Pathway Oil & Gas 2010 Flow-Through Limited Partnership et al.

Decision

Headnote

NP 11-203 -- Exemptions granted to flow-through limited partnerships from the requirements in National Instrument 81-106 Investment Fund Continuous Disclosure to file an annual information form, to maintain and prepare an annual proxy voting record, to post the proxy voting record on its website, and to provide it to securityholders upon request. Flow-through limited partnerships have a short lifespan and do not have a readily available secondary market.

Applicable Legislative Provisions

National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 9.2, 10.3, 10.4, 17.1.

January 16, 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

PATHWAY OIL & GAS 2010 FLOW-THROUGH LIMITED PARTNERSHIP,

PATHWAY QUEBEC MINING 2010-II FLOW-THROUGH LIMITED PARTNERSHIP,

PATHWAY MINING 2010-II FLOW-THROUGH LIMITED PARTNERSHIP,

PATHWAY MINING 2011 FLOW-THROUGH LIMITED PARTNERSHIP AND

PATHWAY QUEBEC MINING 2011 FLOW-THROUGH LIMITED PARTNERSHIP

(collectively the "Partnerships")

AND

PATHWAY OIL & GAS 2010 INC., PATHWAY QUEBEC MINING 2010-II INC.,

PATHWAY MINING 2010-II INC., PATHWAY MINING 2011 INC. AND

PATHWAY QUEBEC MINING 2011 INC.

(collectively the "Promoters", and together with the Partnerships, the "Filers")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers on behalf of the Partnerships and each future limited partnership promoted by affiliates of each of the Promoters that is identical to the Partnerships in all respects which are material to this decision ("Future Partnerships", and together with the Partnerships, the "LPs") for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for exemptive relief from the requirements to:

(a) prepare and file an annual information form ("AIF") pursuant to section 9.2 of National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106") for each financial year if it has not obtained a receipt for a prospectus during the last 12 months preceding its financial year end (the "AIF Relief");

(b) maintain a proxy voting record ("Proxy Voting Record") pursuant to section 10.3 of NI 81-106; and

(c) prepare the Proxy Voting Record on an annual basis for the period ending on June 30 of each year, post the Proxy Voting Record on the LPs' website no later than August 31 of each year and send the Proxy Voting Record to the limited partners of the LPs ("Limited Partners") upon request, pursuant to section 10.4 of NI 81-106 (paragraphs (b) and (c), together, the "Proxy Voting Record Relief").

(the AIF Relief and the Proxy Voting Record Relief, together, 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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") (i) in respect of the AIF Relief, is intended to be relied upon in Alberta, British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island and the Northwest Territories (the "Non-Principal Passport Jurisdictions"), and (ii) in respect of the Proxy Voting Record Relief, is intended to be relied upon in the Non-Principal Passport Jurisdictions, other than in Quebec.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

1. Each of the Partnerships was formed pursuant to the provisions of the Limited Partnerships Act (Ontario) on the following dates:

Pathway Oil & Gas 2010 Flow-Through Limited Partnership

May 13, 2010

 

Pathway Quebec Mining 2010-II Flow-Through Limited Partnership

May 13, 2010

 

Pathway Mining 2010-II Flow-Through Limited Partnership

May 13, 2010

 

Pathway Mining 2011 Flow-Through Limited Partnership

December 8, 2010

 

Pathway Quebec Mining 2011 Flow-Through Limited Partnership

December 10, 2010

2. Each of the foregoing Partnerships (collectively, the "Quebec Partnerships"), became a reporting issuer in Ontario and Quebec by filing a prospectus in Ontario and Quebec with the noted dates:

Pathway Quebec Mining 2010-II Flow-Through Limited Partnership

September 23, 2010

 

Pathway Quebec Mining 2011 Flow-Through Limited Partnership

January 25, 2011

3. Each of the foregoing Partnerships (collectively, the "National Partnerships"), became a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador and the Northwest Territories by filing a prospectus in such jurisdictions with the noted dates:

Pathway Oil & Gas 2010 Flow-Through Limited Partnership

August 20, 2010

 

Pathway Mining 2010-II Flow-Through Limited Partnership

September 16, 2010

 

Pathway Mining 2011 Flow-Through Limited Partnership

January 27, 2011

4. Pathway Mining 2010-II Flow-Through Limited Partnership additionally became a reporting issuer in Quebec by filing a prospectus in Quebec dated November 4, 2010.

5. Pathway Mining 2011 Flow-Through Limited Partnership is also a reporting issuer in Quebec as the prospectus dated January 27, 2011 was filed in Quebec.

6. Any Future Partnership, if structured in a similar manner to the Quebec Partnerships is expected to be a reporting issuer in Ontario and Quebec or, if structured in a similar manner to the National Partnerships, is expected to be a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador and the Northwest Territories, and possibly also Quebec.

7. Pathway Oil & Gas 2010 Inc., Pathway Quebec Mining 2010-II Inc., Pathway Mining 2010-II Inc., Pathway Mining 2011 Inc. and Pathway Quebec Mining 2011 Inc. are the general partners (the "General Partners") and promoters (the "Promoters") of Pathway Oil & Gas 2010 Flow-Through Limited Partnership, Pathway Quebec Mining 2010-II Flow-Through Limited Partnership, Pathway Mining 2010-II Flow-Through Limited Partnership, Pathway Mining 2011 Flow-Through Limited Partnership and Pathway Quebec Mining Flow-Through Limited Partnership, respectively.

8. The voting shares of each Promoter are held by Consolidated International Investment Holdings Inc. ("CIIH"), a company controlled by Joe Dwek, and the promoters of the Future Partnerships are also expected to be controlled by CIIH on another entity controlled by Joe Dwek, such that the promoters of the Future Partnerships will be affiliates of the Promoters and the Partnerships.

9. The principal office address and the registered office address of the General Partners, as managers of the Partnerships, are located in Toronto, Ontario.

10. None of the Partnerships are in default of securities legislation in the jurisdictions in which they are reporting issuers.

11. The Partnerships were formed, and any Future Partnerships will be formed, to invest in flow-through common shares ("Flow-Through Shares") of reporting issuers engaged in mineral exploration, development and/or production in Canada ("Resource Issuers"), with a view to achieving capital appreciation and maximizing the tax benefit of an investment in units for its Limited Partners, pursuant to agreements ("Flow-Through Agreements") between the applicable LP and the Resource Issuer. Under the terms of each Flow-Through Agreement, the LP will subscribe for Flow-Through Shares of the Resource Issuer issued from treasury and the Resource Issuer will incur and renounce to the LP, in an amount equal to the subscription price of the Flow-Through Shares, expenditures in respect of mineral exploration, development and/or production that qualify as Qualified CEE (Canadian exploration expense which can be renounced to the Partnership under the Income Tax Act (Canada)(the "Tax Act")) and may be renounced to the Partnership. Flow-Through Agreements with Resource Issuers may provide that if grants or tax credits are available to investors under any federal or provincial mineral exploration program, the Resource Issuers must apply for such grants or tax credits on behalf of the Partnership and the Limited Partners and remit all amounts received to the Partnership.

12. Each of the Partnerships is structured in such a manner that it will be dissolved by the noted dates:

Pathway Oil & Gas 2010 Flow-Through Limited Partnership

June 30, 2012

 

Pathway Quebec Mining 2010-II Flow-Through Limited Partnership

October 31, 2012

 

Pathway Mining 2010-II Flow-Through Limited Partnership

July 31, 2012

 

Pathway Mining 2011 Flow-Through Limited Partnership

April 30, 2013

 

Pathway Quebec Mining 2011 Flow-Through Limited Partnership

April 30, 2013

13. Based on the dissolution dates noted in paragraph 12 above, and the comparable structure of Future Partnerships, each of the Partnerships and Future Partnerships will, while reporting issuers, pass two financial years ended December 31, but will not be in existence as of the third December 31 financial year end.

14. It is the current intention of the General Partners that each Partnership will transfer its assets to a mutual fund corporation in exchange for shares of such mutual fund corporation. Upon dissolution, the Limited Partners of each Partnership will receive their pro rata share of the shares of that mutual fund. Any Future Partnership will be terminated within three years after it is formed on the same basis as the Partnerships.

15. The LPs are not, and will not be, operating businesses. Rather, each LP is, or will be, a short-term special purpose vehicle that will be dissolved within approximately three years of its formation. The primary investment purpose of the LPs is not to achieve capital appreciation, although this is a secondary benefit, but rather to obtain for the Limited Partners the significant tax benefits that accrue when Resource Issuers renounce Qualified CEE to the LPs.

16. The limited partnership units of the LPs (the "Units") are not, and will not be, listed or quoted for trading on any stock exchange or market. The Units are not redeemable by the Limited Partners. Generally, Units are not transferred by Limited Partners, since Limited Partners must be holders of the Units on the last day of each fiscal year of the LP in order to obtain the desired tax deduction.

17. It is, and will be, a term of the limited partnership agreement governing the LPs that the General Partner of the particular LP has, and will have, the authority to manage, control, administer and operate the business and affairs of the LPs, including the authority to take all measures necessary or appropriate for the business, or ancillary thereto, and to ensure that the LPs comply with all necessary reporting and administrative requirements. The Promoters and its affiliates provide or will cause to be provided all of the administrative services required by the LPs.

18. Each of the Limited Partners of the LPs has, or will be expected to have, by subscribing for Units, agreed to the irrevocable power of attorney contained in the partnership agreement and has thereby, in effect, consented to the making of this application.

19. Since their formation, each Partnership's activities have been limited to: (i) completing the issue of the Units under its respective prospectus; (ii) investing its available funds in accordance with its investment objectives into Flow-Through Shares of Resource Issuers; and (iii) incurring expenses as described in its respective prospectus. Any Future Partnerships will be structured in a similar fashion.

20. Given the limited range of business activities to be conducted by the LPs, the short duration of their existence and the nature of the investment of the Limited Partners, the preparation and distribution of an AIF by the LPs would not be of any benefit to the Limited Partners and may impose a material financial burden on the LPs.

21. Upon the occurrence of any material change to a LP, Limited Partners would receive all relevant information from the material change reports the LP is required to file in the applicable jurisdictions.

22. As a result of the implementation of NI 81-106, investors purchasing Units of the LPs were, or will be, provided a prospectus containing written policies on how the Flow-Through Shares or other securities held by the LPs are voted (the "Proxy Voting Policies"), and had, or will have, the opportunity to review the Proxy Voting Policies before deciding whether to invest in Units.

23. Generally, the Proxy Voting Policies require that the securities of the Resource Issuers held by a LP be voted in a manner most consistent with the economic interests of the Limited Partners of the LP.

24. Given a LP's short lifespan, the production of a Proxy Voting Record would provide Limited Partners with very little opportunity for recourse if they disagreed with the manner in which the LP exercised or failed to exercise its proxy voting rights, as the LP would likely be dissolved by the time any potential change could materialize.

25. Preparing and making available to the Limited Partners a Proxy Voting Record will not be of any benefit to the Limited Partners and may impose a material financial burden on the LPs.

26. The Filers are of the view that the Exemption Sought is not against the public interest, is in the best interests of the LPs and their Limited Partners and represents the business judgment of responsible persons uninfluenced by considerations other than the best interest of the LPs and their Limited Partners.

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.

"Raymond Chan"
Manager, Investment Funds Branch
Ontario Securities Commission