Preliminary reorganization
An arrangement agreement is entered into between Parent (a listed Canadian public corporation) and its new subsidiary Newco (governed by the same Business Corporations Act as Parent) and a preliminary reorganization is competed, including a transfer by “Second Tier US Subsidiary” of two LLCs (the “Specified Subsidiaries”) carrying on active businesses to US Holdco and the transfer by Parent of its shares of US Holdco to Newco for Newco shares on a non-rollover basis (given an expectation that the ACB of the transferred shares should equal their aggregate FMV at that time).
S. 86 reorg
Parent will effect a reorganization of its capital. The notice of articles and articles of Parent will be amended:
(i) To change the Common Shares into Class A Common which, in contrast to the Common Shares, will have more than one vote per share;
(ii) To create a new class of common shares of Parent (the “New Common Shares”), which will have the same terms and attributes as the Common Shares immediately prior to the change in (i).
Each issued and outstanding Class A Common Share will then be exchanged for one New Common Share and a specified fraction of a Newco Share (the “Exchange”), with no s. 85 election being made.
The capital respecting the newly-issued New Common Shares equals the aggregate PUC of the Class A Common Shares minus the aggregate FMV, at the time of the Exchange, of the Newco Shares so distributed; and the aggregate FMV at that time of the Newco Shares will not exceed the aggregate PUC respecting the Class A Common Shares.
Rulings
Re the change of the common shares into Class A Common Shares not being a disposition and re the application of s. 86 and non-application of ss. 84(2), (3) and (4.1) to Exchange.