MMV Capital – Tax Court of Canada finds no GAAR abuse in acquiring an approximate 100% interest in a Lossco but with no change of de jure control

A venture capital corporation (MMV Finance) acquired 49% of the voting common shares of a corporation (MMV) in interim bankruptcy proceedings and subscribed $1,000 for a large number of non-voting common shares giving it over 99.9% of all the common share equity. It then financed taking MMV out of bankruptcy proceedings at a modest cost, and transferred a loan portfolio of U.S.$86 million to MMV, effectively in consideration for debt and preferred shares, thereby reducing the equity interest of the arm’s length holders of 51% of the MMV common shares to less than 0.00001%.

Bocock J did not consider it to be a GAAR abuse for MMV to deduct its ample losses from the income generated by the loan portfolio, stating:

Parliament … deliberately kept the reference to de jure control in 111(5) instead of adopting a de facto standard. …

Evidence was not presented to show that the board did not have the actual authority to make material decisions on behalf of MMV. …

The presence of the longstanding, bright-line test of de jure control bears … witness to the rejection of applying the GAAR in the circumstances of this appeal as regards subsection 111(5).

Neal Armstrong. Summary of MMV Capital Partners Inc. v. The Queen, 2020 TCC 82 under s. 245(4).