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

Canada Small Business Financing (Establishment and Operation of Capital Leasing Pilot Project) Regulations Whereas, pursuant to subsection 13(5) of the Canada Small Business Financing Acta, the Minister of Industry caused a copy of the proposed Canada Small Business Financing (Establishment and Operation of Capital Leasing Pilot Project) Regulations, substantially in the form set out in the annexed regulations, to be laid before the House of Commons and before the Senate on October 3, 2001; S.C. 1998, c. 36 Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister for the purposes of the Atlantic Canada Opportunities Agency Act, the Minister of Western Economic Diversification, the Minister of Industry, the Minister of Finance and the Treasury Board, pursuant to sections 13 and 14 of the Canada Small Business Financing Acta, hereby makes the annexed Canada Small Business Financing (Establishment and Operation of Capital Leasing Pilot Project) Regulations. 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 the total financing amount of the capital lease, the outstanding balance of any other capital lease registered with the Minister in accordance with these Regulations, and 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: 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; the term of the lease or leasing is greater than 75% of the economic life of the equipment; and the net present value of the scheduled payments made under the lease or leasing, calculated in accordance with the annual 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 is entered into. (contrat de location-acquisition) cost of the equipment means, in respect of equipment that is the subject of a capital lease, in respect of new equipment, the purchase price of the equipment provided to the lessee, in respect of used equipment, the lesser of the purchase price of the used equipment, and the fair market value of the used equipment on the day on which the capital lease is entered into, and may include, in respect of either new or used equipment, the additional costs necessary for the operation of the equipment, other than maintenance and training costs, the cost of software related to the operation of the equipment, and 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 member of the Canadian Payments Association established by subsection 3(1) of the Canadian Payments Act as set out in paragraph 4(1)(b) or (c) or paragraph 4(2)(a) or (c) of that Act, or as set out in any of paragraphs 4(2)(d) to (h) of that Act, if the member provides, with their application to be a lessor under these Regulations, their Canadian Payments Association transit number and a certificate issued by the member’s external auditor stating that the member has been a commercial lessor in Canada for the past five years; a local cooperative credit society, within the meaning of subsection 2(1) of the Canadian Payments 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; a leasing company incorporated in Canada or a lease funder carrying on business in Canada, with a place of business in Canada, that maintains a rating of “BBB” or better issued by a Canadian bond rating agency, or participates in a securitization program approved by a Canadian bond rating agency; or 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 the amount of any overdue payments, the net present value of all future payments due under the capital lease, discounted at the annual imputed rate of interest used in the calculation of the scheduled payments, and the present value, discounted at the annual imputed rate of interest used in the calculation of the scheduled payments of the lesser of the residual value of the equipment set out in the registration form referred to in subsection 12(1), and the bargain purchase option price of the equipment set out in the capital lease. (solde impayé du contrat de location-acquisition) rate of interest on Government of Canada bonds means for a capital lease with a term of less than three years, the one to three year Government of Canada marketable bonds average yield as published by the Bank of Canada on the last Wednesday of the month before the day on which the capital lease is entered into; for a capital lease with a term of three to five years, the three to five year Government of Canada marketable bonds average yield as published by the Bank of Canada on the last Wednesday of the month before the day on which the capital lease is entered into; and for a capital lease with a term exceeding five years but not exceeding ten years, the five to ten year Government of Canada marketable bonds average yield as published by the Bank of Canada on the last Wednesday of the month before the day on which the capital lease is entered into. (taux de rendement des obligations du gouvernement du Canada) 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 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 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 the financed cost of the equipment, and the registration fee referred to in subsection 14(1), if the fee has been financed and is set out in the registration form referred to in subsection 12(1). (montant total du financement du contrat de location-acquisition) 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. For the purposes of these Regulations, a lessee is related to another lessee or borrower if either lessee or borrower directly or indirectly controls the other in any manner; 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; the lessee carries on their small business in partnership with the other lessee or borrower who carries on another small business; or the lessee shares management services, administrative services, equipment, facilities or overhead expenses of the business with the other lessee or borrower, but is not in partnership with that lessee or borrower. 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 their directors. 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. 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. 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. The following conditions shall be satisfied in respect of a capital lease: the capital lease shall meet the criteria set out in subsection (2); the purpose of the capital lease is to provide equipment necessary for the operation of the lessee’s small business, namely, new equipment, or used equipment that has an economic life greater than the term of the capital lease. These Regulations apply to a capital lease if the cost of the equipment does not exceed $250,000; the total financing amount of the capital lease does not exceed $250,000; and the aggregate outstanding balance in respect of a lessee that is a party to the capital lease or a related lessee or borrower does not exceed $250,000. These Regulations do not apply to a capital lease if the capital lease is to provide equipment the cost of which exceeds $250,000; equipment for which the financed cost is greater than 100% of the cost of the equipment; real property or immovables; equipment that is the subject of a conditional sale; or equipment that is the subject of a sale-lease back. Subject to subsection 21(2), the maximum term of a capital lease is 10 years beginning on the day on which the capital lease is entered into. Subject to subsection (2), the Minister is liable to pay a lessor any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of a lessee’s default on a capital lease. 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 on or after the date set out in the notice. 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. 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 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, 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, 10% of that part of the aggregate total financing amount of all capital leases entered into by the lessor that exceeds $500,000, and 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 36. 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 is entered into. 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 44(7). The Minister is not liable to make any payment to a lessor unless the lessor has paid to the Minister the registration fee referred to in subsection 14(1); paid to the Minister the administration fee referred to in subsection 14(2); and complied with the other requirements of these Regulations. 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. If non-compliance with subsection (1) is inadvertent, the Minister shall extend the period by two months. The registration of a capital lease shall be done on a form that shall be signed by the lessor and the lessee and contain the following information: the lessor’s name, address and an identification number assigned by the Minister; the lessee’s name and the address and telephone number of the small business; the day on which the capital lease is entered into; a statement setting out the registration fee referred to in subsection 14(1), if it is financed, the cost of the equipment, and the value of the bargain purchase option or the residual value of the equipment; any charges and insurance premiums referred to in section 16, that the lessee is required to pay; the lessor’s acknowledgement that the lessee was not required to pay any fees or charges other than those authorized by these Regulations; the lessee’s consent to the audit, by the Minister, of the capital lease approval and administration file held by the lessor, the release, by the Minister, of information in respect of the lessee’s outstanding capital leases registered with the Minister in accordance with these Regulations to another lessor to whom the lessee applied for a capital lease, the release by the Minister, of information in respect of the lessee’s outstanding loans made under the Act and the lessee’s outstanding guaranteed business improvement loans made under the Small Business Loans Act, to another lessor to whom the lessee applied for a capital lease, and the release by the Minister, of information in respect of the lessee’s outstanding capital leases registered with the Minister in accordance with these Regulations to a lender to whom the lessee applied for a loan; 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; 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; the lessor’s acknowledgement that the capital lease does not provide for any matter referred to in paragraphs 4(a) to (e); and the lessor’s acknowledgement that, before approving the capital lease, the lessor acted in accordance with the due diligence requirements referred to in section 19. The registration form referred to in subsection (1) shall be accompanied by a capital lease cost form signed by the lessor which contains the following information: the annual imputed rate of interest used in the calculation of the scheduled payments; a complete breakdown of the calculation of the scheduled payments; and in the case of used equipment, the fair market value of the equipment on the day on which the capital lease is entered into. Every capital lease is subject to the condition that no fee or charge is payable by a lessee other than the registration fee referred to in subsection 14(1); the administration fee referred to in subsection 14(2); and any other fee or charge authorized by these Regulations. 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 financed cost of the equipment, may be included in the total financing amount of the capital lease. An administration fee in respect of a capital lease shall be paid by the lessor to the Minister. It is calculated at the end of each month at the annual rate of 1.25% applied to the outstanding balance of the capital lease minus the present value of the lesser of the bargain purchase option price of the equipment set out in the capital lease. The administration fee is payable quarterly, within two months after the end of each quarter. 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. 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 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 that for that year, the lessor shall submit the statement required by subsection (6) rather than the statements required by subsection (4). 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 administration fee was calculated. On application by a lessor within one year after a capital lease registered with the Minister in accordance with these Regulations is entered into, the Minister shall 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 and subtract the value of that portion of the equipment from the total financing amount of the capital lease; or 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 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. The lessor shall not charge the lessee for the administration fee except through the imposition of an annual imputed rate of interest. 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. A lessor may require a lessee to pay, in addition to the registration fee referred to in subsection 14(1) and the administration fee referred to in subsection 14(2), any charge to register the lessor’s security interest or to publish their rights; 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; 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, if stipulated in the capital lease; any cost related to the inspection of the equipment, if stipulated in the capital lease; any fee for changes to the capital lease requested by the lessee; any expense incurred by the lessor to preserve their security in the event of default; any fee or charge related to maintaining the equipment in good condition, if stipulated in the capital lease; and any premiums for equipment liability, physical damage and replacement insurance, if required under the capital lease. The Minister is authorized to designate organizations as lessors. 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 maintain a rating of “BBB” or better issued by a Canadian bond rating agency; or participate in a securitization program approved by a Canadian bond rating agency. 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 obtaining credit references or conducting a credit check on the lessee; completing an assessment of the ability of the lessee to pay, taking into account all other financial obligations of the lessee; providing for a term similar to the term of a capital lease of the same amount that is not subject to these Regulations; and 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 is entered into. A capital lease shall set out the total financing amount, the payment terms, the frequency of the scheduled payments and the date on which the capital lease is entered into. It shall set out either the bargain purchase option price or the residual value of the equipment, as the case may be. 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 annual imputed rate of interest that does not exceed the maximum annual imputed rate referred to in section 15 as of the renewal date, to an aggregate maximum term of 10 years, including all renewal terms, beginning on the day on which the capital lease is entered into. A lessor and a lessee may, at any time, agree to revise the payment terms of a capital lease. 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. 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. 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 the capital lease as amended has a term that does not extend beyond the maximum period specified in section 5; the annual imputed rate of interest used in the calculation of the scheduled payments is the same as the annual imputed rate of interest used in the original capital lease; 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, the detailed cost of the improvements, a detailed calculation of the revised payments, the additional cost of the equipment that has been financed, and the new outstanding balance of the capital lease; and 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. Subject to subsection (2), 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. Where applicable, 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 set up their rights against any third party. A lessor may take additional security in the assets of the lessee’s small business. The lessor may release any additional security if the capital lease is in good standing. A lessor may, in addition to the forms of security referred to in sections 23 and 24, take one or more unsecured personal guarantees or suretyships for an amount that does not exceed the aggregate of 25% of the total financing amount of the capital lease, the interest on any judgment against the surety, taxed costs for, or incidental to, legal proceedings against the surety, and 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. 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). A lessor may, in addition to any security or guarantee or suretyship referred to in sections 23, 24 and 26, take one or more secured or unsecured corporate guarantees or suretyships. 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. 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 26. 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 14(2). Despite subsection (1), the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of lessees’ defaults on all capital leases entered into by the lessor if the non-compliance is inadvertent; and 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. 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 capital lease provides for a matter referred to in section 4; the due diligence requirements referred to in section 19 are not met; the requirements under section 23 are not met; or the requirements under paragraph 44(4)(a) are not met. 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 44(7), sustained on the portion of the total financing amount of the capital lease that relates to equipment and that is in compliance with these Regulations. 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 26 to 29 in respect of guarantees or suretyships are not met in respect of the capital lease. Despite subsection (1), the Minister shall pay to the lessor the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of a lessee’s default on a capital lease if the non-compliance is inadvertent and the loss was not affected by it; and 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 26(1)(a) to (d). 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 term of the capital lease is longer than the maximum period specified in section 5 or the period approved under subsection 21(2); a fee or charge is payable, other than a fee or charge referred to in section 13, 14 or 16; or 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 15. the lessor has reimbursed the lessee for any resulting overcharges and has otherwise remedied the non-compliance. Despite section 41, if a lessor does not provide a report as required by section 40 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 44(7), sustained as a result of a lessee’s default on a capital lease to which the report relates. When a capital lease is transferred by a lessor to another lessor at the request of the lessee, the parties to the transfer shall notify the Minister of the transfer in the form referred to in subsection (4). After the transfer referred to in subsection (1), the Minister is liable to pay to the transferee the amount of any eligible loss, calculated in accordance with subsection 44(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; and 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. The Minister shall determine whether the requirements set out in subsection (2) have been met and shall notify both lessors of the determination. The lessee and both the transferor and transferee 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. A transfer of a capital lease shall be registered or published in accordance with applicable provincial law. When a capital lease is transferred by a lessor to another lessor for the purpose of lease funding, both lessors shall notify the Minister of the transfer in the form referred to in subsection (4). After the transfer referred to in subsection (1), the Minister is liable to pay to the transferee the amount of any eligible loss, calculated in accordance with subsection 44(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. The Minister shall determine whether the requirements set out in subsection (2) have been met and shall notify both the transferor and transferee of the determination. The transferor and the transferee shall sign a form which includes the registration number assigned to the capital lease by the Minister. A transfer of a capital lease for the purpose of lease funding shall be registered or published in accordance with applicable provincial law. When two or more lessors intend to amalgamate to form a new lessor, they shall notify the Minister in writing of their 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 44(7), sustained as a result of lessees’ defaults on all capital leases entered into by the lessor and any capital leases entered into by the amalgamating lessors are considered to have been entered into by the new lessor; 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 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. 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. After the transfer referred to in subsection (1), the Minister is liable to pay to the transferee the amount of any eligible loss, calculated in accordance with subsection 44(7), sustained as a result of lessees’ defaults on all capital leases entered into by the lessor. No other capital leases of the transferee that have been registered with the Minister in accordance with these Regulations shall be taken into account in determining the Minister’s liability. 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 the lessor approves the transferee as the lessee in accordance with the due diligence requirements referred to in section 19, and the aggregate outstanding balance in respect of the lessee or any related lessee or borrower does not exceed $250,000; the security referred to in section 23 is maintained; any additional security referred to in section 24 is maintained or replaced by other additional security of equal or greater value on the assets in accordance with that section; and any guarantee or suretyship referred to in section 26 is maintained or replaced by another guarantee or suretyship of equal or greater value in accordance with that section. Nothing in subsection (1) precludes the lessor from releasing the lessee from their obligations under the capital lease. 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 in accordance with the due diligence requirements referred to in section 19, 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 the conditions set out in paragraphs (1)(b) to (d) are met. 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 in accordance with the due diligence requirements referred to in section 19, the lessor approves the fact that the remaining partners have assumed the obligations of the new partnership; and 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 registered with the Minister in accordance with these Regulations: the registration number assigned to the capital lease by the Minister; the lessee’s name; and the outstanding balance of the capital lease as at March 31 in that year. If the lessor does not provide a report in accordance with section 40, 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 40(a) to (c) was not provided. For the purposes of these Regulations and subject to section 21, 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. If a lessee is in default under section 42, 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. 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. 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: collect the outstanding balance of the capital lease; fully realize any security, guarantee or suretyship; realize on any insurance policy under which the lessor is the beneficiary; 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 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. 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 is entered into, in an amount no greater than the aggregate of interest on the judgment, taxed costs for, or incidental to, the legal proceedings against the lessee, and 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. A lessor shall take all of the measures described in subsection 43(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. Subject to subsection (3), a lessor shall submit a claim for loss within 36 months after the expiry of the period specified in the notice referred to in subsection 43(1). The Minister is authorized to extend the period referred to in subsection (2) if the lessor so requests before the expiry of the period. A claim for loss shall be certified by the lessor and shall be accompanied by 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; a copy of any document in respect of the net amount received by the lessor from any disposition of the equipment under subparagraph (7)(b)(i); a copy of a statement of account in respect of the capital lease; and a copy of the capital lease approval and administration files held by the lessor, if requested by the Minister. 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 19 when entering into and administering the capital lease and has taken the measures against the lessee required by subsection (1). 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. An eligible loss sustained by a lessor shall be calculated as follows: by determining the aggregate of the following amounts, namely, the outstanding balance of the capital lease on the expiry of the period specified in the notice referred to in subsection 43(1), the amount of interest calculated in accordance with subsection (10), uncollected taxed costs for, or incidental to, any legal proceedings in respect of the capital lease, and 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 by deducting from the aggregate amount the aggregate of the following amounts, namely, the greater of the residual value of the equipment set out in the registration form referred to in subsection 12(1), or the net amount received by the lessor on any sale or other disposition or on any capital lease of the equipment, any other proceeds realized from the taking of any measures described in subsection 43(3), and any amount paid by the lessor to a secured creditor, if the secured creditor has any security interest or rights in the equipment financed by the capital lease, and the security interest or rights rank ahead of the lessor’s security interest or rights. If a lessor enters into a new capital lease with another lessee, of equipment that was already the subject of a capital lease, the net amount received by the lessor referred to in subparagraph (7)(b)(i) shall be calculated by determining the aggregate of the following amounts, namely, any down payment made by the lessee, and the present value of the outstanding balance of the new capital lease, calculated in accordance with subsection (9). The present value of the outstanding balance of the new capital lease referred to in paragraph 8(b) shall be calculated at an annual imputed rate of interest and be determined by the formula is equal to the annual imputed rate of interest used in the calculation of the scheduled payments in respect of the original capital lease; is equal to the rate of interest on Government of Canada bonds in effect on the day the original capital lease was entered into; is equal to 1.25%, being the rate of the administration fee referred to in subsection 14(2); and is equal to the rate of interest on Government of Canada bonds in effect on the day the new capital lease is entered into. The amount of interest referred to in subparagraph (7)(a)(ii) shall be calculated on the outstanding balance, taking into consideration any proceeds realized from the taking of any measures described in subsection 43(3), as follows: in respect of the period beginning on the day of default and ending on the expiry of the period specified in the notice referred to in subsection 43(1), at the annual imputed rate of interest used to calculate the scheduled payments in respect of a capital lease; 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; 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 in respect of the 24-month period immediately after the period referred to in paragraph (c), at a rate of interest of 0%. If the total financing amount of a capital lease referred to in subparagraph 12(1)(d)(i) is not equal to the total financing amount set out in the capital lease, the eligible loss calculated in accordance with subsection (7) shall be calculated on the portion of the capital lease that was registered with the Minister in accordance with these Regulations. A lessor may make an interim claim to the Minister for loss, calculated in accordance with subsection 44(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 43(3) that are applicable and either paragraph 43(3)(b) applies but the guarantee or suretyship has not been fully realized; or paragraph 43(3)(d) applies but the compromise settlement has not been fully implemented. 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. Subsections 44(2) to (11) apply, with such modifications as the circumstances require, to an interim claim. 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. 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 44 for the difference. 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. 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 19 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. 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. 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, 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. 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. 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. 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. These Regulations shall cease to have effect on April 1, 2007. Subject to subsection (2), these Regulations come into force on April 1, 2002. The definition lessor in subsection 1(1), and sections 17 and 18 come into force on the day on which these Regulations are registered.