In the Matter of HHT Investments Inc.
[Indexed as: HHT Investments Inc. (Re)]
Ontario Reports
Ontario Superior Court of Justice,
D.M. Brown J.
March 11, 2014
119 O.R. (3d) 473 | 2014 ONSC 1582
Case Summary
Corporations — Arrangements — Company proposing to reorganize as publicly traded real estate investment trust ("REIT") by way of plan of arrangement — Fact that shareholders' securities would be exchanged for securities of limited partnership or REIT and not "another body corporate" not disqualifying plan of arrangement from consideration under s. 182 of Ontario Business Corporations Act — Plan approved — Business Corporations Act, R.S.O. 1990, c. B.16, s. 182.
HHT proposed to reorganize as a publicly traded real estate investment trust ("REIT") by way of a plan of arrangement. It applied for an order under [page474] s. 182 of the Ontario Business Corporations Act ("OBCA") approving the plan of arrangement.
Held, the application should be allowed.
The proposed plan of arrangement was an "arrangement" within the meaning of s. 182 of the OBCA despite the fact that shareholders' securities would be exchanged for securities of a limited partnership or a REIT, not "another body corporate". All of the statutory criteria were met.
Innvest Real Estate Investment Trust (Re), [2010] O.J. No. 3312, 2010 ONSC 4292, 72 B.L.R. (4th) 98, 91 C.L.R. (3d) 165 (S.C.J.), consd
Other cases referred to
Acadian Timber Income Fund (Re), [2009] O.J. No. 5517, 2009 72057 (S.C.J.); APF Energy Trust (Re), April 26, 2005 (Alta. Q.B.); BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69, 52 B.L.R. (4th) 1, EYB 2008-151755, J.E. 2009-43, 301 D.L.R. (4th) 80, 71 C.P.R. (4th) 303, 383 N.R. 119, 172 A.C.W.S. (3d) 915; Fairmont Hotels & Resorts Inc. (Re), 2006 CarswellOnt 9246 (S.C.J.); InnVest Real Estate Investment Trust (Re), [2011] O.J. No. 6014, 2011 ONSC 7693, 75 E.T.R. (3d) 304, 211 A.C.W.S. (3d) 773 (S.C.J.); Olympia & York Developments Ltd. (Re), 1993 9428 (ON SC), [1993] O.J. No. 900, 102 D.L.R. (4th) 149, 18 C.B.R. (3d) 176, 39 A.C.W.S. (3d) 966 (Gen. Div.)
Statutes referred to
Business Corporations Act, R.S.O. 1990, c. B.16, s. 182 [as am.], (1), (a), (h)
Canada Business Corporations Act, R.S.C. 1985, c. C-44
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 86
APPLICATION for approval of a plan of arrangement.
P. Guy and K. Montpetit, for applicant.
D.M. BROWN J.: —
I. Application for a Final Order in an OBCA Plan of Arrangement Involving a REIT
1HHT Investments Inc. ("HHT") applied for a final order in respect of a proposed plan of arrangement under s. 182 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"). Under the arrangement, HHT proposes to reorganize as a publicly traded real estate investment trust ("REIT"). The principles in BCE Inc. v. 1976 Debentureholders apply.1 The applicant obtained an interim order from McEwen J. on February 3, 2014, and it has complied with that order. The application materials clearly demonstrated that the application had been put forward in good faith and otherwise was fair and reasonable. [page475]
2The only question which I raised at the hearing was whether the application had satisfied all the statutory procedures, specifically whether the proposed plan fell within the definition of "arrangement" set out in OBCA s. 182(1).
3For the reasons set out below, I am satisfied that the plan is an "arrangement", and I approve it.
II. Background Facts
4HHT was incorporated under the OBCA, formed as a capital pool company, and completed the initial public offering of its common shares in July 2013. Those shares were listed on the TSX Venture Exchange. In its prospectus, HHT disclosed its intention to reorganize into a real estate investment trust ("REIT") by way of a plan of arrangement.
5On January 30, 2014, the Boulevard Industrial REIT was created, Boulevard Industrial Limited Partnership ("Boulevard LP") was created and Boulevard Industrial REIT GP Inc. ("Boulevard GP") was incorporated under the OBCA.
6For purposes of the present analysis, the material aspects of the proposed plan of arrangement can be distilled down to the following steps:
(i) the REIT would contribute to Boulevard LP, in exchange for an equal number of Class A LP units of Boulevard LP, that number of the REIT units equal to the number of the REIT units to be exchanged as consideration for the HHT shares;
(ii) the issued and outstanding HHT shares of an electing HHT shareholder would be transferred to Boulevard LP in exchange for Class B LP units of Boulevard LP and ancillary rights at a stipulated exchange ratio. The ancillary rights include a special voting unit of the REIT;
(iii) options and warrants to purchase HHT shares would be exchanged for an option or warrant to purchase a REIT unit;
(iv) the REIT would redeem the one unit initially issued by it to HHT in consideration for the amount specified under the declaration of trust;
(v) HHT would reorganize its capital pursuant to s. 86 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (Canada) by exchanging the HHT shares for new common shares of HHT and preferred shares of HHT having a "paid-up capital" equal to all cash on hand less any corporate expenses; and
(vi) those HHT preferred shares would be redeemed in accordance with the terms set out in the arrangement agreement. [page476]
The effect of those steps would be that following the completion of the plan of arrangement (i) HHT shareholders would own all of the issued and outstanding Class B LP units and REIT special voting units; (ii) the REIT would own all of the issued and outstanding shares of the general partner, Boulevard GP; (iii) the REIT would own all of the issued and outstanding Class A LP units; and (iv) Boulevard LP would own all the shares of HHT and would have assumed all of that corporation's rights and obligations under the purchase agreement.
7A meeting of HHT shareholders was held on March 7, 2014. At that meeting, 49.21 per cent of the shareholders were present; 100 per cent of the shareholders eligible to vote on the arrangement resolution approved it. No shares were voted against the arrangement; no dissent rights were exercised; no person filed an appearance to oppose the relief sought in the final order.
III. Analysis
8The purpose of OBCA s. 182 is to permit the making of major changes in corporate structure while ensuring that individuals and groups whose rights may be affected are treated fairly.2 Section 182 defines an "arrangement" with respect to a corporation to include a number of types of transactions, including the following:
182(1) In this section, "arrangement", with respect to a corporation, includes,
(a) a reorganization of the shares of any class or series of the corporation or of the stated capital of any such class or series;
(f) an exchange of securities of the corporation held by security holders for other securities, money or other property of the corporation or securities, money or other property of another body corporate that is not a take-over bid as defined in Part XX of the Securities Act;
(h) any other reorganization or scheme involving the business or affairs of the corporation or of any or all of the holders of its securities or of any options or rights to acquire any of its securities that is, at law, an arrangement; and
(i) any combination of the foregoing.
9Since the reason for judicial scrutiny of plans of arrangements is to ensure the fair and reasonable treatment of those [page477] whose legal rights will be affected by the plan, for a transaction to qualify as an "arrangement" one must identify that part, or those parts, of the plan which will affect those legal rights. That said, courts have given a very liberal interpretation to which parts of a transaction might make resort to the corporate statutory plan of arrangement possible, including whether other parts of a plan are made "conditional" on enumerated corporate steps or where only part of a transaction involves a corporation, while another part might not.3
10In the present case, the key operative provisions of the plan of arrangement affecting shareholder rights are the steps involving the exchange by an HHT shareholder of its HHT shares for Class B LP units of Boulevard LP and special voting units of the REIT, as well as the exchange of options and warrants to purchase HHT shares for options or warrants to purchase a REIT unit. According to the evidence, the reorganization of the capital of HHT would take place only after those exchanges had been made.
11Both exchanges of the securities of HHT held by security holders would be for securities of a limited partnership or a REIT, not "another body corporate". Does that disqualify the plan of arrangement from consideration under OBCA s. 182?
12The statutory arrangement provisions allow for the solution of difficult and awkward corporate situations4 and the resolution of corporate problems between companies and their shareholders.5 Following the change in the rules concerning income trusts, in several cases this court permitted the use of plans of arrangement to convert income trusts to corporate structures as long as there had been compliance with the applicable declarations of trust and trust laws, thereby facilitating dealing with the "income trust conundrum".6
13The case of Innvest Real Estate Investment Trust (Re) considered a trust-to-trust transaction, in the sense that it was designed to enable a REIT to transfer its investments in hotel and operating business to another trust, while retaining in the REIT investments in rental real estate in the trust. In her reasons, Hoy J., as she then was, identified each of the 33 steps involved in the plan of arrangement, two-thirds of which she described as "corporate steps". She concluded that the "corporate steps" qualified as an arrangement under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA"). Although the non-corporate steps in the plan did not so qualify, Hoy J. observed that they would not be effected as part of the arrangement and she then satisfied herself that those steps would comply with the applicable trust indentures and related laws. In the result, Hoy J. approved the entire plan of arrangement.
14For a number of steps in the Innvest plan of arrangement, corporations were participating in their capacities as general partners of limited partnerships, as is the case under the present arrangement agreement which Boulevard GP signed in its capacity as the general partner of Boulevard LP. The comments made by Hoy J. on the role of general partners are apposite to the present case:
[A] limited partnership is not a legal entity. It is required by law to have a general partner through which it normally acts. . . The Plan of Arrangement describes the transactions involving limited partnerships as being effected by their corporate general partners. In this case, consistent with the flexible and broad interpretation of "arrangement" the courts have taken, and given that the arrangement is a bona fide response to the SIFT Rules, steps involving corporations acting in their capacity as general partners of limited partnerships have been accepted as part of an arrangement under s. 192 of the CBCA where the corporation is a CBCA corporation and there is evidence that the step is pursuant to the applicable limited partnership agreement. I note that in this case, the steps involving limited partnerships are an integral part of a larger corporate reorganization involving purely corporate steps more conventionally included in arrangements.7
15About a year later, Innvest applied for an interim order for a further plan of arrangement, one which would reverse the transaction approved by Hoy J. I granted the interim order, observing that it was "important for the health of our economy that participants can expect a reasonably consistent application [page479] by the courts of processes involving financial and commercial transactions".8
16Against that background, I am satisfied that the proposed plan of arrangement is an "arrangement" within the meaning of OBCA s. 182. In the broadest sense, the plan involves the reorganization of the structure of a corporate entity, HHT, and arranges the rights of its shareholders and other security holders. While it might be stretching the point to contend that the holders of the common shares of HHT are receiving, in exchange, the securities of "another body corporate", even though Boulevard LP would be acting at the instance of its corporate general partner, Boulevard GP, given the pervasive use of real estate investment trusts in our contemporary economy, I conclude that the key operative portion of the plan -- the exchange of securities -- constitutes "any other reorganization or scheme involving the business or affairs of the corporation or of any or all of the holders of its securities or of any options or rights to acquire any of its securities that is, at law, an arrangement", within the meaning of OBCA s. 182(1)(h). The subsequent reorganization of the capital structure of HHT certainly would fall within OBCA s. 182(1)(a).
17For those reasons, I approve the plan of arrangement as fair and reasonable, and I have signed the order submitted by counsel.
Application allowed.
Notes
End of Document
Footnotes
- [2008] 3 S.C.R. 560, [2008] S.C.J. No. 37, 2008 SCC 69.
- Ibid., para. 128.
- APF Energy Trust (Re), an April 26, 2005 decision of the Alberta Court of Queen's Bench, cited in Innvest Real Estate Investment Trust (Re), [2010] O.J. No. 3312, 2010 ONSC 4292 (S.C.J.), at para. 57.
- Fairmont Hotels & Resorts Inc. (Re), 2006 CarswellOnt 9246 (S.C.J.), at para. 1.
- Olympia & York Developments Ltd. (Re), 1993 9428 (ON SC), [1993] O.J. No. 900, 102 D.L.R. (4th) 149 (Gen. Div.), at p. 162 D.L.R.
- For example, Acadian Timber Income Fund (Re), [2009] O.J. No. 5517, 2009 72057 (S.C.J.).
- Innvest Real Estate Investment Trust (Re), supra, para. 61.
- InnVest Real Estate Investment Trust (Re), [2011] O.J. No. 6014, 2011 ONSC 7693 (S.C.J.), para. 15.