Posting of Financial Security - General Public Information
The ministry requires posting of financial security for many waste management facilities. The purpose of security is to protect the ministry and the taxpayer from financial liability for losses or damages that may result from operation of such facilities. Security is to be maintained with a financial institution in a form and amount approved by the Regional Waste Manager, and may be accessed and used at the discretion of the manager for the repair, operation, maintenance, replacement or improvement of the waste facility.
The two types of financial guarantees recognized by the ministry are:
- security deposits (including negotiable securities held pursuant to a Safekeeping Agreement, irrevocable letters of credit, bank drafts, money orders and cash); and
- surety bonds
Acceptable forms of security are described below, listed in order of ministry preference:
Security Deposits
(a) Negotiable Securities (i.e. short-term deposits, treasury bills or marketable bonds) held pursuant to a Safekeeping Agreement
i. short-term deposits (term deposits) must be:
- issued by a financial institution;
- redeemable at par value before maturity;
- registered in the name of the Minister of Finance; and
- set up for automatic renewal until the financial institution receives new written instructions from the ministry.
ii. treasury bills or marketable bonds (including B.C. Savings Bonds), must be:
- in fully registered form;
- issued and/or guaranteed by the Government of Canada or the government of any province of Canada; and
- be assignable, and accompanied by a duly executed power of attorney to the Minister of Finance.
A Safekeeping Agreement, which is used to safeguard negotiable securities, is an agreement between the ministry (acting on behalf of the Minister of Finance and Corporate Relations), a chartered bank and the permittee. It is used when the ministry enters into a contractual agreement with a permittee and, for bonding purposes, the permittee deposits a specified security with the financial institution.
One benefit of a Safekeeping Agreement is that depositors can continue to earn interest on their security deposit funds.
(b) Irrevocable Letters of Credit
An irrevocable letter of credit is issued by a financial institution, on behalf of a permittee (its client), wherein the financial institution agrees to pay to the Minister of Finance and Corporate Relations, a part or all of the amount identified in the letter, on behalf of the permittee, when presented for payment by an authorized individual.
As an irrevocable letter of credit is normally issued for a maximum period of one year; however, it will only be accepted by the ministry if it contains the "Evergreen Clause" as follows,
This letter of credit shall be deemed to be automatically extended on an annual basis without any formal amendment unless thirty days prior to the present expiry or any future expiry date as automatically extended we shall notify you in writing that we elect not to extend the letter of credit for any further period and at the same time forward to you together with such written notice of election a bank draft payable to the Minister of Finance and Corporate Relations at the Ministry of Environment, Lands and Parks office holding the letter of credit in the amount of $_____ less any amount previously paid under this letter of credit.
The following are acceptable, but not preferred, forms of security deposits. It should be noted that the ministry will not pay interest on these deposits.
(c) Bank Drafts
Issued by a financial institution, payable to the Minister of Finance.
(d) Money Orders (personal or postal)
Issued by a financial institution or by Canada Post Corporation, payable to the Minister of Finance.
(e) Cash
Surety Bonds
A surety bond is a written legal agreement between the government, the permittee and a Surety Company which is registered to do business in British Columbia under the Financial Institutions Act or the Insurance Act. Under the terms of the surety bond, the surety agrees to pay the government (the claimant) if the permittee fails to fulfill its obligations to the government (under the waste management permit). The surety bond is intended to guarantee that, in the event that the permittee fails to comply with the terms and conditions of the permit, the surety will undertake required work, or pay the government for costs incurred. The bond is brought into force by the payment of a fee by the permittee to the surety.
It should be noted that not all companies are bondable (especially small companies) nor are surety bonds available to companies who will be exposed to environmental risks.
Surety bonds, though acceptable, are the least preferred form of security. The ministry advises that, where possible, surety bonds should be avoided in favour of other forms of security.
The following forms of security deposits are not acceptable to the ministry:
- bearer bonds and notes (are non-registered forms of negotiable securities);
- Canada Savings Bonds (cannot be assigned from the purchaser to the ministry);
- certified cheques (only guarantee that funds are available at time of certification); and
- assignable bonds and notes not accompanied by a power of attorney (without power of attorney to transfer securities, the ministry would have no authority to redeem these).
August 2002
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