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Highlights
LARGE VALUE TRANSFER SYSTEM
Transaction Closing Process Using the Canadian Large Value
Transfer System
Alison R. Manzer
Since mid-2003, cheques and drafts presented in an
amount of $25,000,000 or more cannot be cleared through the paper-based
funds clearing processes of the Canadian Payments Association system. It
is now necessary to clear these payments using the electronic fund
transfer "LVTS" system in Canada. Alison Manzer examines a
number of legal issues that need to be understood to prepare closing
process recommendations for transactions where payment will involve use
of the LVTS system. The LVTS provides an essentially instantaneous,
guaranteed funds transfer once the payment is accepted for transfer.
However, compared to a simple paper-based exchange, a wire transfer
cannot be engineered to match the timing and exchange by delivery
requirements familiar in Canada. An electronic transfer is essentially
unconditional as soon as initiated. The payor loses control over the
fund transfer once it gives instructions to its bank and those
instructions are acted on by submission to the CPA – LVTS system.
Initiation of the fund transfer can usually therefore only be initiated
after all of the conditions for delivery of the consideration have been
met. Timing is therefore the key risk to be considered in the use of the
LVTS system for the professional, or the parties, involved in a
financing or other corporate or commercial transaction. The closing
protocol, and the agreement as to timing and finality of payment and
exchange, setting out the sequencing for wire transfers and information,
should be agreed between the parties as part of the agreement on closing
process. The closing agreement, a funding memorandum or the relevant
transaction documents, should confirm the closing process. The
transaction documents should contemplate the use of electronic payment,
and outline the responsibility for initiation, when payment is final,
and who bears the cost of a delayed or erroneous wire transfer. This
should be done despite the minimal risk that these events will occur. If
there is a tight time frame for funding to be "final,"
consideration can be given to pre-funding an escrow account prior to
closing. As an alternative, using the same bank for the payor and payee,
possibly with an escrow arrangement, could also be considered to shorten
the fund transfer period of time and reduce uncertainty. As the author
notes, lawyers may want to avoid the use of trust accounts to receive
wire transferred funds, particularly where there is intended to be a
rapid on-funding of the monies. If there is a time-sensitive requirement
for initiation and receipt of funds, legal counsel should confirm they
are not responsible for the timing of the wire transfer, including a
delay which may occur arising from any of a number of causes, including
errors in the wire transfer instructions.
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Board
Jeffrey G. MacIntosh
Editor-in-Chief
Faculty of Law, University of Toronto
David M. Armstrong
McCarthy Tétrault LLP
Andrew W. Aziz
Osler, Hoskin & Harcourt LLP
Robert R. Cranston
Lang Michener LLP
Wendy B. Kennish
Torys LLP
Martin Elliot Kovnats
Aird & Berlis LLP
C. Ian Kyer
Fasken Martineau DuMoulin LLP
Alison R. Manzer
Cassels Brock & Blackwell LLP
Brendan D. Reay
Blake, Cassels & Graydon LLP
John E. Stark
Ogilvy Renault
Connie Sugiyama
Gowling Lafleur Henderson LLP
Mihkel E. Voore
Stikeman Elliott LLP
Kenneth R. Wiener
Goodmans LLP
Ava G. Yaskiel
Ogilvy Renault |
