April 16, 1980
D.A. Bresee (613) 995-1178
Dear XXXX
This is in reply to your letter of February 5, 1960 wherein you request our views as to whether or not paragraph 251(5)(b) of the Act would apply to a buy-sell agreement entered into between two corporate shareholders of a non-resident corporation.
Your particular situation concerns X, a (illegible) corporation and Y, a U.S. resident corporation who each own 50% of the issued voting shares of Z. The buy-sell agreement entered into by X and Y not only contains the commonly-known shotgun buy-sell clause but also a clause that in the event that either X or Y commits a default under, or fails or refuses to perform or comply with any material term or provision of any agreement between X end Y relating to the advancement of monies to Z or bankruptcy, insolvency, agreement, or other proceedings for dissolution, liquidation or receivership are filed or taken by or against either X or Y in respect of a substantial portion of the assets of X or Y, and X or Y is not in good faith contesting any such proceeding, the other shareholder shall be entitled to purchase all of that shareholder's shares at a stipulated price.
In some situations of this nature, it is our administrative practice not to apply the Provisions of paragraph 251(5)(b). Before we would be in a position to make a more positive statement we would need to consider all the facts. If you have a specific transaction in mind, you may wish to request an advance income tax ruling in accordance with Information Circular 70-6R.
We regret the delay in replaying to your letter, however, it was unavoidable because of our heavy workload.
Yours truly.
for Director Specialty Corporation Rulings Division Corporate Rulings Directorate Legislation Branch
DAB/mj 251(5)(b)