A predecessor ("Birchcliff") of the taxpayer negotiated a plan to merge with a corporation ("Veracel"), which had discontinued its medical equipment business, in order to access Veracel's non-capital losses and credits. Investors subscribed for subscription receipts of Veracel and received voting common shares of Veracel therefor under a Plan of Arrangement, and Veracel and Birchcliff amalgamated immediately thereafter under the Plan. The voting common shares received by the investors on the amalgamation represented a majority of the voting shares of the amalgamated corporation, so that no acquisition of control of Veracel occurred under s. 256(7)(b)(iii)(B), and the loss-streaming rules under ss. 111(5)(a) and 87(2.1) were avoided.
Before finding that this represented abusive avoidance under s. 245(2), Hogan J rejected (at para. 61) the Minister's submission that the new investors represented a "group of persons" who had acquired control of Veracel:
[T]here is no evidence to show that the New Investors knew each other or had a plan to control the corporation together. ..[They] entered into the Subscription Agreement and granted a proxy to [two officers of Veracel and Birchcliff] to vote their shares in favour of the plan…because it appealed to their individual self-interest [and]…did so without discussing the matter with the other investors. Therefore…the grant of the proxy…is insufficient to demonstrate a common connection… .
See summary under s. 245(4).