Quebec recently enacted Bill 96, entitled An Act respecting French, the official and common language of Québec, which aims to overhaul the Charter of the French language. Here are 10 key changes in this law that will impose significant obligations on businesses: As of June 1, 2025, businesses employing more than 25 people (currently the threshold is 50 people) for at least six months will be required to comply with various “francization”1 obligations. Businesses with between 25 and 99 employees may also be ordered by the Office québécois de la langue française (the OQLF)2 to form a francization committee. In addition, at the request of the OQLF, businesses may have to provide a francization program for review within three months. As of June 1, 2025, only trademarks registered in a language other than French (and for which no French version has been filed or registered) will be accepted as an exception to the general principle that trademarks must be translated into French. Unregistered trademarks that are not in French must be accompanied by their French equivalent. The rule is the same for products as well as their labelling and packaging; any writing must be in French. The French text may be accompanied by a translation or translations, but no text in another language may be given greater prominence than the text in French or be made available on more favourable terms. However, as of June 1, 2025, generic or descriptive terms included in a trademark registered in a language other than French (for which no French version has been registered) must be translated into French. In addition, as of June 1, 2025, on public signs and posters visible from outside the premises, (i) French must be markedly predominant (rather than being sufficiently present) and (ii) the display of trademarks that are not in French (for which no French version has been registered) will be limited to registered trademarks. As of June 1, 2022, businesses that offer goods or services to consumers must respect their right to be informed and served in French. In the event of breaches of this obligation, consumers have the right to file a complaint with the OQLF or to request an injunction unless the business has fewer than five employees. In addition, any legal person or company that provides services to the civil administration3 will be required to provide these services in French, including when the services are intended for the public. As of June 1, 2022, subject to certain criteria provided for in the bill, employers are required to draw up the following written documents in French: individual employment contracts4 and communications addressed to a worker or to an association of workers, including communications following the end of the employment relationship with an employee. In addition, other documents such as job application forms, documents relating to working conditions and training documents must be made available in French.5 As of June 1, 2022, employers who wish to require employees to have a certain level of proficiency in a language other than French in order to obtain a position must demonstrate that this requirement is necessary for the performance of the duties related to the position, that it is impossible to proceed using internal resources and that they have made efforts to limit the number of positions in their company requiring knowledge of a language other than French as much as possible. As of June 1, 2023, parties wishing to enter into a consumer contract in a language other than French, or, subject to various exceptions,6 a contract of adhesion that is not a consumer contract, must have received a French version of the contract before agreeing to it. Otherwise, a party can demand that the contract be cancelled without it being necessary to prove harm. As of June 1, 2023, the civil administration will be prohibited from entering into a contract with or granting a subsidy to a business that employs 25 or more people and that does not comply with the following obligations on the use of the French language: obtaining a certificate of registration, sending the OQLF an analysis of the language situation in the business within the time prescribed, or obtaining an attestation of implementation of a francization program or a francization certificate, depending on the case. As of June 1, 2023, all contracts and agreements entered into by the civil administration, as well as all written documents sent to an agency of the civil administration by a legal person or by a business to obtain a permit, an authorization or a subsidy or other form of financial assistance must be drawn up exclusively in French. As of September 1, 2022, a certified French translation must be attached to motions and other pleadings drawn up in English that emanate from a business or legal person that is a party to a pleading in Quebec. The legal person will bear the translation costs. The application of the provisions imposing this obligation has, however, been suspended for the time being by the Superior Court.7 As of September 1, 2022, registrations in the Register of Personal and Movable Real Rights and in the Land Registry Office, in particular registrations of securities, deeds of sale, leases and various other rights, must be made in French. Note that declarations of co-ownership must be filed at the Land Registry Office in French as of June 1, 2022. The lawyers at Lavery know Quebec’s language laws and can help you understand the impact of Bill 96 on your business, as well as inform you of the steps to take to meet these new obligations. Please do not hesitate to contact one of the Lavery team members named in this article for assistance. “Francization” refers to a process established by the Charter of the French language to ensure the generalized use of French in businesses. The OQLF is the regulatory body responsible for enforcing the Charter of the French language. The civil administration in this law includes any public body in the broad sense of the term. An employee who signed an individual employment contract before June 1, 2022, will have until June 1, 2023, to ask their employer to provide them with a French translation if the employee so wishes. If the individual employment contract is a fixed-term employment contract that ends before June 1, 2024, the employer is not obliged to have it translated into French at the request of the employee. Employers have until June 1, 2023, to have job application forms, documents related to work conditions and training documents translated into French if these are not already available to employees in French. Among these exceptions are employment contracts, loan contracts and contracts used in “relations with persons outside Quebec.” There seems to be a contradiction in the law with regard to individual employment contracts which are contracts of adhesion and for which the obligation to provide a French translation nevertheless seems to apply. Mitchell c. Procureur général du Québec, 2022 QCCS 2983.
- Québec, 1997
Brigitte Gauthier is a partner in the Financing and Financial Services group. She advises Canadian and foreign financial institutions, institutional investors and other lenders, as well as borrowers in various industries on all aspects of debt financing, including syndicated loans, real estate financing, project financing, securitization and banking law.
Ms. Gauthier has the experience to handle large and complex transactions for her clients in areas related to financing, including real estate and corporate law. She also acts regularly for various investment funds with respect to debt financing and advises several investors on implementing hybrid financing structures (debt and equity) for various projects, including real estate projects.
In addition, she has been representing one of Canada’s largest charitable foundations for several years and has handled numerous investment transactions, strategic partnerships and donations on its behalf.
- Senior legal advisor to the agent and lenders in a $210-million syndicated financing to a manufacturing company seeking to acquire a new subsidiary
- Senior legal advisor to U.S., Canadian and Caymanian investment funds in establishing credit facilities totalling more than US$525 million to provide interim financing for capital requirements and to support investments in various infrastructure and other projects
- Legal advisor to various banks in various bilateral financings, including:
- $50 million financing made available to a Quebec manufacturer and its Canadian and American subsidiaries for various acquisitions
- $35 million financing made available to an agri-food company in the context of various acquisitions
- Senior legal advisor to a group of investors and lenders in connection with a syndicate structure offering loans totalling $151 million to be made available to cooperatives, non-profit organizations and housing authorities to build or renovate affordable housing
- Senior legal advisor to an institutional investor in setting up various unsecured loans for small businesses
- Senior legal advisor to an institutional investor in the joint financing of a not-for-profit organization to finance the implementation of a network of fast charging stations for electric cars in Quebec and the Maritime provinces
- Senior legal advisor to one of the investors and secured mezzanine lender in the hybrid financing (debt and equity) of various construction projects for seniors’ residences
- Legal advisor for the Province of Quebec for the financial services divisions of major automobile manufacturers and mortgage lenders in the securitization of their receivables and the implementation of asset-based credit facilities
- Legal advisor to a biogas cogeneration plant operator in setting up real estate agreements to create a hot water distribution network
- Legal advisor to one of the investors in a wind farm operator in negotiations related to the operator’s syndicated financing and the granting of security interest by the investor
- Senior legal advisor to a majority lender to finance the purchase of a real estate portfolio
- Senior legal advisor to a lender in establishing credit facilities in favour of a professional sports team and its operators, including the taking of securities over sports facilities and an emphyteutic lease
- The Canadian Legal LEXPERT® Directory in the field of Asset Securitization, 2021
- LL.B., Université de Montréal, 1995
Most companies have seen their business operations seriously affected by the COVID-19 pandemic and the various government measures taken to mitigate its impact on the population. Companies have to contend with various issues in the short, medium and long term, such as the closure of many companies’, clients’ and suppliers’ places of business, restricted opening hours, and working from home. Businesses need to maintain the relationship of trust they have built with their lender a business partner with whom it pays to be proactive, show transparency and uphold best practices during these difficult times. Although each situation requires an individual analysis, it is in the borrower’s best interest to draw up an accurate picture of the company’s situation for the lender. The information that should be shared with the lender includes: A description of the plan implemented for clients, suppliers and employees to mitigate the effects of COVID-19 and ensure that operations continue as efficiently as possible; A description of the plan implemented for employees to ensure their health and safety while working; Whether the company’s services and activities are considered essential; The availability and use of government programs developed for businesses and their employees; The possibility of allocating work to other places of business and other efforts to mitigate the impact; Short, medium and long term financial projections, it being understood that even though these projections may be difficult to establish in the circumstances, they will equip the borrower for discussions with its lender and will enable it to anticipate its credit facility drawdown requirements, including any need to increase them; Representations, warranties and covenants in credit agreements that could be compromised. This communication must be ongoing. Considering the fast evolution of the COVID-19 crisis and the proliferation of governmental and other measures, it is important to keep the lender informed as the company’s situation changes. The lender will obviously appreciate getting the most accurate picture of the company under the circumstances, which will allow it to assess the situation and develop customized solutions with the company. The relationship of trust between borrower and lender is, more than ever, an asset in these difficult times. It is proving to be a positive vector of stability for our companies, which will have to overcome the effects of COVID-19. The professionals of our Debt Financing and Banking team can assist borrowers in analyzing the credit agreements they have entered into with their lenders and in developing a communication strategy that is appropriate and effective in the circumstances.
This publication was co-authored by Luc Thibaudeau, former partner of Lavery and now judge in the Civil Division of the Court of Québec, District of Longueuil. Following the adoption of the Act mainly to modernize rules relating to consumer credit and to regulate debt settlement service contracts, high-cost credit contracts and loyalty programs1in November 2017, major legislative and regulatory provisions affecting the rights and obligations of Québec merchants and consumers were assented to and published in the Gazette officielle du Québec on July 18, 2017. Substantial changes and additions were made to the Regulation respecting the application of the Consumer Protection Act,2 the Regulation respecting the application of the Act respecting the collection of certain debts,3 and the Regulation respecting travel agents.4 The progressive dates of coming into force of the provisions of Act 24 were enacted at the same time. The amendments to the Consumer Protection Act,5 its application regulation and the new provisions come into force on four different dates next year. Overview of amendments substantially affecting the obligations of merchants Commercial and advertising practices The following provisions came into force on August 1st, 2018: - Under the new s. 231.1 CPA, any picture of goods or services in an advertisement that also discloses their price or value must accurately depict the goods or services provided. - The new s. 244.1 CPA prohibits merchants from falsely or misleadingly representing to consumers in an advertisement that credit may improve their financial situation. - The new s. 251.1 CPA prohibits any person from withholding an amount of money on a credit card unless the person discloses, before the transaction, why and for how long it is to be withheld. - The new s. 251.2 prohibits merchants from informing a personal information agent that a consumer has exercised a right to cancel or rescind a contract under a law supervised by the OPC or information unfavourable to the consumer concerning amounts that are no longer payable following the exercise of that right. Under the new s. 223.1 CPA, merchants must present the information contained in an advertisement in a clear, legible and understandable manner. This provision comes into force on February 1st, 2019. Clarification on loyalty programs The many merchants offering loyalty programs under which consumers can obtain goods or services valued at over $50 may have to change their practices once the new provisions in ss. 79.6.1 et seq. of the Regulation come into force on August 1st, 2019: - The new s. 79.6.4 provides that the conditions that allow consumers to receive exchange units, the terms applicable to the exchange, the terms applicable to the expiry, and the conversion factor used to convert exchange units, is information that loyalty program merchants must give to the consumer. - The new s. 79.6.7 limits a merchant’s ability to increase the number of exchange units required to obtain goods and services, unless the increase is justified by a significant increase in the market value of the goods or services. Under the new s. 187.8 CPA, since August 1st, 2018, exchange units obtained by a consumer remain valid and cannot expire at a given date or after a determined period. The effect of this new provision will be relaxed one year later by the new s. 79.6.4 of the Regulation. High-cost credit The provisions concerning high-cost credit come into force on August 1st, 2019: - According to the new s. 61.0.3 of the Regulation, a credit contract is high cost when its credit rate is 22 percentage points higher than the Bank of Canada bank rate. - The additions under the new s. 93 of the Regulation require that merchants offering high-cost credit hold a special permit. The new s. 18 of the Regulation provides, however, that banks, financial services cooperatives, trust and loan companies, mortgage lenders and insurance companies are exempt from the obligation to hold a permit. - Under the new s. 73 of the CPA, a high-cost credit contract may now be cancelled within 10 days after the date on which each of the parties is in possession of a duplicate of the contract. Tightening the rules on assessing the consumer’s repayment capacity The following provisions will apply as of August 1st, 2019: - Under the new ss. 103.2 et seq. CPA, and the new ss. 61.0.1 et seq. of the Regulation, the merchant must assess the consumer’s capacity to repay before granting credit, and the consumer’s capacity to repay will now be assessed according to the criteria set out, in particular the consumer’s gross income, the total of the monthly recurring disbursements related to housing, the total of the disbursements required under a credit contract or long-term lease of goods contract, the information contained in a credit report prepared at the time the capacity to repay is assessed and, where applicable, the credit history with that merchant. - The new s. 103.3 CPA states that a merchant who fails to conduct the assessment under s. 103.2 may lose the right to claim the credit charges. Where applicable, such merchant may have to refund any credit charges already paid by the consumer. - The new s. 61.0.5 of the Regulation provides that lenders who enter into high-cost credit contracts must provide consumers with a document summarizing the result of the assessment of their repayment capacity, their debt ratio, the methods for calculating the debt ratio, the elements used in the calculation of the consumer’s debt ratio and, where the debt ratio exceeds 45%, the document must include a compulsory warning. - The new s. 103.5 CPA states that any consumer having entered into a high-cost credit contract with a debt ratio in excess of 45% is presumed to have contracted an obligation that is excessive, abusive or exorbitant. - The new s. 103.1 CPA provides that any ground of defence raised by a consumer concerning a good financed is enforceable against the lender; in addition, in certain circumstances, the consumer can assert his or her rights against the merchant against the lender. Information on consumer credit The following provisions come into force on August 1st, 2019: - For variable credit contracts, under the new wording of s. 126 CPA, merchants must give consumers specific information in every statement of account, in particular the consumer’s rights and obligations regarding billing errors. - Under this section, credit card statements must indicate the estimated number of months or years required to repay the entire outstanding balance. - The new s. 126.1 CPA provides that the minimum monthly credit card payment may not be less than 5% of the outstanding credit card balance. All new contracts entered into after August 1st, 2019 are subject to this provision. For existing contracts, the transition period is six years. Therefore, the minimum payment will gradually increase by half a percentage point per annum, from 2% to 5%. - For the purposes of s. 127 of the CPA and s. 69.0.1 of the Regulation, statements of account sent electronically by credit card issuers must be available to cardholders for a period of two years. In accordance with the new s. 21 of the Regulation, umbrella mortgages will be subject to a double consent. The act constituting the hypothec must identify the consumer credit contracts secured by such a hypothec. In addition, the contract must also explicitly stipulate that the credit contract is secured by a hypothec on the value of the consumer’s property. Merchants who enter into credit contracts must comply with the provisions on umbrella mortgages starting August 1st, 2019. Note that this provision does not apply to first-ranking immovable hypothecs. Use of standard contracts As of August 1st, 2019, money lending contracts, credit card application forms, variable credit contracts, variable credit contracts entered into for the use of a credit card, instalment sales contracts, contracts of lease with guaranteed residual value, and contracts involving credit other than an instalment sale contract must now contain certain specific information found in a box at the very beginning of the contract, and satisfy several requirements as to form. Conclusion Other obligations will gradually come into force over the coming year. This is particularly true for the rules applicable to travel agencies that came into force on August 1st, 2018, and others that will come into force on January 1st, 2019, and for provisions on the issuance of certificates for representatives of collection agents and stipulations that must be included in contracts entered into by debt settlement service merchants, applicable starting February 1st, 2019. Finally, merchants will have to comply with all the other provisions in Act 24 and its regulations commencing August 1st, 2019. Merchants should pay special attention to the consumer law provisions that come into force over the coming year. The CPA contains penal provisions that impose considerable fines for those who contravene the Act or its regulations, ranging from $600 to $100,000. Finally, please note that all contracts covered under the Consumer Protection Act must now be drafted on good quality white paper. At least while paper still exists.... and with regards to that, there is unfortunately nothing in the new law. Let’s hope that the legislature will enact provisions in the near future that expressly permit merchants to enter into consumer contracts using electronic tablets. SQ 2017, c. 24 (hereafter “Act 24”). CQLR, c. P-40.1, r. 3 (hereafter the “Regulation”). CQLR, c. R-2.2, r. 1 CQLR, c. A-10, r. 1 CQLR, c. P-40.1 (hereafter the “CPA”).
Subscription credit facilities have become a popular tool to increase flexibility in managing an investment fund’s cash flows. However, these instruments are not always well understood by all parties. The popularity of these facilities has also led investors associations, such as the Institutional Limited Partners Association (“ILPA”), to raise concerns about the unrestricted use of such facilities. This article summarizes the main considerations to take into account when setting up subscription credit facilities and describes some of the best practices in this area, as recommended by the ILPA in June 2017. Background It has become customary for general partners (“GPs”)1 of private equity or venture capital funds to set up credit facilities for their funds. Most of the time, the main or sole purpose of these facilities is to provide bridge financing to fund portfolio transactions (and other expenses) in anticipation of future capital calls. A bridge facility simplifies the management of drawdown requests to limited partners (“LPs”) by allowing the GP to limit the number of those requests and schedule for them (often quarterly). The GP will then manage the fund’s cash flow between capital calls by drawing on the facility. However, such facilities create somewhat of a misalignment of the LPs’ and the GP’s interests. This misalignment results from the added ability provided to the GP by such facilities to delay capital calls and the fact that such a delay may indirectly impact the moment when the GP’s carried interest is paid and even perhaps the amount of such carried interest. The distribution waterfall of most investment funds is typically structured in such a way that LPs are favoured over the GP in the allocation of distributable cash until the cash distributed to the LPs provide them with an internal rate of return (“IRR”) equal to their hurdle rate.2 Given that the IRR is affected by the timing of cash inflows and outflows, LPs generally wish for the GP to call on their capital as soon as possible.3 Earlier cash inflows put pressure on the GP to cause the fund to make distributions earlier (or in greater amounts) to achieve the targeted IRR and allow the GP to receive its carried interest earlier. In the usual set up, the factors that can affect the IRR are mostly out of the hands of the GP (i.e. it can postpone the timing of the capital calls until it requires the funds to complete a portfolio investment or cover expenses, but no further). However, with a bridge facility, the GP benefits from the ability to delay capital calls, which indirectly favours a higher IRR and thus its chance of being entitled to a carried interest.4 Even if the initial objectives of implementing a subscription credit facility are not to influence the IRR or the payment of the carried interest, such an operation nevertheless allows the GP to control at least one of the factors impacting the IRR, and therefore slightly alter the initial equilibrium between the interests of the LPs and those of the GP set out in the fund’s limited partnership agreement (“LPA”). ILPA’s best practices In June 2017, the Institutional Limited Partners Association (the “ILPA”) released a document entitled “Subscription Lines of Credit and Alignment of Interests – Considerations and Best Practices for Limited and General Partners” (the “ILPA’s Best Practices”). The document generally highlights what the ILPA perceives to be adverse effects of a wide and unrestricted use of subscription lines of credit by investment funds as well as some of the best practices for dealing with such credit facilities. According to the ILPA and as noted above, one such adverse effect is a distortion in the application of the conditions related to the carried interest. The ILPA also demonstrates that the impact of the use of a line of credit on the IRR will be greater early in the life of the fund5 and describes two of the effects of this impact, i.e. the potential for the GP to receive a carried interest in cases where the unlevered IRR may not meet the preferred return hurdle and the associated clawback issues. Clawback issues arise when a GP is paid a carried interest during the life of the fund while calculations of the IRR later in the fund’s life reveal that no such carried interest should have been paid. Most funds’ LPAs contain clawback provisions forcing the GP to reimburse the carried interest previously received if paid unjustly based on the subsequent performance of the fund.6 However, depending on how the LPA was negotiated, clawback provisions may lose their grip where the cash has in fact been distributed by the GP to its shareholders. This is why LPAs sometimes provide for escrow provisions or personal guarantees in support of the clawback undertakings. To avoid this distortion and the risk of such issues arising, the ILPA recommends that the distribution provisions in LPAs specify that the date of cash inflow used to calculate the IRR should be the date at which the credit facility is drawn upon to make a portfolio investment or pay fund expenses rather than that when capital is called from the LPs to reimburse the amount drawn on the facility. Seeing how this recommendation is a departure from what is typically found in most investment funds’ LPAs, the ILPA is probably attempting here to influence change in existing standards. Typical restrictions found in LPAs LPAs generally limit the ability of a GP to use leverage in the management of the fund, including in the context of the aforementioned bridge facilities. Restrictions are typically imposed on the amount of indebtedness (and guarantees of indebtedness) that can be incurred by the fund. The potential exposure of the fund is typically capped by a percentage of the undrawn capital and/or of the fund’s aggregate capital (lenders also impose similar limits for reasons explained below).7 The LPAs also often restrict the purpose for which a credit facility can be used, limiting it to bridging portfolio investments or, depending on the type of fund, to providing letters of credit to facilitate the negotiation and acquisition process of portfolio investments or to hedging purposes. It is to be noted that those two other types of facilities are structured differently than facilities for bridging capital calls and our comments herein may not apply to such types of facilities. Another typical restriction found in LPAs is a requirement for the GP to reimburse the lender and complete the required cash calls within a predetermined time period (often around 90 days after drawing on the facility). The ILPA proposes that such period should be no longer than 180 days. This restriction is meant to reduce the distortion in the application of the conditions related to the carried interest described in the previous section. Considerations when negotiating with lenders One of the first concerns of a GP looking to set up a line of credit for its investment fund is to find a lender that has experience with those types of facilities. While most Canadian banks now have teams that are dedicated to this sector and have experience in negotiating these types of facilities, it may be worthwhile to have an in depth discussion with the lending team regarding their level of experience and knowledge: the structure of a subscription credit facility for investment funds differs greatly from that of a standard commercial credit facility. Here are a few of the particularities of those facilities. The borrowing base and the collateral Most facilities rely on a borrowing base, i.e. the mechanism used to determine the amount that can be borrowed by the fund under the facility. Such borrowing base is calculated using a percentage of the undrawn capital committed by eligible investors. The relevant percentage of the undrawn capital generally depends on the rating attributed by predetermined rating agencies to eligible investors. The parameters for the calculation of the borrowing base are therefore crucial and attention should be paid to how they are defined in the agreements governing the facility. As the borrowing base is typically limited to undrawn capital, the security should be in line with same, i.e. be limited to an assignment and pledge of the undrawn capital and of the rights of the GP to make capital calls. The assignment and pledge are sometimes coupled with a power of attorney granted to the lender, allowing it to make capital calls to investors on behalf of the GP following a default under the credit facility. In addition, the lender may request that a blocked account be set up and be subject to a security interest. The account will be used to receive the funds of investors following a capital call and the lender may trigger control over the account (or daily sweeps)8 following a default under the credit facility. The ILPA’s Best Practices recommend that lines of credit should be secured solely by LP commitments and not by the underlying assets of individual LPs or the invested assets of the fund. Based on our experience, this recommendation reflects the current market standards for such facilities. Granting security over the LPs’ assets (even if only on the units of the fund held by them) is generally not an option for a fund looking to raise capital from Canadian pension funds as they are usually prohibited from borrowing money (except in limited circumstances). Such LPs are thus often concerned that the creation of certain types of obligations on their part in favour of the lender may result in a violation of such prohibition. For this reason, they often impose restrictions (by way of side letters signed with the GP) on the ability of the GP to offer any such security on the pension funds’ interest.9 Granting security over the fund’s investment is generally not an option either as prohibitions on assignments, among other difficulties, are usually attached to the investments. Master-feeder and parallel fund structures Investment funds that use master-feeder structures or have parallel funds may need to invest additional time in making sure that such structures and their impacts on the fund and the lender are well understood by all parties involved in setting up the line of credit . The complexity of the issues raised by such structures increases with the level of complexity of the structure of the fund. For example, the question of whether the other funds in the structure should act as co-borrowers or guarantors will probably be raised by the lender, especially if the borrowing base includes undrawn capital of those other funds. However, if those assets are part of the borrowing base, one cannot avoid them being part of the collateral. A careful analysis of the terms of the LPAs as well as of the economic impact of decisions regarding the liability of the other funds (including whether such liability is joint or joint and several (solidary in Québec)) is crucial. The GP must ensure, as part of such analysis, that the rights granted to the lender under the facility will not result in some LPs being favoured over others in the investment fund structure. Such a situation, even if it was not intended by the GP and solely results from a lender exercising its rights, could potentially cause the GP to become liable to the disadvantaged LPs in certain situations. The GP must ensure, as part of such analysis, that the rights granted to the lender under the facility will not result in some LPs being favoured over others in the investment fund structure. These are only a few of the examples of the particularities associated with credit facilities tailored for investment funds. Further, a good knowledge by the lender of the standard structures used by investment funds will facilitate the due diligence process and the understanding of the various concerns or issues that may arise in the context of such facilities. For example, the GP typically wants to limit the documentation or requirements that a lender imposes on the LPs (to avoid unnecessary delays and costs but mostly because LPs often impose restrictions, in side letters signed with the GP, on documents they can be required to execute for the benefit of a lender). In many cases, the lender requires that investors be notified of the security given by the fund and the GP on the account or claim that constitutes their undrawn capital. The lender may also request, instead of a mere notice, that the investors acknowledge and acquiesce to the lender’s security and its rights in case of a default under the credit facility. In some cases, the lender may also be justified in obtaining confirmations from investors as to the amount of their undrawn capital. Parties should be well aware of the various consequences of such requests. In all cases, in order to simplify negotiations and structuring of credit facilities, the GP should also have initially ensured that it has sufficient flexibility in the fund’s LPA and in the various side letters it entered into with LPs to avoid either amending the LPA or seeking consents from the LPs. Reporting to LPs Notwithstanding the foregoing, subscription credit facilities remain an effective fund management tool. As such, restrictions imposed by LPs should aim to ensure that such facilities are used by the GP in an effective and appropriate manner (and that rights granted to the lender do not overly expose LPs). One important concern for LPs, however, should be to ensure that the GP’s reporting on the use of the facility is adequate. GPs should also be forthcoming in that regard. The ILPA’s Best Practices recommend that detailed quarterly reports be provided to LPs as to the following information: the number of days outstanding for each drawdown, the current use of the proceeds of the lines of credit, the net IRR with and without the use of the credit facility, the terms of the credit facility (term, upfront fee, standby fees, etc.) and costs to the fund (interest and fees). They also suggest that advisory committees include discussing the lines of credit as part of the meetings’ agenda to allow investors sitting on such committees to assess whether the terms of the facilities are considered consistent with “market” practices. The ILPA also proposes that detailed information on the terms of the facilities be disclosed to LPs, including, for example, terms that may introduce additional risks to the fund (e.g. any provision providing lender discretion over management decisions, or providing exposure beyond the amount of unfunded commitments). GPs should also ensure that the right to use such credit facilities is well described in the offering or private placement memorandum distributed to investors. Conclusion Subscription credit facilities for investment funds must be tailored to this very specific industry. Applying the principles of traditional lending to such facilities will result in the inadequacy of the facility and will not serve any party’s interest. For all parties involved, one essential rule remains: the economics of a fund and the mechanisms of the facility must be well understood by all so that the credit agreement, the LPA and the side letters are aligned and operate without conflicts. What you want in the end is a well-oiled machine. Most private equity and venture capital funds are structured as limited partnerships whereby the manager is acting as general partner of the fund. For more information on the method of determination of the distribution waterfall, see our article entitled “Private equity fund economics in Canada: an overview of the essentials” published in December 2014 in the Lavery Capital newsletter No. 3. In addition, given that LPs must ensure that their capital is readily available to answer cash calls, such capital would generally produce low returns (or no returns at all). This is one more reason why LPs prefer to have their capital used by the fund manager as early as possible to generate returns. This is also why GPs would never simply call the capital of LPs regularly in advance in anticipation of future portfolio investments solely to simplify the management of drawdown requests. We refer you to the ILPA’s Best Practices for the financial demonstrations. Some LPAs will provide for a single clawback mechanism triggered at the time of the dissolution of the fund, while others will also provide for an interim clawback mechanism after a certain number of years. The ILPA’s Best Practices recommend that the maximum amount that can be drawn on a facility should equal a maximum percentage of the uncalled capital rather than being based on the fund’s aggregate committed capital. The terms and conditions of a blocked account agreement may vary but will ultimately give the lender control over the funds deposited in the account in case of a default under the credit facility. For more information on restrictions applying to pension funds, see our article entitled “Pension Plans and their investment rules: investing in alternative investment funds in full compliance” published in October 2016 Lavery Capital newsletter No. 12. For the same reason, Canadian pension funds will sometimes want to restrict the ability of the GP to grant the lender rights allowing it to require reimbursement of the facility directly from the LPs.
On May 4, 2021, the Government of Canada, the Government of Québec, the Fonds de solidarité FTQ and Ivanhoé Cambridge announced the formation of a consortium of investors that will make $120 million available to co-ops, non-profit organizations (NPOs) and housing agencies for the construction or renovation of affordable housing. The Lucie and André Chagnon Foundation, Fondaction, the Mirella and Lino Saputo Foundation and the J. Armand Bombardier Foundation collectively added $31 million to the sum. The strategic partnership will be managed by the Association des groupes de ressources techniques du Québec (AGRTQ) starting in the fall of 2021. Lavery Lawyers advised and assisted the project partners with the drafting and implementation of the legal structure and documentation necessary to create and start up the consortium of investors. Lavery is pleased to have put its expertise and professional and financial resources to work for the project, and to thereby contribute to an initiative that benefits both families and the economic vitality of Quebec. The Lavery team, led by Brigitte Gauthier, was composed of Jean-Sébastien Desroches, Jean-François Maurice, François Renaud, Bernard Trang and André Vautour.
Lavery is proud to announce that 29 partners are ranked among the leading practitioners in Canada in their respective practice areas in the 2021 edition of The Canadian Legal Lexpert Directory. The following Lavery partners are listed in the 2021 edition of The Canadian Legal Lexpert Directory: Asset Securitization Brigitte Gauthier Aviation (Regulation & Liability) Louis Charette Class Actions Myriam Brixi Louis Charette Construction law Nicolas Gagnon Corporate Commercial law Jean-Sébastien Desroches Yves Rocheleau André Vautour Corporate Finance & Securities Josianne Beaudry René Branchaud Corporate Tax Audrey Gibeault Employment Law Marie-Josée Hétu, CIRC Guy Lavoie Family Law Elisabeth Pinard Infrastructure Law Jean-Sébastien Desroches Intellectual Property Chantal Desjardins Isabelle Jomphe Alain Y. Dussault Insolvency & Financial Restructuring Yanick Vlasak Labour Relations Michel Desrosiers Richard Gaudreault Simon Gagné Danielle Gauthier, CHRP Michel Gélinas Marie-Josée Hétu, CIRC Guy Lavoie Zeïneb Mellouli Litigation - Commercial Insurance Bernard Larocque Judith Rochette Litigation - Product Liability Louis Charette Mergers & Acquisitions Jean-Sébastien Desroches Mining Josianne Beaudry René Branchaud Sébastien Vézina Occupational Health & Safety Éric Thibaudeau Property Leasing Richard Burgos Workers' Compensation Guy Lavoie Carl Lessard Éric Thibaudeau The Canadian Legal Lexpert Directory is the most comprehensive publication to legal talent in the country and it identifies leading practitioners in over 60 separate practice areas and leading law firms in over 40 practice areas. It is a reference guide for Canadian and foreign corporate counsels and law firms in need of specialized legal services in Canada. For more information, please visit Lexpert’s website at: http://www.lexpert.ca/directory.
Brigitte Gauthier and Luc Thibaudeau, associates in the Business Law and Litigation groups, respectively, are providing a series of three training sessions for counsel at the National Bank of Canada on the impact of the Act mainly to modernize rules relating to consumer credit and to regulate debt settlement service contracts, high-cost credit contracts and loyalty programs (the “Bill”). At the sessions, Ms. Gauthier and Mr. Thibaudeau work with National Bank of Canada lawyers on analyzing the various issues that arise under the new provisions of the Consumer Protection Act in relation to consumer credit, and other amendments to the Act proposed in the Bill. The first two sessions were held this past December and January, and the next will take place on March 1. Other meetings are planned to take place after the Government publishes the new regulations that will be put in place once the Bill comes into force.