Mr. X wholly owns Parentco , which wholly owns Sisterco and Holdco. Holdco owns 88 of the common shares of Subco (which carries on a business), and Independentco (which is unrelated to the other companies) holds the remaining 12 shares (being common shares). In order to protect the shareholding in Subco, currently held by Holdco, from its creditors, the following transactions will occur:
- Holdco will transfer that shareholding to Sisterco on a s. 85(1) rollover basis in exchange for redeemable Sisterco preferred shares.
- Parentco will transfer to Sisterco a portion of its Holdco common shares on a s. 85(1) rollover basis in consideration for redeemable preferred shares.
- The two cross-shareholdings between Sisterco and Holdco will be redeemed or purchased for cancellation for notes, which will be set off.
- Subco will purchase for cancellation its 12 common shares held by Independentco, for cash – or, alternatively, Subco will pay a cash dividend out of its safe income on hand, and Independentco will dispose of its commons shares of Subco to Sisterco for cash.
CRA indicated that these transactions would not engage the exclusions in ss. 55(3)(a)(i) to 55(3)(a)(v).