News of Note
Chriss – Federal Court of Appeal finds that a written resignation must be signed and delivered to the corporation to start the two-year s. 227.1(4) period running
The husband of a director had instructed their law firm to prepare a written resignation for her, which they did, but the resignation form was never provided to her. In reversing a finding of Boyle J that this was sufficient to amount to a written resignation that started the two-year limitation period in s. 227(4) running, Rennie JA stated:
…In the absence of the communication of a written resignation to the corporation, a resignation is not effective. …
… Reliance on the subjective intention or say-so of a director alone would allow a director to plant the seeds of retroactive resignation, only to rely on it at some later date should a director-linked liability emerge. …[T]he dangers associated with allowing anything less than delivery of an executed and dated written resignation are unacceptable.
With these strong words, he unsurprisingly went on to find that it was not a sufficient due diligence defence for the director to think that she had resigned.
Lightstream Resources is proposing to eliminate $1.2B in debt under a voluntary recapitalization plan giving 95% of the company to the secured noteholders and 2.75% to the unsecured noteholders
Lightstream Resources carries on its business through two partnerships. As at the end of 2015, it had $1.53B in Canadian tax pools available to it. It had approximately Cdn.$1.53B of long-term debt as at June 30, 2016 comprising Secured Notes of U.S.$650M, Unsecured Notes for U.S.$254M and amounts owing under a Revolving Credit Facility. It defaulted on an interest payment owed to the Secured Noteholders in June 2016, and is proposing a "Recapitalization" transaction (mostly occurring under a CBCA Plan of Arrangement) which, in approximate terms would entail
- a s. 86 exchange by its common shareholders of their shares for new common shares representing approximately 2.25% of the post-Recapitalization issued and outstanding common shares plus three-year out-of-the-money Warrants to acquire three times that number of common shares,
- the exchange by the Unsecured Noteholders of their Notes for common shares representing 2.75% of that total plus three-year Warrants (not as much out-of-the-money) to acquire the equivalent of 5% of the common shares and
- the exchange by the Secured Noteholders for common shares representing 95% of that total (with Apollo and GSO Capital Partners holding about 75%).
These exchanges (net of some additional secured borrowings) would eliminate Cdn.$1.175B of debt and eliminate $108 million of annual interest expense.
The transactions are structured so that the forgiveness respecting the Unsecured Notes will occur immediately before an amalgamation of Lightstream with a wholly-owned numbered company, whereas the exchange of the Secured Notes will occur after the amalgamation. The exchange of the old common shares is to be structured as a s. 86 exchange (with the value of the warrants received not expected to give rise to a deemed dividend), the exchange of the Unsecured Notes will occur on a non-rollover basis and the exchange of the Secured Notes is targeted to occur on a s. 51 rollover basis (assuming the Secured Notes can qualify as capital property), so that a conversion right is first to be added to the Secured Notes before the conversion occurs.
There is a backstop plan to accomplish something similar under the CCAA if this Recapitalization plan is not approved.
Neal Armstrong. Summary of Lightstream Circular under Other – Recapitalizations or note exchanges.
In addition to reiterating its recommendations from its July 25, 2016 submission on the back-to-back (B2B) rules (now reflected in the July 29 draft legislation), the Joint Committee has now provided various examples of technical glitches which already have emerged respecting the duplicative application of s. 15(2), a failure of s. 212(3.6)(a) to properly distinguish shares of a relevant funder that are intended to be captured by the character substitution rule from those which are not (and also problems with the somewhat similar language of s. 212(3.92)(a)), problems with the interaction with the s. 216 rules (which could simply be addressed by exempting rental payments which are subject to s. 216 treatment) and problems for some types of cross-border securitization arrangements.
The Joint Committee has also separately submitted that the s. 152(9) draft legislation should not extend to, in effect, permitting new assessments beyond the normal reassessment period (where the waiver and misrepresentations exceptions do not apply).
We have prepared full-text translations of all French technical interpretations and Roundtable questions and answers that have been released by CRA since 27 April 2016.
The original French text can be accessed by clicking on the "Text of Severed Letter" icon at the top of the translated letter. The translations are paywalled in the usual (4-days per week) manner. From here, we will continue going back in time with our translations as well as keeping up with current French severed letters (other than most rulings).
The table below links to the recent translations and the summaries thereof (as well as these items being searchable and retrievable in the usual manner).