Headnote Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – exemption granted from the requirement to file a prospectus in connection with distributions of promissory notes in the trust to qualified persons, subject to certain conditions.
Applicable Legislative Provisions Securities Act, R.S.O., 1990, c. s.5, as am., ss. 53, 74(1)
September 25, 2012
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 CEE GEE FINANCIAL SERVICES TRUST (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the proposed distribution, from time to time, by the Filer of promissory notes (the Trust Notes) to specified investors (as set out below) will not be subject to the Registration Requirement and the Prospectus Requirement (as defined in National Instrument 14-101 – Definitions) contained in the Legislation (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon (the Non-Principal Jurisdictions).
Interpretation
Defined terms contained in National Instrument – Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
The decision is based on the following facts represented by the Filer:
The Filer was established under the laws of the Province of Ontario on December 19, 2001 by a partner of Ernst & Young LLP (EYLLP). There are three trustees of the Filer, each of whom is a partner of EYLLP or Ernst & Young L.P. (EYL.P.). The Filer is not, and it is not intended that the Filer become, a reporting issuer or its equivalent under the Legislation. The Filer is not in default of the Legislation.
EYLLP is a limited liability partnership established under the laws of Ontario with offices located in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia and Newfoundland and Labrador. EYLLP may in the future have offices in the other provinces and territories of Canada in which this application is being made. EYLLP carries on a business as a chartered accountancy and related professional services practice. EYLLP also engages, through affiliated corporations and partnerships (each an Affiliate) which are wholly-owned, directly or indirectly, either by EYLLP or by one or more Partners (as defined below) in other businesses including, among others, an insolvency practice, a corporate finance, mergers & acquisitions services practice, and an electronic publishing practice.
As of August 21, 2012, the partners of EYLLP (EYLLP Partners) are approximately 293 chartered accountants or their professional corporations.
EYL.P. is a limited partnership established under the laws of Manitoba.
The general partner of EYL.P. is EYGP Inc., a wholly-owned subsidiary of EYLLP. The limited partners of EYL.P. (the EYL.P. Partners) are, as of August 21, 2012, approximately 68 professionals who do not require the chartered accountant designation to carry on their practices or their professional corporations or other holding corporations.
All:
(a) EYLLP Partners and EYL.P. Partners who are individuals, and
(b) in the case of the remainder of the EYLLP Partners and EYL.P. Partners that are corporations or professional corporations, their respective sole shareholders and sole directors,
also comprise the partners (the EY Services Partners) of Ernst & Young Services (EY Services) a general partnership established under the laws of the Province of Ontario. EYLLP, EYL.P. and EY Services are collectively referred to as the Firm. EYLLP Partners, EYL.P. Partners and EY Services Partners are collectively referred to as the Partners.
A professional corporation is a corporation incorporated under the laws of one of the provinces of Canada, which holds, where required, a valid permit or license to practice its profession in such province and all of the shares of which are owned by and the only director of which is an EY Services Partner.
The securities regulatory authority or regulator in the Jurisdiction and in each of the Non-Principal Jurisdictions have previously granted relief to the Filer in respect of the issuance of Trust Notes pursuant to an MRRS decision document dated February 27, 2002 (the Previous Decision). The Filer proposes to make certain amendments to the categories of persons who can subscribe for Trust Notes.
The Filer will issue Trust Notes from time to time only to Qualified Persons. Qualified Persons consist of:
(a) Partners;
(b) a spouse of an individual named in (a);
(c) adult children of an individual named in (a) or (b);
(d) corporations controlled by Partners and/or individuals named in (b) or (c) above (each a Family Corporation), where at least one individual named in (a), (b) or (c) above is an officer and a director of the corporation and where all of the shares of the corporation are beneficially owned by one or more of the following (each a Permitted Holder):
(i) a Partner;
(ii) the spouse of an individual named in (i);
(iii) the issue of an individual named in (i) or (ii);
(iv) the spouse of an individual named in (iii);
(v) the parents or grandparents of an individual named in (i) or (ii);
(vi) the siblings and half-siblings of an individual named in (i) or (ii);
(vii) the spouses of the siblings and half-siblings of an individual named in (i) or (ii);
(viii) the nieces and nephews of an individual named in (i) or (ii);
(ix) the aunts and uncles of an individual named in (i) or (ii); and
(x) a trust or trusts, all of the beneficiaries of which are any one or more of the persons named in (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), or (ix) above; and
(e) a family trust (a Family Trust), the beneficiaries of which are limited to any one or more Permitted Holders and where one of the trustees of the trust is the relevant Partner.
- No Qualified Person that holds Trust Notes (a Noteholder) may sell, transfer, assign, pledge, encumber or otherwise dispose of any Trust Notes held by such Noteholder, except:
(a) with the consent of the trustees of the Filer, between a Partner and other Qualified Persons connected with or related to such Partner;
(b) by way of pledge or other security by a Qualified Person to a lender for the purpose of giving collateral for indebtedness incurred for the purpose of acquiring one or more Trust Notes; or
(c) to the Filer for cancellation.
As the Trust Notes are not transferable, except as described above, no market has developed or will develop for the Trust Notes.
Substantially all of the proceeds from the Trust Notes will be loaned by the Filer to EYLLP and/or to one or more of the Affiliates, and may in turn be loaned among EYLLP, such Affiliates and one or more other Affiliates, for the purpose of funding the Firm and the Affiliates. Such loans will be evidenced by non-transferable promissory notes which will be payable upon demand. The primary activity of the Filer is making such loans.
Prior to a Qualified Person advancing monies to the Filer to purchase one or more Trust Notes, the Qualified Person will be provided with:
(a) the most recent financial statements of the Filer;
(b) for the most recent financial year of the Firm, a balance sheet dated as at the end of the financial year and related notes accompanied by calculations showing interest coverage for the financial year and asset coverage as at the end of the financial year, in each case for the Trust Notes, bank debt and long-term debt (the Financial Information) or, if the Financial Information for the most recent financial year of the Firm is not available and not more than 140 days have elapsed since the end of such financial year, for the previous financial year of the Firm; and
(c) a copy of this decision document.
Prior to or contemporaneous with the advancement of monies by a Qualified Person to the Filer to purchase one or more Trust Notes, the Qualified Person will provide an acknowledgement of the receipt of a copy of this decision and an acknowledgement that the protections of the applicable Legislation, including statutory rights of rescission and damages and continuous disclosure, will not be available in respect of the purchase of such promissory notes.
Within 140 days of the end of each financial year of the Firm, the Filer will provide to each holder of one or more Trust Notes a copy of the Financial Information for such financial year and a copy of the most recent financial statements of the Filer.
In the case of the investment in one or more Trust Notes by a Qualified Person that is a Family Corporation or a Family Trust, the Family Corporation or the Family Trust, as the case may be, will represent to the Filer that no shareholder of the Family Corporation or no beneficiary of the Family Trust, as the case may be, other than, in either case, the related Partner, the related Partner’s spouse and/or the adult children of such Partner or spouse (i) has or will directly or indirectly contribute money or other assets to such Family Corporation or Family Trust, as the case may be, (ii) is or will be liable for any loan or other form of financing obtained by the Family Corporation or the Family Trust, as the case may be, or (iii) is or will be involved in making investment decisions by the Family Corporation or the Family Trust, as the case may be, except to the extent such shareholder or beneficiary is a director or trustee, as the case may be.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) the Filer shall not rely on the Previous Decision with respect to any distribution of Trust Notes made after the date of this decision; and
(b) any subsequent trade in Trust Notes will be deemed to be a distribution or a distribution to the public under the legislation of the jurisdiction in which the trade takes place, unless such subsequent trade is one of the following:
(i) a transfer between a Partner and other Qualified Persons connected with or related to such Partner;
(ii) a transfer to the Filer for cancellation; or
(iii) a pledge to a financial institution for the purpose of giving collateral for indebtedness incurred for the purpose of acquiring one or more Trust Notes.
“Wesley Scott” “Vern Krishna”
Commissioner, Commissioner,
Ontario Securities Commission Ontario Securities Commission