Criteria and procedures for converting non-cash forms of financial assurance to cash and for using financial assurance to carry out compliance activities and for returning financial assurance when it is no longer required.

Criteria used to determine whether financial assurance is “impaired” are presented in Section 8.2. Section 8.3 contains procedures used to convert non-cash financial assurance form to cash. Section 8.4 describes how financial assurance funds may be utilized to undertake clean-up, remediation or other environmental compliance measures. Section 8.5 presents criteria that indicate when to terminate and return financial assurance to regulated parties. Two flow charts presented in Appendix F demonstrate the main steps for the proper administration of:

  1. Returning financial assurance; and
  2. Converting non-cash financial assurance forms to cash and using the financial assurance to implement compliance activities specified in orders and approvals.

Financial assurance is not a penalty. Financial assurance should be retained as long as there is a potential need for its use in the future. Financial assurance should be terminated and returned when it is no longer needed or when the funds have been used to pay for activities that were required in an order or approval.

8.1 When demand likely to be made against financial assurance

8.1.1 Without limiting the scope of sections 135 and 136 of the Environmental Protection Act, but as a guide to any issuer of, or person providing, financial assurance documentary form, including a bond or a letter of credit, absent special circumstances, it is likely that the bond or letter of credit will be converted to cash under subsection 136 (2) in any one or more of the following circumstances:

  1. Where the person to whom the approval is issued or the order is directed and whose due performance of the terms and conditions of the approval or order, or any of them, is secured by the financial assurance (the “Principal”) defaults in the performance of those terms and conditions, and fails to correct that default within 15 days after the Director demands such correction;
  2. Where any formal or informal proceeding for the dissolution of, liquidation of, or winding up of, the affairs of the Principal is instituted by or against the Principal, or where a resolution is passed or any other act undertaken for the winding up of the Principal;
  3. Where a receiver or receiver manager is appointed over the general assets and undertaking of the Principal, or the assets in relation to the financial assurance is provided, whether by any court or under an agreement, or where proceedings are otherwise taken to enforce an encumbrance against the general assets and undertaking of the Principal or the assets in relation to the financial assurance is provided;
  4. Where the Principal abandons the assets to which the approval or order relates, or ceases or threatens to cease to carry on its business, or where the Principal makes or agrees to make a bulk sale of its property;
  5. Where on reasonable grounds the Director believes that any of the property of the Principal necessary to the performance of the terms of the approval or order has been damaged or destroyed or is in danger of being damaged or destroyed, sold or removed or that any of the acts or events described in this section is about to occur or is likely to occur;
  6. Where the Principal defaults in payment of any indebtedness or liability to a bank or other lending institution, whether secured or not;
  7. Where the Principal is adjudged bankrupt or becomes insolvent, or a petition in bankruptcy is filed against the Principal, or where the Principal makes an assignment for the general benefit of its creditors, or applies for relief under the Companies Creditors Arrangement Act, or Chapter 11 of the United States Bankruptcy Code, or makes a proposal under the Bankruptcy and Insolvency Act, or where any other proceeding of any type is instituted in any jurisdiction in respect of the alleged insolvency or bankruptcy of the Principal.

8.1.2 In the event of a change in circumstances, including an event described in paragraph (g) above, that may trigger a demand on documentary financial assurance, it may be necessary to re-evaluate the nature of the work based on which the amount of the financial assurance has been calculated.

8.2 Situations contributing to the impairment of financial assurance

8.2.1 The Program Director should convert non-cash financial assurance to cash as soon as possible whenever financial assurance becomes “impaired.” Impaired financial assurance means that the sufficiency or the accessibility of the financial assurance provided by a regulated party is uncertain in some way.

8.2.2 Financial assurance becomes impaired when one or more of the following conditions or situations apply:

  1. Notice is received, or it otherwise becomes known, that the regulated party, the issuing bank or the guarantor is or is becoming insolvent (for example, a regulated party or its corporate parent party files for credit protection or lays off employees to an unprecedented extent);
  2. Notice is received, or it otherwise becomes known, of a proposed cancellation or non-renewal of a non-cash form of financial assurance and a satisfactory alternative form of financial assurance has not been arranged (sufficiently) prior to the cancellation or expiry of the existing financial assurance. Non-renewal means the non-cash form has not been renewed by at least 60 days prior to the expiry date;
  3. A site is abandoned and work remains to be done;
  4. Notice is received, or it otherwise becomes known, that the enterprise, firm or individual to whom an order or approval is issued ceases to operate or to perform its business activities. Further, there is no new owner or operator of the business who has provided satisfactory financial assurance and will continue the operation or activities of the original owner or operator and to whom the original order or approval should be reissued;
  5. Inspections or other evidence reveals that a landfill, a waste transfer station or a waste processing facility has accepted, disposed of or stored more material than allowed by the approval; and
  6. If there is non-compliance other than that noted in (e) above, the significance of the non-compliance, particularly in terms of human health or environmental effects, and the particular circumstances contributing to the non-compliance shall be considered prior to converting the non-cash form to cash or otherwise drawing upon the financial assurance.

8.3 Procedures for converting non-cash forms of financial assurance to cash

8.3.1 Conversions of non-cash financial assurance to cash are to be authorized by the Program Director and undertaken with assistance from the Business and Fiscal Planning Branch. Ministry correspondence to the financial institution and proponent shall reflect the language of the EPA to state that the financial assurance will be converted to cash unless the non-cash financial assurance is renewed or replaced to the satisfaction of the Program Director.

Correspondence between the Program Director and the Business and Fiscal Planning Branch requesting that non-cash financial assurance funds be converted to cash should be accompanied by supporting documentation including, but not restricted to, any relevant order or other documentation.

8.3.2 Cash from converting a non-cash form of financial assurance will be deposited to an account in the Consolidated Revenue Fund. Any interest earned on the cash accounts will accrue to the balance of the account and, if necessary, can be used to pay for required activities or projects related to the order or approval under which the financial assurance was obtained.

8.3.3 If an operator or a proponent fails to renew a non-cash form of financial assurance (i.e., financial assurance is not renewed by at least 60 days before it would otherwise expire) or does not provide a new form of financial assurance, the Program Director should amend the approval to stop the operations and/or otherwise enforce the order. Also, the Program Director should, at least 30 days before the expiry date, instruct the Business and Fiscal Planning Branch to demand payment in cash from the financial institution if the financial assurance is not renewed.

8.3.4 After the financial assurance has been converted to cash, the Program Director should claim as much of the available financial assurance as is necessary to pay for all work done by the Ministry to complete the terms and conditions of the order or approval. The Program Director should coordinate the access to and use of financial assurance with the Business and Fiscal Planning Branch.

8.3.5 Conversion to cash is not necessary if the Program Director has provided written consent that the financial assurance is no longer required or if the Program Director has received other financial assurance in a form and amount that is sufficient and acceptable.

8.3.6 Flow chart F3 in Appendix F outlines the necessary procedures to convert non-cash to cash.

8.4 Use of financial assurance to implement compliance activities

8.4.1 Use of financial assurance to initiate, undertake, implement or complete an action, clean-up or environmental measure as specified in the order or approval is to be authorized by the Program Director in a separate order under section 136 of the EPA. The Program Director should give affected parties notice of the proposed order and post the proposed order on the Environmental Registry as required. The order must be directed to:

  1. The person to whom the approval or order was issued or any other person who is bound by the approval or order; and
  2. Any person that to the knowledge of the Program Director has provided the financial assurance for or on behalf of a person referred to in paragraph a), or any successor or assignee of a person that to the knowledge of the Program Director has provided the financial assurance for or on behalf of a person referred to in paragraph a).

8.4.2 Where possible, Ministry staff should give regulated parties sufficient notice, usually at least 30 days, of any action to use the financial assurance. However financial assurance should be converted to cash (prior to using the financial assurance) as expeditiously as possible given the situations noted in Section 8.2.

8.4.3 A section 136 Order:

  1. Must state that the Ministry may use the financial assurance provided for environmental work and that the Ministry may carry out this work;
  2. Must specify why the financial assurance was originally obtained and how the conditions are not being carried out in accordance with all the requirements of the approval or order;
  3. Is a prescribed instrument under the Environmental Bill of Rights (EBR), and must be posted on the Environmental Registry for a 30-day public comment period;
  4. Is prepared with assistance from Regional solicitors;
  5. Is initiated by Program Director; and
  6. Is accompanied by the financial assurance Refund/Disbursement Form (refer to Appendix I) approved by the Regional Director.

8.4.4 Business and Fiscal Planning Branch should be notified of the intent to access the financial assurance and to verify that the financial assurance is valid and accessible before the section 136 Order or Notice is issued.

8.4.5 Program Director’s correspondence to Business and Fiscal Planning Branch requesting the use of the financial assurance funds should be accompanied by supporting documentation such as: financial assurance Refund/Disbursement Form signed by the Regional Director, section 136 Order and supporting information such as contractor estimates or invoices.

8.4.6 Sometimes work has to be completed immediately to prevent or mitigate environmental or public health risk and therefore the Ministry cannot wait for the EBR posting to release the financial assurance funds. In that case, the order will be posted as an emergency exception.

8.4.7 In these cases, the Ministry shall give notice under subsection 147 (1) of the EPA if the person ordered to do the work is unlikely to do the work promptly or competently; has refused to comply with the order; or, requires assistance with the order. Subsection 147 (1) of the EPA allows the Ministry to hire a different contractor than the one in use by the provider of the financial assurance to carry out the activities according to the terms and conditions of the order or approval or to complete the required works. The Program Director shall provide notice under subsection 147 (2) of the EPA to each person required by an order or decision made under the EPA to do the thing, and, if a receiver or trustee in bankruptcy is not required to.

8.4.8 The Ministry or its agent will pay for the costs to complete the work and will be reimbursed from the financial assurance account after the EBR posting and appeal period is finished for the section 136 Order. If an agent completes the work, the Ministry must be satisfied with the completion of the work prior to the release of funds.

8.4.9 Where facilities or sites are abandoned, financial assurance will be expended on required decommissioning, clean-up and other necessary activities.

8.4.10 Where it is not feasible to utilize outside contractors to complete required environmental works or measures as required by the order or approval (for example, where access cannot be gained to an abatement facility or where compliance requires a process change within a manufacturing plant), and it becomes necessary for the Ministry to convert non-cash financial assurance to cash, the Ministry will hold any funds in the Consolidated Revenue Fund until compliance is achieved and compliance requirements are complied with the satisfaction of the Program Director. In such cases, staff in Legal Services Branch should be consulted.

8.4.11 The Program Director should document the steps leading to the conversion of the financial assurance to cash and the steps taken to obtain and utilize the financial assurance. Where necessary, assistance should be obtained from staff in the Legal Services Branch and the Economic Analysis Section. Copies of all relevant documentation regarding an order or approval are to be sent to the Business and Fiscal Planning Branch and the Assistant Deputy Minister for the Operations Division of the Ministry.

8.4.12 Flow chart F3 in Appendix F outlines the necessary procedures to use financial assurance.

8.5 Return of financial assurance

8.5.1 Financial assurance can be returned to the regulated party under the following conditions:

  1. Approval is revoked and the financial assurance is no longer needed. If the facility or site is not closed, it is not recommended that an approval be revoked until Legal Services Branch is consulted on the appropriateness of a complete revocation;
  2. Work required by the order is completed and the Program Director has verified that the work has been completed satisfactorily;
  3. Current holder of the order or approval is replaced by a new holder of the order or approval and the new holder of the order or approval has provided financial assurance to the satisfaction of the Program Director. In this case, existing financial assurance should be retained until the new financial assurance is provided;
  4. A change in the issuer of the financial assurance which is requested by the current holder of an order or approval. The holder of the order or approval must ensure that the financial assurance is replaced. The Program Director should ensure that existing financial assurance remains active and in place until the new financial assurance is received; and
  5. Approval stipulates the return of the financial assurance.

8.5.2 Financial assurance for contingencies can be returned to the regulated party after site closure, if the owner/operator of the landfill site can demonstrate to the Program Director’s satisfaction that the future contingencies will not be incurred.

8.5.3 Where financial assurance is required to ensure that the regulated party has sufficient funds to complete a project or program by a deadline, the financial assurance that is provided can be returned as the regulated party incurs the expenses and submits invoices. When returning financial assurance for a partially completed project, the Program Director should require the regulated party to provide an estimate of the remaining expenses and the Program Director must ensure that enough financial assurance is retained to cover the expenses that are still outstanding.

8.5.4 Returns or reductions from financial assurance cash funds should be initiated by the Program Director and authorized by the Environmental Assessment and Approvals Branch (EAAB) Director in an order under section 134 of the EPA and communicated to the Business and Fiscal Planning Branch who will return the financial assurance to the regulated party.

8.5.5 At the discretion of the Program Director, if surplus funds (the difference between the actual amount of financial assurance and the order or approval requirement of financial assurance) exist, funds can be returned to the regulated party upon request. The Program Director should be satisfied that the excess funds will not be needed in the future. The Business and Fiscal Planning Branch is to ensure that payments made to the regulated party are in accordance with appropriate Ministry and Government of Ontario guidelines, procedures and policies.

8.5.6 Section 134 Order for returns or reductions of financial assurance:

  1. Must be issued when the Ministry returns financial assurance to regulated party;
  2. Must specify reasons why all or partial financial assurance is being released;
  3. Must specify regulated party’s appealable rights and time frames;
  4. Does not need to be posted on the Environmental Registry (not a prescribed instrument);
  5. Is initiated and approved by the Program Director for non-cash accounts;
  6. Is initiated by the Program Director and approved by the EAAB Director for cash accounts; and
  7. Is accompanied by the financial assurance Refund/Disbursement Form (refer to Appendix I) approved by the EAAB Director for cash accounts.

8.5.7 The Program Director’s correspondence to Business and Fiscal Planning Branch requesting to release or reduce financial assurance funds should be accompanied by a section 134 Order, and a financial assurance Refund/Disbursement Form. The templates are found in the Integrated Divisional System (IDS) database and can be modified by the Program Director on a case-by-case basis. The Program Director should then send the section 134 Order to the regulated party.

8.5.8 Business and Fiscal Planning Branch correspondence accompanying release of financial assurance will document that it is the responsibility of the regulated party to pay taxes on interest earned on cash financial assurance.

8.5.9 Once it is determined that financial assurance should be returned to the regulated party or the person or firm who issued the financial assurance, it should be returned to the regulated party within a reasonable time frame.

8.5.10 The Business and Fiscal Planning Branch will provide advice to the Program Director about the return or release of financial assurance.

8.5.11 Flow chart F4 in Appendix F outlines the necessary procedures to return financial assurance.