How The Claims Rank

The liquidator proceeds to realize the assets and to pay off the liabilities as rapidly as he can. There are three preferential claims. First of all comes the outstanding note circulation of the bank. That ranks ahead of all other claims. Furthermore, the notes bear interest at 5 per cent from the date of suspension till such time as the liquidator announces his readiness to redeem them. As soon as a bank stops payment its notes begin to accumulate in the vaults of the going banks. These continue to accept them from the public on deposit and in other ways just the same as if no stoppage had occurred. They do so because the notes are perfectly good and because of the interest they bear. Besides being a first claim on the assets the notes are guaranteed by the associated banks through the Circulation Redemption Fund held by the Dominion Treasury.

So the notes come into the other banks and are put away in the vaults. When the liquidator has enough funds to redeem them he puts the requisite notice in the papers, and interest on the notes then ceases.

When provision has been made, by depositing with the Receiver-General the full amount required to redeem all that are out, the circulation account may be closed.

Next to the note circulation is the deposit of the Dominion Government; after that the deposits of the Provincial Governments, and then the body of the creditors.

After all the bank's debts are paid the residue of the estate if any, belongs to the stockholders, and is divided among them pro rata to the amount of stock they hold.

Applying The Double Liability

One very important feature of bank stock only comes into prominent notice when a bank has suspended payment or passed into insolvency. It is the double liability of its shareholders. Section 125 of the Bank Act says: "In the event of the property and assets of " the bank being insufficient to pay its debts and " liabilities, each shareholder of the bank shall be liable " for the deficiency, to an amount equal to the par value " of the shares held by him, in addition to any amount " not paid up on such shares."

What It Really Means

The effect of the clause will be better conveyed to the unlearned by means of an illustration. Suppose a man subscribes for $1,000 of the stock of a bank and has paid up $500 thereon. He is liable for the unpaid $500 whenever it is called up, and in the event of an insolvency in which the bank's assets do not provide for its debts he is liable for a further sum of $1,000.

So, when a bank stops, people at once begin to discuss the stockholders' plight. Will they be called upon to pay, under their double liability, and if so, how much?

Although bank failures in Canada are happily not frequent, among such as have occurred there have been a number in which the unfortunate stockholders have been called on to contribute under their double liability in addition to losing what they had already put into their stock.