CI Financial Income Fund and Canadian International LP, 2008 CanLII 59329

Headnote

MI 11-102 and NP 11-203 – business combination – conversion of publicly traded income fund into corporate entity – MI 61-101 requires minority approval if conversion is a business combination – conversion is not a business combination for publicly traded fund, but is technically a business combination for a holding company in the fund’s structure – relief granted to the holding company from complying with the minority approval requirement provided certain conditions met.

Applicable Legislative Provisions

Multilateral Instrument 11-102 – Passport System

National Policy 11-203 – Process for Exemptive Relief Applications in Multiple Jurisdictions

Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions

Date: November 18, 2008

In the Matter of the Securities Legislation of Ontario (the “Jurisdiction”)

and

In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions

and

In the Matter of CI Financial Income Fund and Canadian International LP (the “Fund” and “CI LP”, respectively and, together, the “Filers”)

DECISION

Background

The principal regulator in the Jurisdiction (the “Decision Maker”) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the “Legislation”) that the requirement set out in Section 4.5 of MI 61-101 that an issuer obtain minority approval for a business combination shall not apply to CI LP with respect to the CI Conversion Transaction (as defined below) (the “Exemption Sought”).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport review application):

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) the Filers have provided notice that Section 4.7(1) of Multilateral Instrument 11-102 – Passport System (“MI 11-102”) is intended to be relied upon in Québec.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

1. The Fund is an unincorporated, open-ended trust governed by the laws of Ontario. The Fund was established in May 2006 in connection with the conversion of the former CI Financial Inc. to an income trust structure under a plan of arrangement completed on June 30, 2006 (the “2006 Arrangement”).

2. The beneficial interests in the Fund are divided into interests of two classes, designated as “Fund Units” and “Special Voting Units”. The Fund Units carry a right to receive distributions and an interest in the net assets of the Fund in the event of a termination or winding up of the Fund, while the Special Voting Units only entitle the holder thereof to one vote at all meetings of holders of Fund Units and Special Voting Units (collectively, “Voting Unitholders”). The Fund Units are listed on the Toronto Stock Exchange under the trading symbol “CIX.UN”.

3. CI LP is a limited partnership formed under the laws of Manitoba. The general partner of CI LP is an Ontario corporation called CI Financial General Partner Corp. (“CI General Partner”), which is wholly owned by the Fund. The operating subsidiaries of the CI group are owned by CI LP.

4. Both the Fund and CI LP are reporting issuers under applicable securities laws in Ontario and Québec (and other provinces). As an exchangeable security issuer, CI LP is entitled, under Part 13 of National Instrument 51-102 - Continuous Disclosure Obligations (“NI 51-102”) and related provisions of securities laws, to an exemption from the financial statement and other continuous disclosure requirements of NI 51-102 and certain related requirements of securities laws.

5. CI LP has two classes of limited partnership units: “Class A LP Units”, all of which are held by the Fund, and “Class B Exchangeable LP Units”. The Class B Exchangeable LP Units are exchangeable for Fund Units and each Class B Exchangeable LP Unit is accompanied by a Special Voting Unit, allowing the holder to vote together with the holders of Fund Units at meetings of the Fund’s Voting Unitholders. The Class B Exchangeable LP Units were offered to the former CI Financial Inc. shareholders as an alternative to receiving Fund Units in the 2006 Arrangement, in order to permit such holders to achieve a “rollover” for Canadian federal income tax purposes.

6. There are 153 registered holders of Class B Exchangeable LP Units, one of which is CDS & Co. which holds approximately 28% of the Class B Exchangeable LP Units. The Class B Exchangeable LP Units are not listed on any exchange and, by their terms, are not transferable except upon their exchange for Fund Units and in certain other very limited circumstances.

7. The Class B Exchangeable LP Units are intended to be, to the greatest extent practicable, the economic equivalent of Fund Units. Holders are entitled to receive distributions, to the greatest extent practicable, equal to those paid by the Fund to holders of Fund Units. The accompanying Special Voting Units provide the holder with the right to vote at the Fund level together with Fund Unitholders. Pursuant to the limited partnership agreement of CI LP, holders of Class B Exchangeable LP Units do not have voting entitlements at the CI LP level, except in connection with certain specified fundamental changes or activities of CI LP, including an arrangement involving CI LP.

8. The Fund and CI LP are now proposing to undertake a transaction that would result in the conversion of the Fund and CI LP to a corporate structure (the “CI Conversion Transaction”). Under the CI Conversion Transaction, the holders of Fund Units and Class B Exchangeable LP Units (and Special Voting Units) will, if the transaction is approved by unitholders and certain other conditions are satisfied or waived, exchange their respective units for common shares of a new corporation (“New CI Corp.”) established by the Fund. Upon completion of the CI Conversion Transaction, New CI Corp. will become the successor reporting issuer, and it is intended that the New CI Corp. common shares will be listed on the Toronto Stock Exchange.

9. The CI Conversion Transaction will be effected by a plan of arrangement under the Business Corporations Act (Ontario), subject to approval at a meeting of securityholders by: (i) a special resolution approved by more than 66 2/3% of votes cast by Fund Unitholders and Special Voting Unitholders, voting together as a single class as provided in the Fund’s Declaration of Trust, and (ii) a special resolution approved by at least 66 2/3% of votes cast by Class B Exchangeable LP Unitholders, voting as a separate class, as provided in the limited partnership agreement for CI LP. The CI Conversion Transaction is also subject to approval by the Ontario Superior Court of Justice.

10. Under the CI Conversion Transaction, all holders of Fund Units and holders of Class B Exchangeable LP Units (and Special Voting Units) will receive the same consideration in return for their units, namely common shares of New CI Corp.

11. The CI Conversion Transaction will not be a business combination, as defined in MI 61-101, for the Fund and, as such, there will be no requirement for the Fund to obtain a formal valuation or minority approval under MI 61-101 for the CI Conversion Transaction.

12. In the case of CI LP, however, the CI Conversion Transaction would not be a downstream transaction and would result in a related party of CI LP (New CI Corp.), directly or indirectly, acquiring the issuer (CI LP), and as such it would be a business combination for CI LP.

13. For CI LP, the CI Conversion Transaction would be exempt from the formal valuation requirements of Part 4 of MI 61-101, under Section 4.4(a), since no securities of CI LP are listed on the specified markets. However, the CI Conversion Transaction would subject CI LP to the requirement to obtain minority approval for the CI Conversion Transaction from the holders of “affected securities” of CI LP, that is, the holders of Class B Exchangeable LP Units, although no minority approval requirement would apply at the Fund level.

Decision

The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that the conditions of subsections (e)(ii) and (e)(iii) of the definition of “business combination” in Section 1.1 of MI 61-101 are met.

“Naizam Kanji”

Naizam Kanji

Manager, Ontario Securities Commission