Nuvo Research butterfly includes amalgamation of transferee corporation

Nuvo Research, a small-cap TSX pharmaceutical company, is proposing to effect a butterfly spin-off of its drug development business (and retain its more mature cash-positive drug business). Similarly to the DeeThree spin-off of Boulder Energy, and in contrast to the FirstService/Collier butterfly spin-off, apparently no tax ruling was sought, no indemnities are being given respecting post-Arrangement actions that might cause the butterfly to be taxable and no tax risks are disclosed.

Unusually, the transferee corporation will amalgamate with the distributed subsidiary as part of the butterfly Plan of Arrangement. As the amalgamated corporation (Crescita) cannot be the transferee corporation (see Read), this means that the butterfly reorganization is intended to finish before the amalgamation (see 1996 CMTC Roundtable, Q. 16).

Similarly to the other two recent butterflies, the U.S. tax disclosure contemplates that the reorganization can be treated as a qualifying Code s. 355 distribution on the basis of the form of the transactions being disregarded – and (with less than excessive zeal) states that “it would be reasonable for U.S. Holders to take the position that Section 355 of the Code will apply.”

Neal Armstrong. Summary of Nuvo Research Circular under Spin-Offs and Distributions – Butterfly spin-offs.