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Collapse of Atlantic Acceptance Corporation and its effect on the structure of liabilities and quality of reporting of Canadian finance companies

University of British Columbia

On June 14th, 1965, Atlantic Acceptance Corporation Limited, a major Canadian finance company failed to meet a $5 million matured short-term secured note and three days later the company was placed in receivership by Montreal Trust Company, the trustee. This thesis represents a study of the growth, development and collapse of Atlantic Acceptance, and the effects of that collapse on the structure of liabilities and the quality of reporting on the activities of finance and consumer loan companies in Canada. From the outset, I would like to bring to the reader's attention the fact that this thesis was completed before the findings of the Ontario Royal Commission on the collapse of Atlantic were made public. The evidence presented to the Commission has been so voluminous and intricate, that after more than two years of study, Mr. Justice Hughes of the Ontario Supreme Court, who served as Chairman of the Ontario Royal Commission on Atlantic, has not yet been able to present his report. It is expected that the above report will be made public later this year (1968). The thesis is divided into three Chapters. Each Chapter is divided into sections which might in themselves have been treated as chapters, except that to do so would have, in my view, broken the continuity of the study. Chapter I serves as an introduction to Atlantic. Here the reader will learn that over the life of the company, especially in the early nineteen-sixties, Atlantic Acceptance Corporation was completely out-performing the Canadian finance industry. In the Appendix to Chapter I, tables are drawn up to trace the growth pattern of Atlantic Acceptance. Chapter I also discusses the general nature of the finance industry, and the methods in which finance companies finance their assets. It concludes by investigating the financing techniques employed by Atlantic Acceptance Corporation. Chapter II is a study of the precipitating factors in the collapse of Atlantic Acceptance. Here, the Haves Lending Model is presented as a normative model for the conduct of the affairs of financial institutions. The rather exhaustive and comprehensive evidence on Atlantic's lending, management and auditing practices presented in this Chapter, indicates that the affairs of Atlantic Acceptance and its subsidiaries were not conducted in accordance with the principles collected and published by Professor Douglas Hayes. In Chapter II it will be learned that Montreal Trust Company, the trustee, brought legal action against the President of Atlantic and members of the accounting firm which audited the subsidiaries, alleging a conspiracy on the part of the defendants and each of them to defraud the plaintiff. In Chapter III the concern is with the effects of the collapse of Atlantic Acceptance on the structure of liabilities and the quality of reporting on the activities of finance and consumer loan companies in Canada. Evidence is presented to show that: (1) as a result of Atlantic's collapse, finance and consumer loan companies in Canada saw a flight of funds out of their short-term paper, and an increase in their use of bank borrowings and advances from parent and associated companies; (2) the collapse of Atlantic has led the finance and consumer loan industry and the Investment Dealers Association of Canada to develop a new improved method of reporting on the activities of finance and consumer loan companies in Canada. Since March 1967, minimum standards of reporting for all finance and consumer loan companies doing business in Canada have been: audited financial statements, appropriate Robert Morris Associates questionnaires, and the Canadian Sales Finance Long Form Report. Since finance companies in Canada are now major intermediaries in both the commercial and financial industries, we conclude that there should be a special Act of Parliament under which their operations are conducted. This Act should be known as the Finance Company Act. There should also be an Inspector of Finance Companies with similar powers to those given the Inspector of Chartered Banks, and finance companies should be brought into a closer working arrangement with the Bank of Canada so that they would be made more responsive to monetary policy.

Text

2011-06-21

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http://hdl.handle.net/2429/35647

Business Administration

University of British Columbia

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