A butterfly spin-off by a public corporation (DC) of two business divisions (which it prepackaged in a Newco subsidiary) is preceded by a drop-down of the assets (some held directly) of those two divisions by DC into Newco. This drop-down, in turn, is preceded by an amendment of the long-term contract for DC’s management by Manageco. This amendment accommodates the split-up, e.g., splitting the compensation between management of the retained Division 1, and of the Divisions 2 and 3 to be spun-off, with this division to be effected based on the relative (post-drop-down) fair market value of the Newco shares.
CRA ruled that these amendments would not cause a disposition of the contract.
At the same time as the drop-down of Divisions 2 and 3 to Newco, Manageco will then effect a s. 85(1) dropdown of its management business to two new subsidiaries.