ROUND TABLE - CGA - JANUARY 10, 1992
Officer: M P Sarazin
File: 7-912211
QUESTION #6
In the case of a "butterfly" transaction, the Department requires that the corporation to which the assets are being transferred be wound up. Why does the Department not permit, on an administrative basis, the corporations to amalgamate, given that the end result is the same?
ANSWER
Under paragraph 55(3)(b) of the Act, each shareholder in the corporation must receive, directly or indirectly, his/her proportion of the fair market value of each type of property owned by the corporation before the transfer. This result is not achieved if, following the transfer and in the same series of transactions, one or more shareholders in the corporation amalgamates with one or more corporations, since under paragraph 87(2)(a) of the Act, a corporate entity formed as a result of an amalgamation is deemed to be a new corporation. This is not the case for a winding-up.