Slate Management Corporation v Canada (Attorney General), 2016 ONSC 4216

A purchaser (“SCC”) used a newly-formed AcquisitionCo (“GTA”) to acquire a Target (“HCC”). The three corporations then amalgamated. The amalgamated corporation then learned that in order to have accomplished a s. 88(1)(d) bump, there should have been a two stage amalgamation, so that two of the corporations amalgamated, and the amalgamated corporation them amalgamated with the third corporation.

Notwithstanding a Crown submission to the contrary, Hainey J found (at para. 14) “that it is more probable than not that the parties did have a continuing specific intention to achieve the amalgamation in accordance with the tax bump rules,” given KPMG advice suggesting use of the tax bump rules, SCC instructions to KPMG to calculate the bump and an Arrangement Agreement between SCC and HCC in which HCC agreed to avoid any actions which could reduce or eliminate the bump.

Hainey J noted (at para 13):

… [T]his is not a case in which tax planning has been done on a retroactive basis. The parties’ intention from the outset was to structure the transaction to take advantage of the tax bump rules. The single-step amalgamation was mistakenly chosen as a means of effecting the transaction.

A purchaser used a newly-formed AcquisitionCo to acquire a Target, and asked for and received a computation from its accounting firm of the amount by which it would be able to bump the assets of the Target under s. 88(1)(d), as well as receiving a rep from Target that Target would not do anything to jeopardize the bump. It later learned that it had lost the bump by amalgamating the three corporations in only one amalgamation, rather than using two sequential amalgamations.

Hainey J found that the parties had a “a continuing specific intention to achieve the amalgamation in accordance with the tax bump rules,” so that a rectification order was granted to Amalco.