CRA confirmed that the exceptions in s. 251(5)(b) do not apply where an individual is merely "insolvent" without being “bankrupt,” which latter term was as defined in the Bankruptcy and Insolvency Act.
Regarding the situation where, under the shareholders agreement, the corporation was required to repurchase a shareholder’s shares upon that shareholder becoming insolvent, CRA stated:
[O]ur comments are limited to confirming the application of subparagraph 251(5)(b)(ii) to a redemption of the shares of an insolvent shareholder only if the person to whom the provision applies has a right, conditional or not, future or immediate, to compel the corporation to redeem the shares of the shareholder.
When asked to explain its position in 2002-0172315, regarding a unanimous shareholder agreement that included an obligation of the corporation (Opco) to redeem the shares of any shareholder found to have committed fraud, CRA stated:
[W]here no shareholder had the right to compel Opco to redeem the shares of the other shareholders in the event of fraud, the CRA had no choice but to conclude that paragraph 251(5)(b) did not apply.
As to whether s. 251(5)(b) applies to a letter of intent between two parties where the letter contains clauses allowing the purchaser and vendor to unilaterally terminate the sale of the shares, CRA stated:
[I]f that letter does not create any obligation, conditional or otherwise, immediate or future, on the part of the purchaser to make a formal offer to purchase the shares, the CRA's administrative position is not to apply paragraph 251(5)(b).