Structuring of Donnycreek/Contact amalgamation may produce deemed dividends to dissenters

Although Contact Energy is acquiring Donnycreek Energy in the sense that the transaction is occurring at its initiative, with Donnycreek shareholders receiving a 56% premium for their shares and management of the merged company being Contact executives, the form of the acquisition is an amalgamation (occurring under a Plan of Arrangement) in which the Donnycreek shareholders will receive a majority (56.4%) of the shares of Amalco (a.k.a. Kicking Horse Energy Inc.).

In S4-F7-C1, CRA states: "subsection 84(3) will not otherwise apply to deem a shareholder of a predecessor corporation to have received a dividend where the shareholder exercises its statutory dissent rights in respect of the amalgamation." However here, the Plan of Arrangement specifically deems the dissenting shareholders of the predecessors (Donnycreek and Contact) to have transferred their shares to the predecessors rather than to Amalco. The tax disclosure indicates that they may receive deemed dividend treatment on the amalgamation.

Neal Armstrong. Summary of Circular of Donnycreek Energy and Contact Explorations under Mergers & Acquisitions – Amalgamations – Non-Triangular Amalgamations.