When a Member is Insolvent

For purposes of CIPF coverage, a member firm is generally considered insolvent on the date that a court appoints a trustee in bankruptcy, receiver, liquidator or other insolvency official for the member firm. If such an official is not appointed, CIPF generally considers a member firm to be insolvent on the date clients no longer have unrestricted access to their accounts. For example, this may occur if the member firm is suspended by the Canadian Investment Regulatory Organization (CIRO), the national self-regulatory organization for all investment dealers and mutual fund dealers in Canada.

In most cases, the court will appoint an insolvency official to administer the affairs of an insolvent member firm. You should contact the trustee in bankruptcy or another insolvency official who has been appointed by a court to administer the insolvent firm. A trustee in bankruptcy is a person or corporation licensed by the Office of the Superintendent of Bankruptcy Canada to administer bankruptcy proceedings. More information can be obtained on the Government of Canada website at www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/home.

If your member firm is insolvent and you don’t know who the insolvency official is, you may contact Canadian Investment Regulatory Organization (CIRO), the organization that regulates investment dealers and mutual fund dealers in Canada.

CIPF provides limited protection for property held by a member firm on behalf of an eligible client if the member firm becomes insolvent. If you have an account with a member firm and that firm becomes insolvent, CIPF works to ensure that any property being held for you by the firm at that time is returned to you, within certain limits. Client property can include securities and cash. However, CIPF does not guarantee the value of your property. Find out more about what CIPF does and does not cover here.

CIPF's role may include, in certain circumstances, requesting the appointment of a trustee in bankruptcy.

The appointment may be done at the request of the insolvent firm itself, certain creditors of the insolvent firm, or others. In certain circumstances, the appointment can be made at the request of CIPF. Depending on the circumstances of the insolvency, an insolvency official may be a trustee in bankruptcy, a receiver, a liquidator, a monitor, or other court-appointed official.

When an insolvency of a member firm occurs, CIPF works with the trustee in bankruptcy (if one is appointed) with the objective of returning any property that was being held for clients by the member firm at the date of its insolvency as quickly as possible. Since the insolvent firm can no longer carry on the function of holding property for its clients, it is generally necessary to transfer this function to another firm. As a result, client accounts may be moved to another member firm so that clients can access their accounts.

If a trustee in bankruptcy is appointed by a court, this trustee will typically be responsible for transferring client accounts to another solvent firm. If an insolvency official other than a trustee in bankruptcy is appointed by a court, this official will often be given the responsibility of transferring client accounts to another solvent firm.

CIPF protection will apply if the property being held on a client's behalf is not available to be returned to the client. Certain limitations apply. Please see What Does CIPF Cover? for more information on what is covered and not covered.

The information required to make a claim to CIPF is available from the CIPF website, or upon request to CIPF.

You must submit a proof of claim to CIPF within 180 days of the date of insolvency along with all documents and information to support the claim. If a trustee in bankruptcy is appointed by a court to manage the affairs of the member firm where you have an account, you may submit your claim form along with the supporting documentation to the trustee in bankruptcy, instead of CIPF. If no trustee in bankruptcy is appointed, the claim can generally be made directly to CIPF.

For more information, please refer to the CIPF Claims Procedures.

For member firms regulated by Canadian Investment Regulatory Organization (CIRO), there is a segregation requirement to help minimize the risk of client property being missing if a dealer fails. The segregation rules require dealers to separate clients's fully paid securities from the firm's own assets and investments, so that client's securities are not used by the dealer in the conduct of its business.

However, segregation is not required for all client property. For example, investment dealers are generally permitted to use the cash in the client's accounts. Therefore, there may still be some client property missing, even with segregation rules.

Not necessarily. For those securities that are segregated, it is possible that those securities will not be available to be returned to you if the broker becomes insolvent. The particular circumstances of insolvencies can vary widely. For example, one of the laws that may apply to an insolvency of an investment dealer or mutual fund dealer in Canada is Part XII of the Bankruptcy and Insolvency Act (Canada). If Part XII applies, all client cash and securities held by the insolvent firm for its clients at the time of bankruptcy, other than customer name securities (registered in the customer's name), would be included in a single "customer pool". Any "shortfall" of client cash or securities would be allocated proportionately from the customer pool across all clients after payment of bankruptcy administration costs.

Part XII of the Bankruptcy and Insolvency Act (BIA) is a special section of the BIA introduced in 1997. This section gives clients of a bankrupt firm clear priority over general creditors through the concept of the customer pool fund. Under Part XII, CIPF is given the status of a customer compensation body that can apply to the court for a bankruptcy order against a member firm if that member becomes insolvent.