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What Is an Eligible Financial Contract

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The general rules of the EFC appear to have borrowed, albeit imperfectly, „the issue of recurring cases“ from the U.S. Bankruptcy Act. Caution should be exercised when comparing U.S. and Canadian laws, as there are significant differences. For example, the safe harbor granted to futures contracts under U.S. law is only available if they are settled with a „futures broker“ (Section 101(26) of the U.S. Bankruptcy Act). There is no similar requirement under Canadian law. (a) a contract for difference or swap, including a total return swap, a price return swap, a default swap or a base swap; (b) an appointment; (c) a cap, necklace, bottom or spread; (d) an option; and (e) a point or point forward.

In the spring of 2007, the Canadian Parliament amended several federal bankruptcy statutes to transfer the definition of the class of protected contracts known as eligible financial contracts (CFCs) from the federal bankruptcy statutes themselves into their respective related regulations. A wide range of products, including margin loans, is now covered. On November 15, Treasury Board approved the final provisions of the Bankruptcy and Insolvency Act, the Winding-up and Restructuring Act, the Companies` Creditors Arrangement Act and the Canada Deposit Insurance Corporation Act. The amendments came into force on November 17, 2007. The long-awaited definition of the CEF includes the following types of agreements: in calpine, the General Court considered the variable price/absence of a fixed price as a factor which led to the agreement in question not being classified as an EFC. However, the Court reached this conclusion in part because of the lack of evidence that the defendants had provided coverage under the agreement. Nor was there any indication that the derivatives industry viewed the deal as a futures contract. In Re Blue Range Resources Corp., the first case to test the CEF provisions in the CCAA in 1997, the lower court (Chamber Judge) was concerned that a broad definition of futures as CFCs would nullify the general suspension objective under the CCAA. Blue Range Resources Corp., a producer, had sold the gas it produced to several trading companies through futures contracts with each of them. Unlike the contracts, which are HGFs of Blue Range Resource Corp., the contracts at issue in this case do not possess any of those characteristics and cannot be classified as HGFs. However, the mere pro forma inclusion of such clauses in a contract does not automatically qualify it as a CEF.

In determining its character, account should be taken of the contract as a whole. . . .