The Securities Commission has granted an exemption from the prospectus requirements for a U.S.-based company to distribute shares of its U.S. subsidiary to Canadian investors as a dividend in specie. This decision allows the company to spin off shares of its healthcare subsidiary to its Canadian shareholders on a pro rata basis without issuing a prospectus, as the distribution does not fall under existing legislative exemptions. The company is publicly traded in the U.S. but is not a reporting issuer in Canada and has a minimal presence in the country. Canadian shareholders are not required to make an investment decision to receive the subsidiary’s shares.
The exemption is based on the Securities Act, R.S.O. 1990, c. S.5, specifically sections 53 and 74(1). The decision was influenced by the company’s limited number of Canadian shareholders and the small percentage of shares they hold, the lack of an active trading market for the subsidiary’s shares in Canada, and the fact that the distribution will occur automatically without any action required from the shareholders.
The outcome is that the company can proceed with the spin-off without adhering to the prospectus requirements, but any first trade of the subsidiary’s shares acquired through the spin-off will be considered a distribution subject to section 2.6 of National Instrument 45-102 Resale of Securities.