A Calgary shopping mall was sold by Harvard Properties and the other co-owners to a third party (“Abacus”) in a share sale transaction but at a price representative the mall’s asset value and, thus, at a premium to its share-sale value. This was accomplished by transferring their co-ownership interests on a s. 85(1) rollover basis to respective Newcos (“HP Newco”, in the case of Harvard Properties) in consideration inter alia for voting and non-voting shares, followed by a sale of those voting shares to an Abacus subsidiary (NH Properties) for promissory notes for under half of the sale price. The Newcos then sold the shopping centre to a third party (Bentall), and the co-owners then sold their Newco non-voting shares to NH Properties for the balance of the purchase price (receiving, by direction, the Bentall sales proceeds). Real estate counsel for the vendors negotiated for these transactions to all occur in one integrated interdependent closing.
In finding that s. 160 applied to the transactions in light inter alia of the cash proceeds received by Harvard Properties exceeding the FMV of the Newco shares sold by it, Boyle J found (at para. 166) that Harvard Properties had failed to establish any value for the shares, stating (at para. 174):
There appears to be little to no chance that any arm’s length party unrelated to these transactions would agree to accept, much less pay for, the HP Newco shares at the relevant time as the Newcos would moments in time later have no assets, no business, and the possibility of a significant liability for their roles in these transactions … .
Similarly, he found that the promissory notes had no value.