Brookfield Business Corporation and Brookfield Asset Management Inc., 2022 CanLII 13794

Ontario Commission des 22^nd Floor 22e étage

Securities valeurs mobilières 20 Queen Street West 20, rue queen ouest

Commission de l’Ontario Toronto ON M5H 3S8 Toronto ON M5H 3S8

March 1, 2022

AND

Background

The principal regulator in the Jurisdiction has received an application from Brookfield Business Corporation (BBUC) and Brookfield Asset Management Inc. (Brookfield, and together with BBUC, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:

(a) the requirements contained in the Legislation to file a preliminary prospectus and a final prospectus and receive receipts therefor (the Prospectus Requirement) shall not apply to specific trades in non-voting limited partnership units of Brookfield Business Partners L.P. (BBU), to be made in connection with the distribution and exchange of class A exchangeable subordinate voting shares of BBUC (the Exchangeable Shares) by Brookfield pursuant to the terms of the Rights Agreement (each as defined below);

(b) BBUC be exempt from the requirements contained in section 2.2(e) of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) with respect to equity securities (the Short Form Prospectus Eligibility Requirements); and

(c) BBUC be exempt from requirements contained in section 9.3(1)(b) of National Instrument 44-102 – Shelf Distributions (NI 44-102), that distributions by way of an at-the-market distribution using the shelf procedures be limited to distributions of equity securities (the At-the-Market Distribution Eligibility Requirements),

(collectively, the Exemption Sought).

A decision granting the Exemption Sought to the Filers was issued by the principal regulator on November 26, 2021 (the Initial Decision) in connection with a preliminary prospectus filed by the Filers on July 30, 2021 to facilitate the Special Distribution (as defined below). The Filers were unable to file a final prospectus within the maximum time period prescribed by section 2.3 of National Instrument 41-101 General Prospectus Requirements and filed the New Prospectus (as defined below) on January 26, 2022.

Other than the filing of the New Prospectus, there have been no changes to the terms of the Special Distribution, the Exchangeable Share Provisions, or the ownership and control of BBUC that will exist upon completion of the Special Distribution. The representations of the Filers made in the Initial Decision have been repeated here and updated where appropriate given the passage of time since the date of the Initial Decision.

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 subsection 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, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Yukon and Nunavut, as applicable.

Interpretation

Terms defined in National Instrument 14-101 Definitions (NI 14-101), MI 11-102 and NI 44-101 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:

Relevant Entities

BBU

BBU is an exempted limited partnership established, registered and in good standing under the laws of Bermuda. BBU’s registered and head office is located at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda.
BBU is a reporting issuer in all of the provinces and territories of Canada and is an SEC foreign issuer within the meaning of section 1.1 of National Instrument 71-102 — Continuous Disclosure and Other Exemptions Relating to Foreign Issuers (NI 71-102) and satisfies its continuous disclosure obligations by complying with U.S. federal securities laws as is permitted under NI 71-102. BBU is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
The authorized capital of BBU consists of: (a) non-voting limited partnership units (the BBU Units); and (b) general partnership units.
The BBU Units are listed on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the symbols “BBU” and “BBU.UN”, respectively.
BBU’s only substantial asset is its limited partnership interest in Brookfield Business L.P. (Holding LP), a Bermuda exempted limited partnership established, registered and in good standing under the laws of Bermuda.
Brookfield Business Partners Limited, a wholly-owned subsidiary of Brookfield, holds the general partner units in BBU.

Brookfield

Brookfield is a corporation existing and in good standing under the Business Corporations Act (Ontario). Brookfield’s registered and head office is located at Suite 300, Brookfield Place, 181 Bay Street, Toronto, Ontario M5J 2T3.
Brookfield is a reporting issuer in all of the provinces and territories of Canada and is not in default of any requirement of securities legislation in the jurisdictions in which it is a reporting issuer.
The Class A Limited Voting Shares of Brookfield are listed on the NYSE and the TSX under the symbols “BAM” and “BAM.A”, respectively.
Brookfield holds an approximate 64.5% economic interest in BBU on a fully-exchanged basis through its indirect ownership of redeemable partnership units of Holding LP (the Redeemable Partnership Units).
Brookfield indirectly holds a 100% voting interest in BBU through its ownership of the general partner units of BBU.
BBU, Holding LP and certain of their subsidiaries have retained Brookfield and its related entities to provide management, administrative and advisory services under a master services agreement (the Master Services Agreement).

BBUC

BBUC is a corporation existing and in good standing under the Business Corporations Act (British Columbia), and was incorporated on June 21, 2021. BBUC’s registered office is located at 1500 Royal Centre, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, V6E 4N7. BBUC’s head office is located at 250 Vesey Street, 15th Floor, New York, New York, 10281, United States of America.
The authorized share capital of BBUC currently consists of an unlimited number of common shares (the BBUC Common Shares).
As at February 22, 2022, there are 7,345,846 BBUC Common Shares issued and outstanding, all of which are held, directly or indirectly, by Brookfield BBP Canada Holdings Inc. (CanHoldCo), a wholly-owned subsidiary of Holding LP.
BBUC owns and operates, through operating subsidiaries, high-quality businesses that are low-cost producers and/or benefit from high barriers to entry. BBUC’s initial operations consist of business services and industrial operations primarily located in Australia, the United Kingdom, the United States, and Brazil.
BBUC is not a reporting issuer in any jurisdiction and is not in default of any applicable requirement of securities legislation.

The Special Distribution

On January 26, 2022, (i) BBUC filed a long form prospectus to qualify the distribution of Exchangeable Shares to be distributed by BBU to holders of BBU Units (the Special Distribution) and (ii) BBU filed a short form prospectus on the same day for the distribution of BBU Units issuable or deliverable upon the exchange, redemption or purchase of Exchangeable Shares pursuant to their terms. (collectively, the New Prospectus).
Upon obtaining a receipt for the final prospectus, BBUC will become a reporting issuer in each of the provinces and territories of Canada.
BBU and BBUC filed a registration statement on Form F-1 with the U.S. Securities and Exchange Commission (the SEC) on July 30, 2021, as thereafter amended, to register the Exchangeable Shares that will be distributed pursuant to the Special Distribution; and BBU filed a registration on Form F-3 with the SEC on August 12, 2021, as thereafter amended, to register the BBU Units issuable or deliverable upon the exchange, redemption or purchase of Exchangeable Shares pursuant to their terms.
The only voting securities of BBUC are the Exchangeable Shares and the Class B Shares. Holders of Exchangeable Shares are entitled to one (1) vote per Exchangeable Share held and holders of Class B Shares are entitled to cast, in the aggregate, a number of votes equal to three (3) times the number of votes attached to the Exchangeable Shares.
Neither the Exchangeable Shares nor the Class B Shares carry a residual right to participate in the assets of BBUC upon liquidation or winding-up of BBUC, and accordingly, are not equity securities under the Legislation. The Class C Shares are the only equity securities of BBUC.
In November and December 2021, the following assets and ownership interests were transferred, directly or indirectly, by CanHoldCo to BBUC for consideration consisting of promissory notes (the 2021 Promissory Notes) and 7,345,846 BBUC Common Shares:

(i) an approximate 28% economic interest in Healthscope Pty Limited;

(ii) an approximate 26% economic interest in BRK Ambiental Participações S.A.;

(iii) an approximate 27% economic interest in Westinghouse Electric Company; and

(iv) a 100% economic interest in Multiplex Global Limited.

Prior to the Special Distribution,

(a) BBUC will reclassify its share structure such that, following the reclassification, BBUC’s authorized share capital will consist of: (i) an unlimited number of Exchangeable Shares; (ii) an unlimited number of class B multiple voting shares (the Class B Shares); (iii) an unlimited number of class C non-voting shares (the Class C Shares); (iv) an unlimited number of class A senior preferred shares (issuable in series); and (v) an unlimited number of class B junior preferred shares (issuable in series); and

(b) the 2021 Promissory Notes and an additional promissory note issued to CanHoldCo in exchange for a contribution of cash will be settled in exchange for the issuance of approximately up to 74 million Exchangeable Shares and cash;

(d) CanHoldCo will subscribe for one (1) Class B Share for nominal consideration, following which all of BBUC’s issued and outstanding securities will be held, directly or indirectly, by CanHoldCo;

(e) BBUC Holdings Inc., a wholly-owned subsidiary of BBUC, will loan an amount of cash currently estimated to be $391 million, to CanHoldCo in exchange for a promissory note;

(f) CanHoldCo will distribute all of the Exchangeable Shares to Holding LP as a return of capital; and

(g) BBU will receive Exchangeable Shares through a distribution in specie by Holding LP of Exchangeable Shares to its unitholders, including BAM through its indirect ownership of Redeemable Partnership Units.

The distribution ratio of Exchangeable Shares for each BBU Unit has been determined using: (i) the fair market value of the businesses to be transferred by BBU to BBUC, (ii) the number of the BBU Units outstanding at the time of the Special Distribution (assuming the exchange of all Redemption-Exchange Units into BBU Units) and (iii) the market capitalization of BBU. Holders of BBU Units will receive one (1) Exchangeable Share (less any Exchangeable Shares withheld to satisfy withholding tax obligations) for every two (2) BBU Units held as of the record date of the Special Distribution.
No unitholder will be entitled to receive any fractional interest in Exchangeable Shares in connection with the Special Distribution. Unitholders who would otherwise be entitled to a fractional Exchangeable Share will receive a cash payment. BBU will use the volume-weighted average trading price of the Exchangeable Shares for the five (5) trading days immediately following the Special Distribution date to determine the value of the Exchangeable Shares for the purpose of calculating the cash payable in lieu of any fractional interests.
BBUC has received conditional approval to list the Exchangeable Shares on the TSX, and the NYSE has conditionally authorized BBUC to list the Exchangeable Shares on the NYSE.
BBU believes that certain investors in certain jurisdictions may be dissuaded from investing in BBU because of the tax reporting framework that results from investing in units of a Bermuda exempted limited partnership. With the objective of providing investors that would not otherwise invest in BBU with an opportunity to gain access to BBU’s portfolio of infrastructure assets, BBU created BBUC and is distributing Exchangeable Shares pursuant to the Special Distribution.
Each Exchangeable Share has been structured with the intention of providing an economic return equivalent to a BBU Unit and the rights, privileges, restrictions and conditions attached to each Exchangeable Share (the Exchangeable Share Provisions) are such that each Exchangeable Share is intended to be, as nearly as practicable, functionally and economically, equivalent to a BBU Unit. In particular:

(a) each Exchangeable Share will be exchangeable at the option of a holder for one (1) BBU Unit (subject to adjustment to reflect certain capital events) or its cash equivalent (the form of payment to be determined at the election of BBUC) (an Exchange);

(b) the Exchangeable Shares are redeemable by BBUC at any time (including following a notice requiring redemption having been given by BBU) for BBU Units (or its cash equivalent, at BBUC’s election) on a one-for-one basis (subject to adjustment to reflect certain capital events) (a Redemption);

(c) upon a liquidation, dissolution or winding up of BBUC, holders of Exchangeable Shares will be entitled to receive BBU Units on a one-for-one basis (subject to adjustment to reflect certain capital events) and not any remaining property or assets of BBUC following such payment (a BBUC Liquidation);

(d) upon a liquidation, dissolution or winding up of BBU, including where substantially concurrent with a BBUC Liquidation, all of the Exchangeable Shares will be automatically redeemed for BBU Units (or its cash equivalent, at BBUC’s election) on a one-for-one basis (subject to adjustment to reflect certain capital events) (a BBU Liquidation); and

(e) subject to applicable law and in accordance with the Exchangeable Share Provisions, each Exchangeable Share will entitle the holder to dividends from BBUC payable at the same time as, and equivalent to, each distribution on a BBU Unit. The Exchangeable Share Provisions also provide that if a distribution is declared on the BBU Units and an equivalent dividend is not declared and paid concurrently on the Exchangeable Shares, then the undeclared or unpaid amount of such dividend accrues and accumulates and is to be paid upon the first to occur of any of the circumstances contemplated by paragraphs (a) to (d) above, if not yet paid.

Upon being notified by BBUC that BBUC has received a request for an Exchange, BBU has an overriding call right to purchase (or have one of its affiliates purchase) all of the Exchangeable Shares that are the subject of the Exchange notice from the holder of Exchangeable Shares for BBU Units (or its cash equivalent, at BBU’s election) on a one-for-one basis (subject to adjustment to reflect certain capital events).
Upon being notified by BBUC that it intends to conduct a Redemption, BBU has an overriding call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding Exchangeable Shares for BBU Units on a one-for-one basis (subject to adjustment to reflect certain capital events).
Upon the occurrence of a BBU Liquidation or BBUC Liquidation, BBU will have an overriding liquidation call right to purchase (or have one of its affiliates purchase) all but not less than all of the then outstanding Exchangeable Shares on the day prior to the effective date of such BBU Liquidation or BBUC Liquidation for BBU Units on a one-for-one basis (subject to adjustment to reflect certain capital events).
Prior to the Special Distribution, Brookfield will enter into a rights agreement (the Rights Agreement) pursuant to which it will agree that, for the five-year period beginning on the date of the Special Distribution, Brookfield will guarantee BBUC’s obligation to deliver BBU Units or its cash equivalent in connection with a redemption or Exchange.
An investment in Exchangeable Shares is intended to be, as nearly as practicable, functionally and economically, equivalent to an investment in BBU Units. BBU expects that:

(a) investors of Exchangeable Shares may purchase Exchangeable Shares as an alternative way of owning BBU Units rather than a separate and distinct investment; and

(b) the market price of the Exchangeable Shares will be significantly impacted by (i) the combined business performance of BBUC and BBU as a single economic unit and (ii) the market price of BBU Units, in a manner that should result in the market price of the Exchangeable Shares closely tracking the market price of the BBU Units.

A holder of Exchangeable Shares would be able to terminate its investment by either (i) selling the Exchangeable Shares on the TSX or on the NYSE, or (ii) selling the BBU Units received by operation of the Exchangeable Share Provisions on the TSX or on the NYSE.

Issuance of BBU Units Under the Rights Agreement

The attributes of the Exchangeable Shares, as set out in the Exchangeable Share Provisions, and the trades contemplated by the Rights Agreement involve or may involve:

(a) the delivery by Brookfield of BBU Units to a holder of Exchangeable Shares; and

(b) the first trade of BBU Units received by a holder of Exchangeable Shares in connection with the Rights Agreement.

Under section 2.42 of National Instrument 45-106 Prospectus Exemptions and in connection with the conversion, exchange, or exercise of a security, the Prospectus Requirement does not apply to a distribution by an issuer if (a) the issuer distributes a security of its own issue to a security holder of the issuer in accordance with the terms and conditions of a security previously issued by that issuer, or (b) subject to certain notification requirements, the issuer distributes a security of a reporting issuer held by it to a security holder of the issuer in accordance with the terms and conditions of a security previously issued by that issuer.
If Brookfield were required to deliver the BBU Units pursuant to the Rights Agreement in the future, it could not rely on paragraph 2.42(b) of NI 45-106, because Brookfield would be delivering BBU Units to a security holder of BBUC, not of Brookfield.
In absence of an exemption, the delivery by Brookfield of BBU Units to a holder of Exchangeable Shares, must comply with the Prospectus Requirement under the Legislation in each jurisdiction of Canada where the delivery occurs.
The Exchangeable Shares represent part of the equity value of BBU and are intended to be, in all material respects, functionally and economically equivalent to the BBU Units. As a result of the Exchangeable Share Provisions, holders of Exchangeable Shares are able to receive a BBU Unit or its cash equivalent (the form of payment to be determined at the election of BBUC) and will receive identical distributions to the BBU Units. Investors may purchase Exchangeable Shares as an alternative way of owning BBU Units rather than a separate and distinct investment.
A key factor in ensuring that an investment in the Exchangeable Shares will be as nearly as practicable, functionally and economically equivalent to an investment in BBU Units is the ability of holders of Exchangeable Shares to (i) exchange their Exchangeable Shares, (ii) receive BBU Units on the exchange, and (iii) sell the BBU Units on the TSX or the NYSE.
Relief from the Prospectus Requirement for the delivery by Brookfield of BBU Units to holders of Exchangeable Shares is necessary for the operation of the backstop provided by Brookfield to holders of Exchangeable Shares. As such, granting relief from the Prospectus Requirement is not contrary to the public interest.

Qualification to File Short Form Prospectus

BBUC wishes to be eligible to file short form prospectuses under NI 44-101 upon completion of the Special Distribution. While BBUC does not currently intend to complete a distribution immediately following the completion of the Special Distribution, BBUC’s eligibility to file short form and shelf prospectuses is critical to its viability as an issuer of a security offering an alternative way of owning BBU Units. In addition, there are short time frames associated with financings undertaken in current market conditions. As a result, the relief from the Short Form Prospectus Eligibility Requirements is being sought in advance of the completion of the Special Distribution and any possible follow on distribution of BBUC securities.
The qualification criteria for short form prospectus eligibility are outlined in section 2.2 of NI 44-101. Once BBUC becomes a reporting issuer, it will satisfy all of the qualification criteria for short form prospectus eligibility in section 2.2 of NI 44-101 with the exception of subsection 2.2(e) which requires that an issuer’s equity securities are listed and posted for trading on a short form eligible exchange and that an issuer is not an issuer whose (i) operations have ceased, or (ii) whose principal asset is cash, cash equivalents, or its exchange listing (the Equity Security Requirement). The term “equity security” is defined under the Legislation as a security that carries a residual right to participate in the earnings of the issuer and, on the liquidation or winding up of the issuer, in its assets. The Exchangeable Shares do not carry a residual right to participate in the assets of BBUC upon liquidation or winding-up of BBUC, and accordingly, are not equity securities under the Legislation.
In the event that BBUC undertakes an offering or other distribution of its securities prior to the filing of its audited financial statements for the year ended December 31, 2021, BBUC intends to rely on the exemption in subsection 2.7(1) of NI 44-101 from the requirements to have (i) current annual financial statements and (ii) a current AIF.
BBUC is not eligible for the exemption for alternative qualification criteria for conventional preferred shares under Part 2 of NI 44-101 because the Exchangeable Shares are not conventional preferred shares.
It is appropriate for the Exchangeable Shares to be treated as equity securities for the purposes of NI 44-101 since the Exchangeable Shares are, in effect, the economic and voting equivalent of the BBU Units and the BBU Units do qualify as equity securities under NI 44-101.
Except for not meeting the Equity Security Requirement, BBUC would otherwise be qualified to file a prospectus in the form of a short form prospectus pursuant to, and in accordance with, NI 44-101.

Qualification of At-the-Market Distribution

Pursuant to section 9.3(1)(b) of NI 44-102, only equity securities may be distributed by way of an at-the-market distribution using the shelf procedures.
Based upon the rationale provided in paragraphs 44, 34, 47, and 48 above, it is not prejudicial to the public interest to exempt the company from the At-the-Market Distribution Requirements.

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 Initial Decision is revoked and the Exemption Sought is granted provided that:

the Prospectus Requirement shall not apply to the delivery by Brookfield of BBU Units to holders of Exchangeable Shares for the duration of the Rights Agreement, provided that:

(a) such BBU Units are delivered strictly pursuant to Brookfield’s agreement to guarantee BBUC’s obligation to deliver BBU Units in connection with an Exchange under the terms of the Rights Agreement;

(b) BBU is a reporting issuer, as defined in the Legislation, in a jurisdiction of Canada at the time such relief is relied upon for the delivery of BBU Units;

(d) Brookfield has provided prior written notice of the distribution to the principal regulator;

any first trade in BBU Units acquired by a holder of Exchangeable Shares in connection with Brookfield satisfying its obligations under the Rights Agreement shall not be a distribution under the Legislation, provided that:

(a) BBU is and has been a reporting issuer, as defined in the Legislation, in a jurisdiction of Canada for the four months immediately preceding the trade;

(b) the trade is not in previously issued securities of an issuer from the holdings of any control person, as that term is defined in subsection 1(1) of the Securities Act (Ontario);

(d) no extraordinary commission or consideration is paid to a person or company in respect of the trade;

(e) if the selling securityholder is an insider or officer of BBU, the selling security holder has no reasonable grounds to believe that BBU is in default of securities legislation; and

(f) the terms of the Rights Agreement are not materially amended;

the decision as it relates to the Prospectus Requirement shall terminate on the day on which the Rights Agreement is terminated.
BBUC does not have to comply with the Short Form Prospectus Eligibility Requirements so long as:

(a) BBUC is otherwise qualified to file a preliminary short form prospectus under section 2.2 of NI 44-101;

(b) the Exchangeable Shares are listed and posted for trading on a short form eligible exchange (as defined in NI 44-101);

(d) BBUC is not an issuer whose principal asset is cash, cash equivalents, or its exchange listing.

BBUC does not have to comply with the At-the-Market Distribution Requirements so long as:

(a) BBUC otherwise satisfies the conditions set out in section 9.3 of NI 44-102 to distribute securities under an ATM prospectus (as defined in NI 44-102) as part of an at-the-market distribution;

(b) the security being distributed is an Exchangeable Share; and

As to the Prospectus Requirement,

“Frances Kordyback” “Cathy Singer”

Frances Kordyback Cathy Singer

Commissioner Commissioner Ontario Securities Commission Ontario Securities Commission

As to the Short Form Eligibility Requirements and the At-the-Market Distribution Requirements,

“Michael Balter”

_________________________ Michael Balter Manager, Corporate Finance

Ontario Securities Commission

OSC File #: 2022/0056