In September, 2007, most of the equity of an insolvent public corporation (“Biomerge”) in CCAA proceedings was acquired by the company (“Nexia”) of two individuals involved in acquiring and selling loss companies, resulting in Nexia holding all of non-voting common shares of Biomerge (representing 80% of its equity) and 45% of its voting common shares (the “CCAA transactions”). The individuals then identified an income fund (“Total”) which was becoming subject to tax under the “SIFT” rules. In May 2009, a plan of arrangement was implemented under which the Total units were exchanged for new common shares of Biomerge, the existing voting common shares of Biomerge were largely cashed-out, and Total was wound-up into Biomerge (now, “New Total”) pursuant to s. 88.1(2) (the “Total Conversion”). The former Total unitholders held 99.8% of the New Total equity.
Pizzitelli J found (at paras. 47-48):
[I]t is only “because of” the CCAA transactions in preserving the tax attributes of Biomerge and placing it in inventory for future sale that Total was able to acquire the tax attributes and it is only “because of” these transactions and events that Biomerge was able to sell them on the open market.
Consequently, I find all the CCAA transactions are part of the Total Conversion common law series in their entirety pursuant to s. 248(10).