Strathcona provided shareholders with a choice between receiving a PUC distribution or a taxable dividend

Strathcona intended to distribute $2.14 billion of the proceeds from the sale of its Montney assets. It determined that not all shareholders would prefer to receive the distribution as a PUC distribution rather than as a taxable dividend. Accordingly, shareholders were given the choice.

Electing shareholders could opt to receive a PUC distribution. This was achieved through a s. 86 exchange under the Alberta plan of arrangement of their common shares for (newly-created) Class A common shares of Strathcona, the receipt of the PUC distribution on their Class A common shares and the subsequent s. 86 exchange of those Class A common shares back for their original common shares. (In the brief interim, the common shares had been temporarily held in treasury by Strathcona rather than being cancelled.) The Class A common shares had identical attributes to the common shares, except that they were convertible into common shares and entitled to an additional day's notice of any shareholder meeting.

One or both of the following bases was identified for considering that s. 84(4.1) did not apply to the PUC distribution. First, the special distribution was paid in connection with the reorganization of Strathcona's business into a pure-play heavy oil company and the discontinuance of its Montney business segment. Second, it represented the one-time and prompt distribution of the proceeds received by the Company on the Montney asset sales.

Shareholders who did not elect to receive the PUC distribution retained their common shares and received an equivalent taxable dividend instead, which was subject to Part XIII tax in the case of non-residents.

For U.S. tax purposes, the exchange of common shares into and back out of Class A common shares were treated as transitory steps that should be ignored, so that there was considered to be a taxable distribution, subject to the possibility in the case of non-corporate U.S. holders of being treated as a partial liquidating distribution and, therefore, as a redemption transaction.

Neal Armstrong. Summary of Management Information Circular of Strathcona Resources Ltd. (“Strathcona” or the “Company”) regarding a special distribution pursuant to a Plan of Arrangement under Spin-offs and Distributions – Other – S. 84(4.1)(a) and (b) distributions.