Securities Law & Instruments

Headnote

NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval granted for change of control of mutual fund manager under s. 5.5(1)(1.a) of NI 81-102 -- there are no plans to change the manager of the fund, or to amalgamate or merge the current manager with any other entity in the immediate or foreseeable future.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(1.a), 19.1.

November 12, 2014

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 REDWOOD ASSET MANAGEMENT INC. (THE MANAGER)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Manager for a decision under the securities legislation of the Jurisdiction (the Legislation) for approval pursuant to subsection 5.5(1)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) of a change of control of the Manager (the Approval Sought).

Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application; and

(b) the Manager has provided notice pursuant to section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) that the Approval Sought is intended to be relied upon in each province and territory of Canada.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are otherwise defined in this decision.

Representations

The decision is based on the following facts represented by the Manager:

The Manager and the Funds

1. The Manager is a corporation amalgamated under the laws of the Province of Ontario and has its head office in Toronto, Ontario.

2. The Manager is the manager of the investment funds listed in Schedule A hereto (the Funds and each a Fund).

3. The Manager is registered as an investment fund manager, portfolio manager and exempt market dealer in Ontario, as an investment fund manager and exempt market dealer in Quebec, as an investment fund manager in Newfoundland and Labrador, as an exempt market dealer in Alberta, and as an exempt market dealer in British Columbia.

4. The Funds are reporting issuers in the Jurisdictions noted on Schedule A and distribute, or have distributed, their securities to the public pursuant to disclosure documents filed under National Instrument 81-101 -- Mutual Fund Prospectus Disclosure.

5. Neither the Manager nor any Fund is in default of applicable securities legislation in any of the Jurisdictions.

6. Extra Medium Inc. (the Purchaser) is a corporation incorporated under the Business Corporations Act (Ontario) and is an investment holding company that does not carry on any other business activities.

7. The Purchaser currently holds 388,266 common shares of the Manager, representing 23.72% of the aggregate voting percentage of the Manager.

8. Peter Shippen is the sole shareholder, sole director and sole officer of the Purchaser. Peter Shippen is also a Director, the President, the Chief Financial Officer and the Chief Compliance Officer of the Manager.

Change of Control of the Manager

9. It is proposed that the Purchaser purchase, in aggregate, 525,503 common shares of the Manager currently held by eight other shareholders of the Manager (collectively, the Vendors), representing in aggregate 32.10% of the 1,637,190 issued and outstanding common shares of the Manager (the Proposed Transactions). As a result, Peter Shippen will continue to control the 388,266 common shares of the Manager currently held by the Purchaser and will gain control over the 525,503 common shares to be acquired by the Purchaser from the Vendors. On completion of the Proposed Transactions, Peter Shippen will, therefore, control 913,769 common shares of the Manager, representing 55.81% of its issued and outstanding common shares.

10. As the share ownership of the Purchaser (and the indirect ownership of Mr. Shippen) will increase from 23.72% to 55.81%, the Proposed Transactions will result in a change of control of the Manager and accordingly regulatory approval is required pursuant to section 5.5(1)(a.1) of NI 81-102.

11. Written notice regarding the Proposed Transactions will be sent to each securityholder of the Funds pursuant to section 5.8(1) of NI 81-102 and will be filed on SEDAR.

12. Subject to all the relevant parties reaching a definitive agreement and the receipt of all requisite regulatory approvals, it is anticipated that the Proposed Transactions will be completed in the first quarter of 2015, upon the expiration of the 60-day notice period provided for in section 5.8(1) (a) of NI 81-102.

13. Notice of the Proposed Transactions was delivered to the Compliance & Registrant Regulation branch of the OSC, as well as other applicable Canadian securities administrators, pursuant to section 11.9 of National Instrument 31-103 Registration Requirements and Exemptions on October 16, 2014.

14. The Proposed Transactions will effectively result solely in a change in the ownership among existing shareholders of the Manager. Accordingly, completion of the Proposed Transactions is not expected to result in any material changes to the business or operations of any Fund or the Manager. In particular there is no current intention to:

(a) change any of the directors or officers of the Manager. It is expected that all of the directors and officers of the Manager will continue to have the requisite integrity and experience as contemplated under section 5.7(1)(a)(v) of NI 81-102;

(b) change how the Manager operates or administers the Funds or to change the fees or expenses that are charged to the Funds;

(c) change any of the investment objectives or strategies of the Funds;

(d) implement any mergers involving the Funds or rename any Fund;

(e) have any Fund become a member of another fund family; or

(f) immediately following the closing of the Proposed Transactions or within the foreseeable period of time, merge the Manager with another entity or change the manager of the Funds to another investment fund manager.

15. Although the current members of the Funds' independent review committee (IRC) will automatically cease to be members of the IRC by operation of section 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds following the Proposed Transactions, the Manager intends to reappoint them immediately after the closing of the Proposed Transactions.

16. The Proposed Transactions are not expected to impact the financial stability of the Manager or its ability to fulfill its regulatory obligations.

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 Approval Sought is granted.

"Vera Nunes"
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission

 

SCHEDULE A

FUND

REPORTING ISSUER JURISDICTIONS

 

REDWOOD DIVERSIFIED EQUITY FUND

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan, Northwest Territories, Nunavut and Yukon

 

REDWOOD DIVERSIFIED INCOME FUND

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan, Northwest Territories, Nunavut and Yukon

 

REDWOOD GLOBAL SMALL CAP FUND

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan, Northwest Territories, Nunavut and Yukon

 

REDWOOD GLOBAL MACRO CLASS

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan

 

REDWOOD EQUITY GROWTH CLASS

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan

 

REDWOOD INCOME GROWTH CLASS

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan

 

REDWOOD EMERGING MARKETS DIVIDEND FUND

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan

 

REDWOOD UNCONSTRAINED BOND FUND

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan

 

REDWOOD PENSION CLASS

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan

 

TRAPEZE VALUE CLASS

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan

 

REDWOOD UNCONSTRAINED BOND CLASS

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Saskatchewan

 

REDWOOD GLOBAL EQUITY STRATEGY CLASS

Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Saskatchewan