Date: September 23, 2016
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
SCOUGALL SERVICES LIMITED PARTNERSHIP
(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 (the Legislation) that the issuance by the Filer of limited partnership units (Units and individually, a Unit) to Family Trusts (defined below) shall not be subject to the registration and prospectus requirements of the Legislation (the Requested Relief).
The Filer obtained a ruling from the principal regulator dated December 21, 2012 (the 2012 Decision) exempting the distribution of Units from the registration and prospectus requirements of the Legislation.
The Filer seeks a further decision under the Legislation to revoke the 2012 Decision effective upon the granting of the Requested Relief.
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 on in British Columbia and Alberta.
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 Filer:
Cassels Brock & Blackwell LLP (CBB) is a limited liability partnership of lawyers established under the laws of Ontario with offices in Toronto, Vancouver, and Calgary. As at September 9, 2016 CBB had approximately 107 partners (collectively, Partners, and individually, a Partner).
The Filer is a limited partnership established under the laws of Ontario for the primary purpose of providing secretarial, accounting, administrative, marketing, technology, financial and other services and leasing certain assets to CBB pursuant to a services agreement entered into between the Filer and CBB.
The Filer is not a reporting issuer in any jurisdiction in Canada, and has no present intention of becoming a reporting issuer in any jurisdiction in Canada. The Filer is not in default of securities legislation in any jurisdiction in Canada.
The general partner of the Filer is Scougall Management (1987) Limited (the General Partner), a corporation incorporated under the Business Corporations Act (Ontario), the sole beneficial shareholder of which is CBB.
The Filer will issue Units from time to time only to trusts (collectively, the Family Trusts, and individually, a Family Trust) established for the benefit of Eligible Beneficiaries, being:
(a) an individual who is either
i. an individual Partner, or
ii. an individual who is the sole voting shareholder of a Professional Corporation (defined below) that is a Partner
(such individual being the Eligible Person);
(b) an individual who
i. is the spouse of the Eligible Person, or
ii. cohabits with the Eligible Person and has lived with the Eligible Person in a relationship akin to a conjugal relationship for a period of not less than two (2) years
(such individual being the Qualified Spouse);
(c) the living issue of the Eligible Person or of the Qualified Spouse of the Eligible Person;
(d) the parents of the Eligible Person or of the Qualified Spouse of the Eligible Person;
(e) the grandparents of such Eligible Person or of the Qualified Spouse of such Eligible Person;
(f) the siblings of the Eligible Person or of the Qualified Spouse of the Eligible Person; and
(g) the nieces and nephews of such Eligible Person or of the Qualified Spouse of the Eligible Person.
A Professional Corporation is a corporation incorporated or continued under the laws of a province of Canada which holds, where required, a valid permit or licence to practice its profession in such province and all of the voting shares of which are held by an individual lawyer who, but for the substitution of such corporation, would be a Partner.
Each Eligible Person’s Family Trust is, or will be, a discretionary trust and shall, when it acquires a Unit and/or for so long as it holds such Unit, have one or more trustees, one of whom shall be the Eligible Person.
All Units have been, and will be, issued to Family Trusts for a subscription price of $100.
No beneficiary of the Family Trust, other than the Eligible Person and any other Eligible Beneficiary who may be a trustee, has been, or will be, involved in making any investment decision of the Family Trust in respect of the Units.
The Family Trust of an Eligible Person has not been and will not be induced to subscribe for a Unit by expectation of employment or continued employment of the Eligible Person.
Units of the Filer are not and will not be transferable except where a Family Trust ceases to be a limited partner of the Filer, in which case the Unit held by such Family Trust will be redeemed by the Filer at a redemption price of $100 per Unit plus the amount of any accrued and undistributed income in respect of such Unit as of the date of the redemption and thereafter cancelled by the Filer. As a result, no market has developed, or will develop, for the resale of the Units.
The Limited Partnership Agreement provides that a Family Trust shall cease to be a limited partner of the Filer in the event that (i) the Family Trust has one or more beneficiaries who are not Eligible Beneficiaries; (ii) the Family Trust purports to transfer the Unit held by it; or (iii) the General Partner, in its sole discretion, so determines and such determination has not been revoked by a resolution of the limited partners of the Filer within thirty (30) days thereafter.
CBB provides the Partners with annual audited financial statements not later than 120 days after the end of its financial year.
Each limited partner of the Filer has been, and will be, provided with audited annual financial statements of the Filer on or before March 31 of each year.
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 Requested Relief is granted, provided that:
(a) the Units are not transferrable, assignable or otherwise disposable except in the circumstances described in paragraphs 11 and 12 above; and
(b) prior to the issuance of Units to a Family Trust, the Filer will deliver to the trustee(s) of the applicable Family Trust:
i. a copy of this ruling;
ii. the most recent financial statements of the Filer; and
(c) prior to the issuance of Units to a Family Trust, the Filer will obtain from the trustee(s) on behalf of the applicable Family Trust:
i. a written statement acknowledging receipt of a copy of this ruling and the above-noted financial statements and the trustee(s) understanding that the protections of the Legislation, including right to rescission, to make claims for damages and receive continuous disclosure, are not available to the Family Trust in respect of the Units; and
ii. a representation to the Filer that no beneficiary of the Family Trust other than an Eligible Person or Qualified Spouse and/or the adult children of such Eligible Person or Qualified Spouse (i) has or will directly or indirectly contribute money or other assets to such Family Trust, (ii) is or will be liable for any loan or form of financing obtained by the Family Trust, or (iii) is or will be involved in making investment decisions by the Family Trust, except to the extent such beneficiary is a trustee.
- The 2012 Decision is revoked.
“William J. Furlong” “Anne Marie Ryan”
Commissioner Commissioner
Ontario Securities Commission Ontario Securities Commission