Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief under section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102) from (i) the requirement in paragraph 5.5(1)(a.1) of NI 81-102 to obtain approval for a change of control of an investment fund manager before the change occurs, and (ii) the requirement in paragraph 5.8(1)(a) of NI 81-102 for securityholders of a fund to be provided 60 days prior notice of the change of control of the investment fund manager, to permit a change of control of the investment fund manager after the change has occurred -- Due to oversight, regulatory approval was not sought, and notice was not given to securityholders, of the change of control until after the change had occurred -- Relief granted provided (i) no material changes are made to the management, operations or portfolio management of the funds for 60 days subsequent to notice of the change of control being provided to securityholders of the fund, and (ii) investors who purchased securities of the funds without prior notice of the change of control and who elect to redeem such securities within 90 days of being notified of the change of control are reimbursed any sales charge paid at the time of purchase and do not incur any deferred sales charges.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 5.5(1)(a.1), 5.8(1)(a), 19.1.

December 6, 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 YORKVILLE ASSET MANAGEMENT INC. (the Manager) AND IN THE MATTER OF THE FUNDS (as defined below)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Manager and 2324615 Ontario Ltd. (2324615 Ontario Ltd., together with the Manager, the Filers) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filers or the Manager, as applicable, under section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102) from:

(i) the requirement in paragraph 5.5(1)(a.1) of NI 81-102 for the Filers to obtain the prior approval of the securities regulatory authority or regulator for a change of control of the Manager (the Prior Approval Relief), and

(ii) the requirement in paragraph 5.8(1)(a) of NI 81-102 for the Manager to provide notice to each securityholder of the Funds (as defined below) at least 60 days prior to the change in control of the Manager (the Notice Relief) and, together with the Prior Approval Relief, the Relief Sought),

to permit a change of control of the Manager after the change has occurred.

Under National Policy 11-203 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 subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of British Columbia, Alberta, Saskatchewan, Manitoba and Québec (together with Ontario, each a Jurisdiction and, collectively, the Jurisdictions).

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 Filers:

The Manager

1. The Manager, a corporation existing under the Business Corporations Act (Ontario), with its head office in Toronto, Ontario, is an asset management company.

2. The Manager is registered as a portfolio manager and exempt market dealer in Alberta, British Columbia and Ontario and as an investment fund manager in Ontario.

3. The Manager is the investment fund manager and portfolio manager of Yorkville Enhanced Protection Class, Yorkville Canadian QVR Enhanced Protection Class, Yorkville American QVR Enhanced Protection Class, Yorkville Health Care Opportunities Class, Yorkville Global Opportunities Class, Yorkville Optimal Return Bond Class and Yorkville International QVR Enhanced Protection Class (each a Fund and collectively, the Funds).

4. The Manager is not in default of applicable securities legislation in any Jurisdiction except the Manager failed to: (i) obtain approval of the securities regulator prior to completing the Transaction (described below) that resulted in a change of control of the Manager, as required by paragraph 5.5(1)(a.1) of NI 81-102 and (ii) provide notice of the change of control of the Manager to all securityholders of the Funds at least 60 days before the effective date, as required by paragraph 5.8(1)(a) of NI 81-102.

The Funds

5. Each Fund is a separate class of mutual fund shares of Yorkville Mutual Fund Corporation (the Mutual Fund Corporation).

6. The Funds are governed by NI 81-102 and are reporting issuers in each Jurisdiction.

7. The Funds are not in default of applicable securities legislation in any Jurisdiction.

2324615 Ontario Ltd.

8. 2324615 Ontario Ltd. is a corporation existing under the Business Corporations Act (Ontario), with its head office in Toronto, Ontario.

9. 2324615 Ontario Ltd. currently owns 100% of the common shares of the Manager and The Hussein Amad Family Trust owns 100% of the common shares of 2324615 Ontario Ltd. Hussein Amad is the sole trustee and sole beneficiary of the Hussein Amad Family Trust.

10. Hussein Amad is a director and the President, Chief Executive Officer and Chief Compliance Officer of the Manager, a director and the President and Chief Executive Officer of the Mutual Fund Corporation, and a director, President and Secretary-Treasurer of 2324615 Ontario Ltd.

The Transaction

11. Prior to September 14, 2018 (the Closing Date), 100% of the issued and outstanding Class B common shares of the Manager were owned by 2324615 Ontario Ltd. and 100% of the issued and outstanding Class A common shares of the Manager were owned by Hailus Financial Group Limited (the Vendor). Class A and Class B common shares of the Manager were equal in voting rights, effectively resulting in 2324615 Ontario Ltd. owning 50% of the Manager and the Vendor owning the remaining 50%.

12. Pursuant to a share purchase agreement entered into among the Manager and the Vendor on September 6, 2018, as of the Closing Date, the Manager repurchased for cancellation all of the Class A common shares held by the Vendor on the Closing Date with the result that 2324615 Ontario Ltd. owns 100% of the Manager (the Transaction).

Change of Control of the Manager

13. As the share ownership of the Manager has changed such that the common shares owned by the Vendor on the Closing Date have been repurchased and cancelled and, as a result, as of the Closing Date, 2324615 Ontario Ltd. owns 100% of the Manager, the Transaction resulted in a change of control of the Manager. Accordingly, regulatory approval was required pursuant to paragraph 5.5(1)(a.1) of NI 81-102.

Impact of the Transaction on the Manager and the Funds

14. The Transaction has not resulted in any material changes to, or impact on, the business, operations or affairs of the Funds, the securityholders of the Funds or the Manager.

15. The Manager continues to act as the investment fund manager and portfolio manager of the Funds in the same manner as it conducted such activities immediately prior to the Closing Date.

16. There are no plans to change the role of the Manager as investment fund manager or portfolio manager of the Funds.

17. Hussein Amad, the President, Chief Executive Officer and Chief Compliance Officer and Jillian Wade, the Chief Financial Officer of the Manager remain in those senior management roles.

18. Prior to the Transaction, the Vendor was not involved in the day-to-day operations of the Manager or the Mutual Fund Corporation other than having three nominees as directors of the Manager and the Mutual Fund Corporation (i.e. Onofrio Loduca, Jason Maguire and Scott McIndless) (the Vendor's Director Nominees).

19. Effective September 14, 2018, the Vendor's Director Nominees resigned their positions as directors of the Manager and the Mutual Fund Corporation. 2324615 Ontario Ltd. intends to appoint two new independent directors, Candice Enman and Lyle Oberg, to the board of directors of the Manager (the New Independent Directors). Hussein Amad and the existing two independent directors, Gary M. Seveny and Mahmood Karim, continue to serve as directors of the Manager and the Mutual Fund Corporation.

20. Since the Closing Date, the Filers have not and have no current intention to:

(a) make any substantive changes as to how the Manager operates or manages the Funds;

(b) change the structures, investment objectives, investment strategies or valuation procedures of the Funds;

(c) change the investment fund manager, or portfolio manager of the Funds;

(d) change the names or branding of the Manager or the Funds;

(e) change the fees and expenses that are charged to the Funds;

(f) merge the Funds;

(g) rationalize personnel or systems;

(h) except for the resignations of the Vendor's Director Nominees and the appointment of the New Independent Directors, change any of the directors, officers or employees involved in any of the day-to-day business, operations or affairs of the Manager or the Funds;

(i) make changes to fund accounting and other administrative functions undertaken by the current providers, both internal and external, to the Manager or the Funds; or

(j) make changes to the custodians of the Funds.

21. The members of the Independent Review Committee (IRC) of the Funds prior to the Closing Date ceased to be IRC members upon completion of the Transaction by operation of paragraph 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107). However, the same members of the IRC have been reappointed in accordance with NI 81-107.

22. The Transaction has not and is not expected to adversely impact the financial stability of the Manager or its ability to fulfill its regulatory obligations in respect of the Funds.

23. The Transaction has not and will not have any impact on the securityholders' interest in the Funds and securityholders are not required to take any action. The change of control of the Manager, by itself, has not and will not trigger any material change to the Funds.

Notice Requirement

24. Written notice (the Notice) regarding the Transaction was sent to each securityholder of the Funds on October 15, 2018 (the Notice Date).

25. Due to oversight, the Notice was sent after the change of control of the Manager had occurred, and not at least 60 days before the change as required by section 5.8(1)(a) of NI 81-102. Based on the Closing Date of the Transaction, the Notice was required to have been sent by the Manager no later than July 16, 2018.

26. 2,739 investors purchased mutual fund shares of the Funds without prior notice of the change of control of the Manager in the period from July 16, 2018 to the Notice Date (the Period).

27. It is the Filers' view that the failure to send the Notice to securityholders in advance of the change of control of the Manager has not been prejudicial to the securityholders of the Funds for the following reasons:

(a) the change of control of the Manager has not and will not trigger any material change to the Funds;

(b) the Transaction has not and will not result in any change in how the Manager administers or manages the Funds;

(c) the Transaction has not and will not have any impact on the securityholders' interest in the Funds and securityholders are not required to take any action.

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 Relief Sought is granted, provided that:

1. no material changes will be made to the management, operations or portfolio management of the Funds for at least 60 days following the Notice Date; and

2. where an investor who purchased shares of a Fund during the Period notifies the Manager within 90 days of the Notice Date that the investor wishes to redeem from the Funds as a result of the change of control of the Manager, or the Manager is otherwise made aware of this fact, the Manager will

a. reimburse the investor the amount of any sales charge the investor paid up front at the time of purchase; and

b. waive any deferred sales charges that may be applicable to such redemption.

"Stephen Paglia"
Manager
Investment Funds and Structured Products Branch
Ontario Securities Commission