Background
PC1, whose only undertaking was investing in marketable securities was held by Father (through voting common shares and super-voting shares, giving him de jure control), PC2 (holding non-voting common shares) and a discretionary family trust (“Trust 2), holding voting common shares. PC2 is controlled by Father through his voting shares, with his three adult children holding voting common shares.
Proposed transactions
- TC1, TC2 and TC3 will be incorporated with each being controlled by Father through holding a special share, and with a child holding a common share.
- PC2 will be continued, then amalgamated with PC1 to form DC, with Father continuing to control DC.
- Each child will transfer special C shares of DC (whose number will be affected somewhat by the trading price of certain shares held by DC so as to ensure only a whole number of such shares are transferred in 3 below) pursuant to s. 85(1) to their respective TCs in consideration for common shares of that TC.
- DC will contemporaneously transfer shares to each of the TCs pursuant to s. 85(1) in consideration for Class A preferred shares of the TC.
- Each TC will redeem its Class A preferred shares owned by DC, and DC will simultaneously redeem the special shares owned by each TC, in each case for a note.
- The notes owing each way will be paid by set-off.
Additional information
[T]here is no intention by any person to dispose of the shares of any of the corporations referred to herein to a person or partnership that was not a related person to DC or any of the TCs, as the case may be, immediately prior to such disposition. ...
The Children have had very limited, if any, involvement in the investment decisions made by PC1, the predecessor to DC. Father has had de jure control of PC1 and PC2, the predecessors to DC, since incorporation and has made all the decisions relating to the investment of PC1’s assets. The organization of the TCs will simply mirror and continue the existing decision making structure of PC1/DC after the assets are split. ...
Under the terms of Trust 2, the trustees have the authority to appoint an eligible person [including any person or class of persons (other than Father)] as a beneficiary, however, that authority has not been exercised such that all the existing beneficiaries of Trust 2 will be related to DC and will be related to TC1, TC2 and TC3 following the creation of these corporations. In addition, Trust 2 has not acquired property, directly or indirectly, in any manner whatever, from any eligible persons or a person with whom any of the eligible persons does not deal at arm’s length or a person with whom the latter does not deal with at arm’s length.
Purpose of proposed transactions
The purpose of the Proposed Transactions is to divide a portion of the assets of DC among Child 1, Child 2 and Child 3 so that each such person has direct and separate ownership of those assets through a holding company controlled by Father. This will allow the Children to increase their involvement and invest such assets in accordance with Father’s leveraged investment philosophy, in a way that will be subject to the guidance and ultimate voting control of Father, while allowing each Child to make investment decisions independently of his/her siblings.
Rulings
Re application of s. 55(3)(a) exception and non-application of s. 55(4).