2021 Ruling 2020-0852951R3 - Public Spin-Off Butterfly -- summary under Subsection 55(3.02)

Background

Parent is a public corporation with two classes of outstanding shares and has a specified shareholder (a CCPC) which holds its Parent shares as its core long term investment. Parent wishes to spin off one of its businesses in the form of “Amalco” (described below). That business apparently is held in a subsidiary (XXXXXXXXXX) some of whose shares (the “XXXXXXXXXX Common Shares”) are held by a direct subsidiary of Parent (“Sub1”) and some of which are held by Parent directly.

Proposed transactions (occurring pursuant to a plan of arrangement)

1. Dissenting shareholders will be deemed to have transferred their shares to Parent for their fair value.
2. Parent will exchange its preferred and common shares of Sub1 for new Sub1 shares.
3. Parent will exchange its new Sub1 shares under s. 86(1) for new Sub1 special shares and new Sub1 common shares.
4. Parent will transfer its special shares of Sub1 on a s. 85(1) rollover basis to a corporation newly-incorporated by it (“Newco Sub”) in consideration for common shares of Newco Sub.
5. Sub1 will transfer all of its XXXXXXXXXX Common Shares on a s. 85(1) rollover basis in consideration for special shares of Newco Sub.
6. The special shares referred to in the above two steps will be redeemed for notes, which will be settled through mutually agreed cross transfers.
7. Parent will transfer cash, Sub1 debt and XXXXXXXXXX Common Shares to Newco Sub on a s. 85(1) rollover basis in consideration for Newco Sub common shares.
8. Parent shareholders will exchange their Parent shares for new Parent shares and Parent special shares under a s. 86 reorganization, with the PUC of the old shares being apportioned among the new shares on a relative FMV basis, and with such new shares being listed effective before 12.
9. Stock options will be exchanged for the right to acquire an identical number of Parent shares with a lower exercise price reflecting the FMV reduction in such shares.
10. The number of RSUs and DSUs recorded in the accounts of the plan participants will be proportionately increased to reflect such FMV reduction.
11. The Parent shareholders will transfer their special shares of Parent to a corporation newly-incorporated by Parent (“Newco”) in consideration for shares of Newco, with Newco jointly electing under s. 85(1) with them, if so requested, and with such Newco shares being listed on the exchange effective before 12.
12. Parent will transfer all of its Newco Sub common shares on a s. 85(1) rollover basis to Newco in consideration for special shares of Newco.
13. The special shares transferred in 11 above, and the special shares issued in 12 above will be redeemed for notes, which will be settled through mutually agreed cross transfers.
14. Newco and Newco Sub will amalgamate to form Amalco.

15. Newco will elect in its first return pursuant to the postamble in the definition of “public corporation” in s. 89(1) to have been a public corporation from the beginning of it first year.

Rulings

Including re application of s. 85.1(1) to the exchange in 11 (where no s. 85(1) election filed) and re non-application of s. 55(2) to the spin-off butterflies in 2 to 6, and 7 to 13.