2021 Ruling 2021-0895071R3 F - Partnership Reorganization -- summary under Subsection 98(3)

Background

Fund LP (a Canadian partnership) holds investments including the “Rollover Shares” (with accrued gains) and “Non-Rollover Shares” (which may have accrued losses), both of Pubco (a listed Canadian public corporation), as well as other investments (the “Other Investments”) and has no debt. Its general partner (General Partner LP) has Bco (a CCPC owned by Individuals A and B) as its general partner and the families of A and B as limited partners. Aco, a CCPC owned by A, is one of the limited partners (and not a majority interest partner) of Fund LP. Bco is also the general partner of Carry LP, whose limited partners are A and B and their families. The carry limited partnership interest in Fund LP commences to be entitled to a percentage of distributable proceeds, once the other limited partners have received a return of their contributed capital and a preferred return thereon.

Fund LP had granted call options on the shares of Pubco (a listed Canadian public corporation) to Pco. These options are currently in the money.

Proposed transactions

1. Fund LP will dispose of shares on the stock exchanges in order to generate proceeds sufficient to distribute the amount of the contributed capital and preferred return thereon, such that Carry LP and the other limited partners will now be entitled to share in future distributions on a pro rata basis.
2. Fund LP will transfer the Rollover Shares and Other Investments on a s. 97(2) rollover basis to a new LP (New LP – formed by General Partner LP as general partner and Fund LP as limited partner, and) in consideration for units of New LP, with similar terms to Fund LP, except that distributions are solely in proportion to the number of units held. As a result of the transfer of the Rollover Shares, New LP will become a party to the option agreements with Pco.
3. Within 30 days of 2 above, Fund LP will be wound up such that its partners will receive undivided interests in all its property (essentially, the Non-Rollover Shares and the units of New LP) based on their previous unitholdings in Fund LP. A joint election under s. 98(3) will be filed.
4. Particular partners may bump their undivided interest in Non-Rollover Shares pursuant to a designation under s. 98(3)(c).

5. Pursuant to a partition agreement, each of the former partners will receive a pro rata fraction of each Non-Rollover Share and each New LP Unit.

6. The other former partners will sell their respective fractions of Non-Rollover Shares to Carry LP for cash consideration equaling the FMV thereof.

Rulings

Re: application of s. 97(2) to Fund LP wind-up; s. 248(21) deeming there to be no disposition on the partition; and non-application of s. 245(2).