National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval granted under paragraph 5.5(1)(d) of Regulation 81-102 to suspend redemptions to allow for the orderly wind-up and termination of a mutual fund -- approval expires 90 days after the date of the approval -- approval based on specific representations and subject to conditions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, ss. 5.5(1)(d), and 19.1
November 15, 2019
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF GLOBEVEST CAPITAL LTD (the Filer) AND GLOBEVEST CAPITAL SECURED PUT WRITING FUND (the Fund)
The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an approval, pursuant to paragraph 5.5(1)(d) of Regulation 81-102 respecting Investment Funds (CQLR, c. V-1.1, r.39) (Regulation 81-102), authorizing the Filer to suspend for a period of ninety (90) days the rights of its unitholders to request that the Filer redeem their securities to permit the Filer to act in the best interest of its unitholders and the Fund by attempting to recover asset that were erroneously distributed to a former unitholder (the Approval Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
a) the Autorité des marchés financiers is the principal regulator for this application,
b) the Filer has provided notice that section 4.7(1) of Regulation 11-102 respecting Passport System (c. V-1.1, r.1) (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Nunavut, New Brunswick, Nova Scotia, North West Territories, Yukon and Prince Edward Island (together with Québec and Ontario, the Filing Jurisdictions), and
c) the decision is the decision of the principal regulator and evidence the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in Regulation 14-101 respecting Definitions (c. V-1.1, r.3), Regulation 11-102 and Regulation 81-106 respecting Investment Fund Continuous Disclosure (c. V-1.1, r.42) (Regulation 81-106) have the same meanings if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a mutual fund trust established under the laws of Québec pursuant to a trust agreement dated December 18, 2013. The Filer's head office is located in Quebec.
2. Globevest Capital Ltd acts as the investment fund manager of the Fund. The Filer is duly registered as an investment fund manager in each of the provinces of Québec, Ontario, Nova Scotia and Alberta.
3. National Bank Trust Inc. acts as trustee of the Filer, CIBC Mellon Global Securities Services Company is the registrar of the Filer, and Raymond Chabot Grant Thornton LLP are the auditors of the Fund.
4. The Fund is a reporting issuer in each of the Filing Jurisdictions and is subject to Regulation 81-102.
5. Neither the Filer or the Fund are in default of securities legislation in any of the Filing Jurisdictions.
6. The Filer's trust agreement allows the Fund to suspend its unitholders right to redeem units in extraordinary circumstances provided that permission has been obtained from the relevant Canadian securities regulatory authorities to temporarily suspend redemptions.
7. The Fund wishes to be authorized to suspend the rights of its unitholders to redeem their units for a period of ninety (90) days to permit the Filer to act in the best interest of its unitholders by attempting to recover assets that were erroneously paid to a former unitholder.
8. On October 2, 2019, the Filer discovered, that the accounting system used by its registrar had erred, and that expenses that should have been recorded as such and hat should have had an impact on the net asset value ("NAV") calculation had in fact been erroneously recorded as assets.
9. An in-depth analysis of this erroneous accounting practice was performed after the fact and the registrar calculated the amount of the correction that is necessary to reflect a fair level of accrued expenses as at July 29, 2019. This amount is $774,200.41. This represents 0.646% of the NAV as at July 29, 2019.
10. The external auditor was unable to detect this incorrect accounting method during the previous audit of the financial statements because the balance of these accounting errors amounted to an amount that was equal to less than 1% of the NAV until July 29, 2019.
11. Because of the erroneous accounting practice, the amount of $743, 254,55 was mistakenly distributed to a former unitholder on July 29, 2019.
12. The Filer wants to do make all reasonable effort to recover the assets that were mistakenly distributed to a former unitholder as the Filer must be fair and equitable to its unitholders, and act in their best interests of the Fund and its unitholders and with honesty, good faith and loyalty.
13. The Approval Sough is intended to allow the Filer to focus on the recovery of the assets that was erroneously paid to a former unitholder and as such will be beneficial to unitholders for the following reasons:
a) Pursuing the recovery of the assets in an orderly manner will permit the Filer to act in the best interest of the unitholders by maximizing its opportunity of recovering the assets and protecting the interest of all unitholders.
b) The aim of this Approval Sough is to ensure that the unitholders are treated equitably by ensuring that no redemptions request and no distribution are undertaken until the assets are recovered.
14. Under section 5.5(1)(d) of 81-102, the approval of the securities regulatory authority is required before an investment fund suspends, other than under section 10.6 of 81-102, the rights of unitholders to request that the investment fund redeem their securities.
15. Since the erroneous accounting practice has been discovered, the Filer has strengthened its policies and procedures to ensure that all balances are reconciled, regardless of their relative value.
16. The Filer represents that the Approval Sough will have no adverse impact on the ability of the Filer to satisfy its obligations pursuant to securities laws.
17. The Approval Sought is not detrimental to the protection of investors.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Approval Sought is granted provided that:
1. There shall be no distribution of units during the period in which the unitholders right to request the redemption of their securities is suspended;
2. The Filer shall promptly issue a press release announcing the suspension of redemption of units and reasons for this decision;
3. The Filer will provide notice to all unitholders of the Fund to inform them of this situation; and
4. The Filer shall comply with its continuous disclosure obligations under Regulation 81-106 as well as all other applicable securities law obligations, during the period in which the redemption of units are suspended.
The Approval Sought terminates on February 14, 2020 unless this situation is regularized before the expiration of this term.