Securities Law & Instruments

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, ss. 3.3(1)(a) and 5.1 -- An issuer requires relief from the requirement that financial statements required by securities legislation to be audited must be accompanied by an auditor's report that expresses an unmodified opinion -- The auditors were not in attendance at the physical inventory taking and not able to satisfy themselves by other auditing procedures as to the opening inventory quantities; the inventory reservation relates to the financial statements of a non-reporting issuer whose business is not seasonal; the issuer is providing a subsequent audited period of at least six months for which the auditor's report expresses an unmodified opinion; the qualification is not imposed by, and could not reasonably be eliminated by management; the qualification will not recur in future; the auditor's report will be unmodified except for the qualification related to opening inventory and, since inventory affects the calculation of financial performance and cash flows, the net cash flows from operating activities.

Applicable Legislative Provisions

National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, ss. 3.3(1)(a), 5.1.

November 12, 2018

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 PETROMAROC CORPORATION (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that, for purposes of providing the Information Circular (as defined below) to its shareholders, the requirement that financial statements required by the Legislation to be audited must be accompanied by an auditor's report that expresses an unmodified opinion does not apply to the audited financial statements of Wolverine Energy and Infrastructure Inc. (the Target) for the year ended March 31, 2017 (the Requested Relief).

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 Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick and Nova Scotia, in respect of the Requested Relief.

Interpretation

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

Representations

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

1. the Filer was continued under the Canada Business Corporations Act on August 29, 2018;

2. the Filer's head office is located in Toronto, Ontario;

3. the Target was incorporated on December 29, 2017 under the laws of Alberta; the Target's principal business is providing a full-service, diversified energy and infrastructure services in Western Canada and the United States; the Target's business is not seasonal;

4. the Filer is a reporting issuer in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia and the Filer's common shares are listed on the TSX Venture Exchange (the TSX-V);

5. the Target is currently not a reporting issuer (or its equivalent) in any jurisdiction of Canada and the Target's common shares are not listed on any stock exchange or posted for trading on any quotation system;

6. the Filer and the Target entered into an arrangement agreement dated September 7, 2018 (the Arrangement) which is expected to result in: (i) all of the issued and outstanding Filer shares being acquired by the Target pursuant to a statutory plan of arrangement; (ii) the Target becoming a reporting issuer in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia; and (iii) the Target's common shares being listed and posted for trading on the TSX-V;

7. pursuant to an interim order of the Ontario Superior Court of Justice (Commercial List) dated November 5, 2018, the Filer will hold a meeting of its shareholders on December 17, 2018 (the Meeting) to consider and approve, among other matters, a special resolution to approve the Arrangement, which must be approved by two-thirds of the votes cast at the meeting and must also be approved by the Ontario Superior Court of Justice (Commercial List);

8. in connection with the Meeting, the Filer will prepare and deliver a management information circular (the Information Circular) to its shareholders;

9. Section 14.2(c) of Form 51-102F5 requires that the Information Circular delivered to shareholders to approve the Arrangement include disclosure for each entity whose securities are being exchanged if:

(i) the matter is a restructuring transaction, and

(ii) current securityholders will have an interest in that entity after the restructuring transaction is completed;

and that such disclosure must be the disclosure (including financial statements) prescribed under securities legislation and in the form of prospectus that the entity would be eligible to use immediately prior to the sending and filing of the information circular in respect of the restructuring transaction for a distribution of securities in the jurisdiction;

10. the applicable form of prospectus for the Target is Form 41-101F1 Information Required in a Prospectus;

11. the following financial statements of the Target must be included in the information circular:

(a) audited annual financial statements for the year ended March 31, 2018;

(b) audited annual financial statements for the year ended March 31, 2017; and

(c) unaudited interim financial statements for the period ended June 30, 2018;

12. the auditors of the Target were not appointed as auditors of the Target until after March 31, 2016 and were not able to observe the counting of physical inventories of the Target as at March 31, 2016;

13. as a result, the auditors expressed a modified opinion relating to inventory on the Target's financial statements for the year ended March 31, 2017;

14. the audited financial statements as at March 31, 2018 do not contain a modified auditor's opinion;

15. a modified opinion is contrary to subsection 3.3(1) of NI 52-107 Acceptable Accounting Principles and Auditing Standards;

16. the Filer and Target are not in default of the securities legislation of any jurisdiction of Canada;

17. paragraph 5.8(2) of the companion policy to National Instrument 41-101 Information Required by a Prospectus contemplates that relief may be granted to non-reporting issuers in appropriate circumstances to permit the auditor's report on financial statements to contain a qualified opinion relating to opening inventory if there is a subsequent audited period of at least six months on which the auditor's report expresses an unmodified opinion and the business is not seasonal.

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 Requested Relief is granted.

"Cameron McInnis"
Chief Accountant
Ontario Securities Commission