Bresse Syndics – Federal Court of Appeal finds that a trust deed requirement that the trustees be the Pubco directors gave Pubco de facto control of a trust subsidiary

A public company (CO2 Public), operating a high-tech business, carried on its SR&ED through a private company (CO2 Technologies) that was held by a discretionary trust whose beneficiaries were CO2 Public and special-purpose subsidiaries thereof. A provision in the Declaration of Trust provided that each trustee was required to be a director of CO2 Public.

Noël CJ noted that although “in principle” the determination of whether CO2 Public had de jure control of CO2 Technologies was to be determined having regard to the articles of incorporation of CO2 Technologies and any unanimous shareholders agreement, Duha Printers had indicated that the terms of the deed of trust for a shareholder trust of a corporation could be relevant to determining whether the deed restricted the ability of trustees to exercise their voting rights over the corporation’s shares. However, he found that it was unnecessary to resolve this issue, because the above trust deed restriction gave Public CO2 de facto control of CO2 Technologies within the meaning of s. 256(5.1), so that CO2 Technologies was not a Canadian–controlled private corporation on those grounds. He stated:

Fiducie’s deed of trust operated in such a way that by electing Public CO2’s board of directors, Public CO2’s shareholders also elected Fiducie’s trustees, as they had to be directors of Public CO2. … Thus, Public CO2 had the power to terminate the trustees’ functions by revoking or not renewing their mandate as directors.

… [T]he mechanism put in place clearly gave Public CO2 the ability to change the appellant’s board of directors or to influence in a very direct manner those who had that ability.

Neal Armstrong. Summary of Bresse Syndics Inc. acting for the bankruptcy of CO2 Solution Technologies Inc. v. The Queen, 2021 FCA 115 under s. 256(5.1).