarantees or suretyships for an amount that does not exceed the aggregate of

(a) 25% of the total financing amount of the capital lease,

(b) the interest on any judgment against the surety,

(c) taxed costs for, or incidental to, legal proceedings against the surety, and

(d) legal fees and disbursements, other than the costs referred to in paragraph (c), and other costs incurred by the lessor for services rendered by persons other than their employees for the purpose of legal proceedings against the surety.

(2) If a lessor takes more than one personal guarantee or suretyship, they shall state that the aggregate liability of the sureties may not exceed the aggregate amount referred to in subsection (1).

28. A lessor may, in addition to any security or guarantee or suretyship referred to in sections 24, 25 and 27, take one or more secured or unsecured corporate guarantees or suretyships.

29. A lessor may release a guarantor or surety from a guarantee or suretyship only if a capital lease is in good standing and the lessee has paid at least 50% of the total financing amount of the capital lease.

30. A lessee may, at any time with the consent of the lessor, replace a guarantee or suretyship with security in any assets of the small business or with another guarantee or suretyship, if the value of the replacement security, guarantee or suretyship is equal to or greater than the value of the original guarantee or suretyship but does not exceed the maximum provided for in section 27.

NON-COMPLIANCE

31. (1) The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of lessees' defaults on all capital leases entered into by the lessor, if the lessor has not paid the administration fee referred to in subsection 15(2).

(2) Despite subsection (1), the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of lessees' defaults on all capital leases entered into by the lessor if

(a) the non-compliance was inadvertent; and

(b) the administration fee is paid within 90 days after the day on which notice of the non-compliance from the Minister is received at the place of business of the lessor.

32. (1) The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of a lessee's default on a capital lease if

(a) the capital lease provides for a matter referred to in section 4;

(b) the requirements under section 13 are not met;

(c) the requirements under section 24 are not met; or

(d) the requirements under paragraph 45(4)(a) are not met or are only partially met.

(2) Despite subsection (1), if the non-compliance referred to in any of paragraphs (1)(a) to (d) is inadvertent, the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained on the portion of the total financing amount of the capital lease that relates to equipment that is in compliance with these Regulations.

33. (1) The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of a lessee's default on a capital lease if the requirements set out in sections 27 to 30 in respect of guarantees or suretyships are not met in respect of the capital lease.

(2) Despite subsection (1), the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of a lessee's default on a capital lease if

(a) the non-compliance was inadvertent and the loss was not affected by it; and

(b) the aggregate amount recovered from the realization of personal guarantees and suretyships, if any, does not exceed the aggregate of the amounts referred to in paragraphs 27(1)(a) to (d).

34. (1) The Minister is not liable to make any payment to a lessor in respect of any loss sustained as a result of a lessee's default on a capital lease, if

(a) the term of the capital lease is longer than the maximum period specified in section 5 or the period approved under subsection 22(2);

(b) a fee or charge is payable, other than a fee or charge referred to in section 14, 15 or 17; or

(c) the annual imputed rate of interest used to calculate the scheduled payments in respect of the capital lease is greater than the maximum annual imputed rate of interest referred to in section 16.

(2) Despite subsection (1), the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of a lessee's default on a capital lease if

(a) the non-compliance was inadvertent and the loss was not affected by it; and

(b) the lessor has reimbursed the lessee for any resulting overcharges and has otherwise remedied the non-compliance.

35. Despite section 42, if a lessor does not provide a report as required by section 41 until after the time required by that section and the non-compliance is inadvertent, the Minister, after receiving the report, shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of a lessee's default on a capital lease entered to which the report relates.

TRANSFER OF CAPITAL LEASES AT THE REQUEST OF THE LESSEE

36. (1) When a capital lease is transferred by a lessor to another lessor at the request of the lessee, the Minister is liable to pay to the transferee the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of a lessee's default on the capital lease if

(a) the Minister's liability under section 7 in relation to the remaining capital leases of the transferor does not, as a result of the transfer, exceed the amount already paid by the Minister to the transferor, if any; and

(b) the total number of capital leases transferred by the transferor under this section, for the duration of these Regulations, does not exceed the greater of 20 and 1% of the number of capital leases entered into by the transferor during that period.

(2) The transferee shall notify the Minister of the transfer in the form referred to in subsection (3). The Minister shall determine whether the requirements set out in subsection (1) have been met and shall notify both lessors of the determination.

(3) The lessee and both lessors shall sign a form which includes the registration number assigned to the capital lease by the Minister and the lessee's acknowledgement that the lessee requested the transfer.

(4) A transfer of a capital lease shall be registered or published in accordance with applicable provincial law.

TRANSFER OF CAPITAL LEASES FOR THE PURPOSE OF LEASE FUNDING

37. (1) When a capital lease is transferred by a lessor to a lease funder for the purpose of lease funding, the Minister is liable to pay to the lease funder the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of a lessee's default on the capital lease, if the Minister's liability under section 7 in relation to the remaining capital leases of the transferor does not, as a result of the transfer, exceed the amount already paid by the Minister to the transferor, if any.

(2) A transferor and lease funder shall notify the Minister of the transfer in the form referred to in subsection (3). The Minister shall determine whether the requirements set out in subsection (1) have been met and shall notify both the transferor and the lease funder of the determination.

(3) The transferor and the lease funder shall sign a form which includes the registration number assigned to the capital lease by the Minister.

(4) A transfer of a capital lease for the purpose of lease funding shall be registered or published in accordance with applicable provincial law.

AMALGAMATION OF LESSORS

38. When two or more lessors intend to amalgamate to form a new lessor, they shall notify the Minister in writing of the intention to amalgamate and of the day on which the amalgamation is proposed to take effect. On amalgamation, the Minister is liable to pay to the new lessor the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of lessees' defaults on all capital leases entered into by the lessor and

(a) any capital leases entered into by the amalgamating lessors are considered to have been entered into by the new lessor;

(b) claims for loss sustained in respect of capital leases that were paid by the Minister to each of the amalgamating lessors are considered to have been paid to the new lessor; and

(c) if, as a result of the amalgamation, the amount already paid by the Minister to the amalgamating lessors as a result of the Minister's liability under section 7 is greater than the Minister's liability in respect of the new lessor, the Minister's liability is deemed to be equal to the amount already paid.

DISCONTINUANCE OF CAPITAL LEASING BUSINESS

39. A lessor that discontinues a capital leasing business and transfers all outstanding capital leases to another lessor shall notify the Minister in writing of the transfer. The Minister is liable to pay to the transferee the amount of any eligible loss, calculated in accordance with subsection 45(7), sustained as a result of lessees' defaults on all capital leases entered into by the lessor. Other capital leases of the transferee that have been registered under these Regulations shall not be taken into account in determining the Minister's liability.

TRANSFER OF CAPITAL LEASES BETWEEN LESSEES

40. (1) When a capital lease is transferred by a lessee to another lessee, the Minister's liability under section 7 in respect of the capital lease continues if

(a) the lessor approves the transferee as the lessee in accordance with the due diligence requirements referred to in section 20, and the aggregate outstanding balance in respect of the lessee or to any related lessee or borrower does not exceed $250,000;

(b) the security referred to in section 24 is maintained;

(c) any additional security referred to in section 25 is maintained or replaced by other additional security of equal or greater value on the assets in accordance with that section; and

(d) any guarantee or suretyship referred to in section 27 is maintained or replaced by another guarantee or suretyship of equal or greater value in accordance with that section.

(2) Nothing in subsection (1) precludes the lessor from releasing the transferor from their obligations under the capital lease.

(3) When there is a change of partners in a partnership, the Minister's liability under section 7 in respect of a capital lease continues if

(a) in accordance with the due diligence requirements referred to in section 20, the lessor approves the fact that the new partner has assumed the obligations of the old partnership, and the aggregate outstanding balance in respect of the new partner or any related lessee or borrower does not exceed $250,000; and

(b) the conditions set out in paragraphs (1)(b) to (d) are met.

(4) When a partner leaves a partnership and is not being replaced, the Minister's liability under section 7 in respect of a capital lease continues if

(a) in accordance with the due diligence requirements referred to in section 20, the lessor approves the fact that the remaining partners have assumed the obligations of the new partnership; and

(b) the conditions set out in paragraphs (1)(b) to (d) are met.

REPORTING REQUIREMENTS

41. (1) A lessor shall provide to the Minister, before June 1 in each year, a detailed report on all capital leases outstanding with that lessor as at March 31 in the year of the report, including the following information for each capital lease:

(a) the registration number referred to in subsection 36(3);

(b) the lessee's name; and

(c) the outstanding balance of the capital lease as at March 31 in that year.

(2) A lessor shall report to the Minister, before June 1 in each year, the aggregate outstanding balance of all capital leases as at March 31 in the year of the report in respect of all outstanding capital leases of the lessor.

42. If the lessor does not provide a report in accordance with section 41, the Minister is not liable after the day on which the report was due, for any loss sustained as a result of a lessee's default on a capital lease for which the information specified in any of paragraphs 41(1)(a) to (c) was not provided.

DEFAULT

43. For the purposes of these Regulations and subject to section 22, the outstanding balance of a capital lease becomes due and payable and the lessee is in default as of the day on which the lessee fails to comply with any material condition of the capital lease.

PROCEDURE ON DEFAULT

44. (1) If a lessee is in default under section 43, and the default has not been corrected to the satisfaction of the lessor, the lessor shall give the lessee notice of the default in writing and demand that the lessee comply with the condition of the capital lease within the period specified in the notice.

(2) If the lessee fails to comply with the condition within the period specified, the lessor shall formally demand payment of the outstanding balance of a capital lease within the period specified in the demand.

(3) If the outstanding balance of a capital lease is not paid within the period specified, the lessor shall take any of the following measures to minimize the loss sustained as a result of a lessee's default on the capital lease or that will maximize the amount recovered:

(a) collect the outstanding balance of the capital lease;

(b) fully realize any security, guarantee or suretyship;

(c) realize on any insurance policy under which the lessor is the beneficiary;

(d) fully implement a compromise settlement with the lessee or with a guarantor or surety or any other person on behalf of the lessee, guarantor or surety; and

(e) subject to subsection (4), take legal proceedings, including the enforcement of any resulting judgment, if the estimated cost of the proceedings does not exceed the estimated amount that may be recovered.

(4) If the lessee is a sole proprietor or a partnership, the lessor may execute a judgment by realizing on the assets of the sole proprietor or partners, other than the assets of the small business in respect of which the capital lease was entered into, in an amount no greater than the aggregate of

(a) 25% of the total financing amount of the capital lease,

(b) interest on the judgment,

(c) taxed costs for, or incidental to, the legal proceedings against the lessee, and

(d) legal fees and disbursements, other than costs referred to in paragraph (c), and other costs incurred by the lessor for services rendered by persons other than the lessor's employees for the purpose of legal proceedings against the lessee.

CLAIMS PROCEDURE

45. (1) A lessor shall take all of the measures described in subsection 44(3) that are applicable before submitting a claim to the Minister for loss sustained as a result of a lessee's default on a capital lease.

(2) Subject to subsection (3), a lessor shall submit a claim for loss within 36 months after the expiration of the period specified in the notice referred to in subsection 44(1).

(3) The Minister is authorized to extend the period referred to in subsection (2) if the lessor so requests before the expiration of the period.

(4) A claim for loss shall be certified by the lessor and shall be accompanied by

(a) a copy of the capital lease, any amendments to the capital lease as a result of improvements to the equipment and other documentation substantiating the total financing amount of the capital lease;

(b) a copy of the appraisal in respect of any used equipment referred to in section 13;

(c) a copy of a statement of account with respect to the capital lease; and

(d) a copy of the capital lease approval and administration files held by the lessor, if requested by the Minister.

(5) A claim for loss shall include the lessor's acknowledgement that the lessor has acted in accordance with the due diligence requirements referred to in section 20 when entering into and administering the capital lease and has taken the measures against the lessee required by subsection (1).

(6) A claim for loss shall include all documents that evidence the registration or publication of any rights or interests in respect of the capital lease.

(7) An eligible loss sustained by a lessor shall be calculated as follows:

(a) by determining the aggregate of the following amounts, namely,

(i) the outstanding balance of the capital lease at the expiration of the period specified in the notice referred to in subsection 44(1),
(ii) the amount of interest calculated in accordance with subsection (8),
(iii) uncollected taxed costs for, or incidental to, any legal proceedings in respect of the capital lease; and
(iv) legal fees and disbursements, other than costs referred to in subparagraph (iii), and other costs incurred by the lessor for services rendered by persons other than the lessor's employees, for the purpose of collecting the outstanding balance of the capital lease from the lessee or the guarantor or surety; and

(b) by deducting from the aggregate amount

(i) the greater of the residual value of the equipment set out in the capital lease, or the net amount received by the lessor on any sale, lease or other disposition of the equipment, and
(ii) any other proceeds realized from the taking of any measures described in subsection 44(3).

(8) The amount of interest referred to in subparagraph (7)(a)(ii) is calculated on the outstanding balance, taking into consideration any proceeds realized from the taking of any measures described in subsection 44(3), as follows:

(a) in respect of the period beginning on the day of default and ending at the expiration of the period specified in the notice referred to in subsection 44(1), at the annual imputed rate of interest used to calculate the scheduled payments in respect of a capital lease;

(b) in respect of the six-month period immediately after the period referred to in paragraph (a), at the annual imputed rate of interest used to calculate the scheduled payments in respect of a capital lease on the first day of the six-month period;

(c) in respect of the six-month period immediately after the period referred to in paragraph (b), at a rate of interest equal to one half of the rate of interest referred to in that paragraph; and

(d) in respect of the 24-month period immediately after the period referred to in paragraph (c), at a rate of interest of 0%.

INTERIM CLAIMS PROCEDURE

46. (1) A lessor may make an interim claim to the Minister for loss, calculated in accordance with subsection 45(7), sustained as a result of a lessee's default on a capital lease, if the lessor has taken all of the measures described in subsection 44(3) that are applicable and either

(a) paragraph 44(3)(b) applies but the guarantee or suretyship has not been fully realized; or

(b) paragraph 44(3)(d) applies but the compromise settlement has not been fully implemented.

(2) The Minister shall pay the interim claim as if the lessor had fully realized the guarantee or suretyship at the time the interim claim was made or fully implemented the compromise settlement.

(3) Subsections 45(2) to (8) apply, with such modifications as the circumstances require, to an interim claim.

(4) If, after the interim claim is paid, the lessor, by realizing the guarantee or suretyship or fully implementing the compromise settlement, recovers 100% of the guarantee or suretyship or compromise settlement, the lessor shall so notify the Minister and the interim claim is deemed to be a final claim.

(5) If, after the interim claim is paid, the lessor, by realizing the guarantee or suretyship or fully implementing the compromise settlement, recovers less than 100% of the guarantee or suretyship or compromise settlement, the lessor may make a final claim under section 45 for the difference.

SUBROGATION

47. If the Minister pays a lessor for loss sustained as a result of a lessee's default on a capital lease, Her Majesty is subrogated, from the payment of the final claim, to the rights of the lessor, up to the amount paid by the Minister.

AUDIT OR EXAMINATION

48. (1) The Minister may, after giving at least 21 days notice in writing to a lessor, conduct an audit or examination of the lessor's documents, records and books of account to verify that these Regulations are being complied with in respect of a capital lease, including that the lessor has acted in accordance with the due diligence requirements referred to in section 20 in respect of the approval and administration of the capital lease and that the documents submitted to the Minister in respect of the lessor are accurate and complete.

(2) The Minister is authorized to designate persons to carry out audits or examinations under these Regulations. A person designated by the Minister may, at any reasonable time, consult the lessor's documents, records and books of account in respect of a capital lease.

(3) Every lessor shall, for the purpose of an audit or examination under these Regulations, give all reasonable assistance to any person designated by the Minister to carry out the audit or examination, provide access to all relevant sites, answer, orally or in writing as required, all questions relating to the subject-matter of the audit or examination and provide all information and documents in their possession and all copies required for the purpose of the audit or examination. The designated person shall not remove the documents or copies from the relevant sites without the permission of the lessor.

(4) The Minister shall provide the lessor with a copy of the report of the audit or examination within 21 days after the report is completed.

(5) If a lessor refuses or intentionally fails to comply with any requirement of this section, the Minister may notify the lessor in writing that the Minister is not liable under these Regulations to make any payment to the lessor for any loss sustained as a result of a lessee's default on any capital lease entered into by the lessor.

EVALUATION OF REGULATIONS

49. The Minister may request the lessor or the lessee to provide any information or documentation related to the capital lease for the purpose of evaluating these Regulations.

CESSATION OF EFFECT

50. These Regulations shall cease to have effect on April 1, 2007.

COMING INTO FORCE

51. (1) Subject to subsection (2), these Regulations come into force on April 1, 2002.

(2) The definition "lessor" in section 1, and sections 18 and 19 come into force on the day on which these Regulations are registered.

[35-1-o]

Footnote a

S.C. 1999, c. 33, s. 347

Footnote 1

C.R.C., c. 870

Footnote b

S.C. 1998, c. 36

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