Application for relief from the prospectus requirement in respect of a distribution by an issuer to shareholders of the issuer of shares of a wholly-owned subsidiary as an in specie dividend or distribution out of earnings, surplus, capital or other sources on a pro rata basis – relief granted provided that the first trade of any shares of the subsidiary acquired by a shareholder of the issuer in reliance on this order is a deemed distribution unless certain resale conditions are satisfied.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53, 74(1).
National Instrument 45-102 Resale of Securities.
National Instrument 45-106 Prospectus and Registration Exemptions.
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
IN THE MATTER OF
CROWN LIFE CANADA LTD
WHEREAS the Corporation has applied to the Ontario Securities Commission (the “Commission”) for an exemption from the prospectus requirement under section 53 of the Securities Act (Ontario) (the “Act”) in respect of a distribution by the Corporation to shareholders of the Corporation of shares of Crown Amalco (as hereinafter defined) as an in specie dividend or distribution out of earnings, surplus, capital or other sources on a pro rata basis, being one common share of Crown Amalco for each common share of the Corporation held by a shareholder of the Corporation (the “Requested Relief”);
AND UPON the Corporation having represented to the Commission as follows:
1. The Corporation exists under the laws of the Province of Ontario. The Corporation is not a reporting issuer in any jurisdiction in Canada. The business of the Corporation is to acquire and manage portfolios of life insurance policies. The Corporation is engaged in no other business. Other than cash, the only assets of the Corporation are common share of Crown Amalco (as defined below) and CCPI (as defined below).
2. Crown Alliance Capital Ltd. (“Crown Alliance”) was a corporation incorporated under the laws of the State of Nevada. Crown Alliance was in the business of acquiring life settlement policies and was engaged in no other business. Other than cash, the only assets of Crown Alliance at all material times were four life insurance policies that have an aggregate death benefit of US$4.5 million (the “Crown Alliance Portfolio”).
3. The Corporation incorporated a wholly owned subsidiary under the laws of the State of Nevada, Crown Acquisition Corp. (“Crown Sub”) for the purposes of acquiring Crown Alliance by way of a three-cornered amalgamation. Crown Sub did not engage in any active business.
4. Crown Canada Portfolio I Inc. (“CCPI”) was incorporated by the Corporation on September 5, 2014 as a wholly owned subsidiary for the purposes of acquiring and holding a portfolio of life insurance policies having an aggregate death benefit of US$107 million (the “CCPI Portfolio”). CCPI is a special purpose vehicle that was created for the sole purpose of holding the CCPI Portfolio and does not and will not engage in any other business activities. As CCPI was created as a special purpose vehicle for the sole purposes of acquiring the CCPI Portfolio, it had no assets prior to the acquisition of the CCPI Portfolio.
5. The Corporation is desirous to acquire additional life settlement portfolios meeting its investment criteria through additional wholly owned subsidiaries of the Corporation which will be incorporated contemporaneously with future acquisitions.
6. Crown Sub amalgamated with Crown Alliance (the “Amalgamation”), effective June 6, 2014. The surviving entity following the Amalgamation is Crown Acquisition Corp. (“Crown Amalco”). As a result of the Amalgamation, the shareholders of Crown Alliance received common shares of the Corporation on a 1-for-1 basis. Crown Amalco become a wholly owned subsidiary of the Corporation.
7. Crown Amalco exists under the laws of the State of Nevada and is not a reporting issuer in any jurisdiction of Canada. Its registered address is at 50 West Liberty Street, Suite 880 Reno Nevada 89501.
8. A total of 222,773,848 million common shares of the Corporation were issued to the 64 registered shareholders of Crown Alliance in connection with the Amalgamation. The Corporation relied on Section 2.11 of National Instrument 45-106 Prospectus and Registration Exemptions for the issuance of the common shares of the Corporation to the registered shareholders of Crown Alliance in connection with the Amalgamation. A first trade of such common shares of the Corporation would be subject to Section 2.6 of National Instrument 45-102 Resale of Securities (“NI 45-102”).
9. Of the 64 registered shareholders of the Corporation, 2 are resident in China, 3 are resident in the United States, 2 are resident in Italy and 57 are resident in the Province of Ontario.
10. Following the Amalgamation, the current registered shareholders of the Corporation are identical to the registered shareholders of Crown Alliance prior to the Amalgamation (other than the one share issued on incorporation) and that each registered shareholder of the Corporation currently holds the same number of common shares of the Corporation that each held in Crown Alliance prior to the Amalgamation. Other than one common share issued at the time of incorporation, the Corporation has issued no other common shares.
11. Other than cash, the only asset of Crown Amalco is the Crown Alliance Portfolio. Crown Amalco engages in no other business other than the maintenance and management of the Crown Alliance Portfolio. Once Crown Amalco realizes upon all of the death benefits from the insurance policies comprising the Crown Alliance Portfolio, Crown Amalco intends to cease to carry on business of any kind.
12. Crown Amalco carries on no active business other than servicing its investment assets and Crown Amalco will not carry on any active business in the future. Once the investments are monetized, all funds net of liabilities will be distributed to its shareholders and Crown Amalco will be dissolved.
13. As a result of the Amalgamation, the Corporation unknowingly and unintentionally became subject to both U.S. and Canada income tax. These tax consequences will have a material adverse financial impact on the Corporation and its shareholders.
14. Pursuant to the U.S. inversion rules (IRC Section 7874 and related regulations) where the former shareholders of a domestic corporation (Crown Alliance) receive 80% or more of the foreign acquiring corporation (the Corporation) by reason of their ownership of the domestic corporation (Crown Alliance), the foreign acquiring corporation (the Corporation) shall be treated as a domestic corporation (i.e. a U.S. corporation) for all purposes of the Internal Revenue Code. As such, the Corporation would be subject to U.S. and Canadian income tax.
15. The Corporation’s tax advisors have advised that if the Corporation were to divest of Crown Amalco, the Corporation would no longer be subject to U.S. income tax.
16. To the extent Crown Amalco Shares are distributed as soon as practical, case law permits Crown Alliance to assert the creation of a foreign parent (the Corporation) should be ignored for U.S. income tax purposes and the Corporation should not be an inverted corporation and not be subject to U.S. income taxation as a domestic U.S. corporation.
17. There is no market for the Crown Amalco Shares and the Corporation would only be able to sell its shares of Crown Amalco to a third party for nominal consideration.
18. The registration requirement in Section 25 of the Act does not apply as no person has engaged or will engage or has held themselves out as engaging in the business of trading in securities in connection with the distribution of the Crown Amalco shares to the shareholders of the Corporation.
19. Prospectus level disclosure regarding Crown Amalco and the Crown Alliance Portfolio would not provide any material benefit to shareholders of the Corporation because (a) the shareholders already indirectly own Crown Amalco and the Crown Alliance Portfolio; (b) Crown Amalco does not engage (and will not engage) in any business except maintaining and managing the Crown Alliance Portfolio; (c) there are no employees of Crown Amalco and no officer or director receives (or will receive) compensation of any kind from Crown Amalco; (d) the distribution of the Crown Amalco shares does not require an investment decision on the part of the Corporation’s shareholders; (e) there is no market for the securities of Crown Amalco; and (f) a first trade of Crown Amalco shares will be subject to the same conditions set out in Section 2.6 of NI 45-102.
20. The shares of Crown Alliance were registered under the United States Securities Exchange Act of 1934 (the “1934 Act”) and traded through the facilities of the OTC BB. Pursuant to the voluntary filing of a Form 15, Crown Alliance’s reporting obligations under the 1934 Act were suspended, effective March 31, 2014. Residents of Ontario would have acquired shares of Crown Alliance directly from Crown Alliance or through trades in the open market. One resident of Ontario was issued 27 million shares of Crown Alliance subsequent to March 31, 2014 as consideration for the commitment to provide a USD$8.5 million loan to the Corporation and such loan was provided to the Corporation in October of 2014.
AND UPON considering the application and the recommendation of the staff of the Commission.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest.
IT IS ORDERED, pursuant to Section 74(1) of the Act, that the Requested Relief is granted, provided that: (a) at the time the Corporation delivers the share certificates of Crown Amalco to its shareholders it also provides every shareholder with a copy of this Order and a letter advising shareholders that there are resale restrictions attached to the Crown Amalco shares along with an explanation of the resale restrictions; and (b) the first trade of any common shares of Crown Amalco acquired by a shareholder of the Corporation in reliance on this Order is a deemed distribution unless the following conditions are satisfied:
(i) Crown Amalco has been a reporting issuer in a jurisdiction in Canada for the four months preceding the trade;
(ii) the trade is not a control distributions (as defined in NI 51-102);
(iii) no unusual effort is made to prepare the market or to create demand for Crown Amalco shares;
(iv) no extraordinary commission or consideration is paid to a person or company in respect of such first trade; and
(v) if the selling securityholder is an insider or officer of Crown Amalco, the selling securityholder has no reasonable grounds to believe that Crown Amalco is in default of Ontario securities legislation.
DATED on this day 18th of December 2014.
Ontario Securities Commission
Ontario Securities Commission