Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- approval for indirect change of control of manager under s. 5.5(1)(a.1) of National Instrument 81-102 Investment Funds -- Proposed Merger will result in an indirect change of control of the investment fund manager.

Applicable Legislative Provisions

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

Citation: Re Norrep Capital Management Ltd., 2018 ABASC 60

April 26, 2018

IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF NORREP CAPITAL MANAGEMENT LTD. (the Manager)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Manager for a decision under the securities legislation (the Legislation) of the Jurisdictions for approval for a proposed indirect change of control of the Manager (the Change of Control) pursuant to section 5.5(1)(a.1) of National Instrument 81-102 Investment Funds (NI 81-102) (the Approval Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) the Alberta Securities Commission is the principal regulator for this application;

(b) the Manager has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island (each of such other provinces, together with the Jurisdictions, the Offering Jurisdictions); and

(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102, or NI 81-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

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

The Proposed Transaction

1. On February 5, 2018, the Manager announced that a definitive agreement (the Agreement) has been entered into to merge (the Proposed Transaction) the respective businesses of: (i) the Manager and its related entities (collectively, NCM); (ii) Cumberland Private Wealth Management Inc. (CPWM), Cumberland Associates Investment Counsel Inc. (CAIC), and their related entities (collectively, Cumberland); and (iii) Perron & Partners Wealth Management Corp. (PPWM), Perron Asset Management Inc. (PAM), and their related entities (collectively, Perron).

Norrep Capital Management Ltd.

2. The Manager is a corporation incorporated under the laws of Alberta, with its head office in Calgary, Alberta.

3. The Manager is currently registered as an investment fund manager (IFM) in Alberta, Newfoundland and Labrador, Ontario, and Québec, and as a portfolio manager in Alberta and Ontario.

4. The Manager acts as IFM in respect of the funds listed in attached Schedule "A" (the Funds) and adviser in respect of all of the Funds, other than Arcs of Fire Tactical Balanced Fund (AOF Fund). The adviser of AOF Fund is CAIC.

5. The Manager is a privately-held corporation and is a direct wholly-owned subsidiary of Norrep Investment Management Group Inc. (NIMGI).

6. The Manager is not in default of securities legislation in any jurisdiction of Canada.

Norrep Investment Management Group Inc.

7. NIMGI is a corporation incorporated under the laws of Alberta, with its head office in Calgary, Alberta.

8. NIMGI is a privately-held corporation that is owned by directors, officers, and employees of either or both of the Manager and NIMGI (NCM Shareholders). NIMGI is the sole common shareholder of each of Norrep Opportunities Corp. (NOC) and Norrep Core Portfolios Ltd. (NCP), each of which is a mutual fund corporation formed under the laws of Alberta. Certain of the Funds, as identified in Schedule "A" are classes of shares of either NCP or NOC.

9. NIMGI is the sole common shareholder of Norrep 2017 Management Inc. (the NCM GP), which is the general partner of Norrep Short Duration 2017 Flow-Through Limited Partnership (FTLP).

10. NIMGI is not, and has never been required to be, registered in any capacity under applicable securities legislation. NIMGI is the promoter of the "Norrep Group of Funds" and FTLP.

11. None of NIMGI, NOC, NCP, and the NCM GP is in default of securities legislation in any jurisdiction of Canada.

The Funds

12. Each of the Funds, other than FTLP, is an open-ended public retail mutual fund. FTLP is a non-redeemable investment fund.

13. FTLP is a limited partnership formed under the laws of Alberta. Each other Fund is either organized as: (i) a trust under the laws of Ontario or Alberta; or (ii) a class of shares of either NOC or NCP.

14. Each Fund, other than AOF Fund, is a reporting issuer in each of the provinces of Canada. AOF Fund is a reporting issuer in each province, other than Québec. None of the Funds is in default of securities legislation in any jurisdiction of Canada.

The Cumberland Group of Companies

15. Each of Cumberland Partners Limited (CPL), CPWM, and CAIC, is a corporation incorporated under the laws of Ontario, with its head office in Toronto, Ontario.

16. Each of CPWM and CAIC is a direct wholly-owned subsidiary of CPL.

17. CPL is a privately-held corporation that is majority owned by directors, officers, and employees of CPWM and/or CAIC (the Cumberland Shareholders).

18. CPWM is currently registered as an investment dealer in each of the Provinces of Canada, an IFM in Ontario, Québec, and Newfoundland and Labrador, and a derivatives dealer in Québec. CPWM is currently a dealer member of the Investment Industry Regulatory Organization of Canada (IIROC).

19. CAIC is currently registered as a portfolio manager in Alberta, British Columbia, Ontario, and Québec.

20. CPL is not, and has never been required to be, registered in any capacity under applicable securities legislation.

21. None of CPL, CPWM, and CAIC is in default of the securities legislation in any jurisdiction of Canada.

The Perron Group of Companies

22. Each of 1934909 Alberta Ltd. (Numco), PPWM, and PAM is a corporation incorporated under the laws of Alberta, with its head office in Calgary, Alberta.

23. Each of PPWM and PAM is a direct or indirect wholly-owned subsidiary of Numco.

24. Numco is a privately-held corporation that is owned, as at the date hereof, by directors, officers, and employees of either or both of PPWM and PAM (the Perron Shareholders).

25. PPWM is currently registered as an investment dealer in Alberta, British Columbia, Manitoba, and Ontario, and as an IFM in Alberta. PPWM is currently a dealer member of IIROC.

26. PAM is currently registered as a portfolio manager in Alberta and Ontario.

27. Numco is not, and has never been required to be, registered in any capacity under applicable securities legislation.

28. None of Numco, PPWM, and PAM is in default of the securities legislation in any jurisdiction of Canada.

Continuous Disclosure and Notice Obligations

29. In connection with the Proposed Transaction, the Manager issued a press release and filed a material change report in respect of the Funds. In addition, the Manager filed amendments to the Simplified Prospectuses, Annual Information Forms, and related Fund Facts documents of each of the Funds, other than FTLP.

30. Notice of the Proposed Transaction was delivered to the Registration branch of the applicable principal regulator pursuant to section 11.9 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

The Proposed Transaction and Change in Control

31. Closing of the Proposed Transaction (the Closing) will be completed as follows: CPL will acquire all of the issued and outstanding shares of each of NIMGI and Numco from the NCM Shareholders and the Perron Shareholders, respectively, in exchange for common shares of CPL, such that the NCM Shareholders and the Perron Shareholders will become shareholders of CPL, in addition to the Cumberland Shareholders, and each of NIMGI and Numco will become wholly-owned subsidiaries of CPL. For purposes of this decision, post-Closing, CPL is referred to as ParentCo.

32. Following Closing, the NCM Shareholders, the Cumberland Shareholders, and the Perron Shareholders (collectively, the Shareholders) will own all of the issued and outstanding securities of ParentCo, and all of the persons or companies comprising NCM, Cumberland, and Perron will be direct or indirect wholly-owned subsidiaries of ParentCo.

33. On or after Closing, PPWM and CPWM will amalgamate, with the resulting amalgamated entity being a direct or indirect wholly-owned subsidiary of ParentCo.

34. On or after Closing, PAM and CAIC will amalgamate, with the resulting amalgamated entity being a direct or indirect wholly-owned subsidiary of ParentCo.

35. None of the directors and officers of the Manager is anticipated to change on Closing as a result of the Proposed Transaction.

Indirect Change of Control of Manager

36. As the share ownership of the Manager will change such that on Closing, ParentCo will own, indirectly, all of the issued and outstanding securities of the Manager, the Proposed Transaction will result in an indirect change of control of the Manager and accordingly regulatory approval is required pursuant to section 5.5(1)(a.1) of NI 81-102.

Impact on the Manager and the Funds

37. In respect of how the Change of Control will affect the management and administration of the Funds, the Manager confirms the following:

(a) There is no current intention to merge the Manager with any other IFM or to change the Manager to another IFM, immediately following the Proposed Transaction, or within a foreseeable period of time following Closing,

(b) There is no current intention to change the name of the Manager, or the names of the Funds, on Closing, or within a foreseeable period of time following Closing, as a result of the Proposed Transaction. However, as a separate initiative from the Proposed Transaction, the Manager will continue its re-branding strategy that it started in mid-2017,

(c) The Manager will continue to act as the IFM of the Funds as a discrete, separate, and distinct legal entity in materially the same manner as it has conducted such activities immediately prior to the Closing, and there is no current intention to make any substantive changes as to how the Manager operates or manages the Funds. In particular:

(i) there is no current intention to change the officers or directors of the Manager, or of any of the GP, NOC, or NCP, on Closing as a result of the Proposed Transaction;

(ii) no current directors, officers, or employees of Perron or Cumberland are expected to become involved in the day-to-day management of the Funds following the completion of the Proposed Transaction or within a foreseeable period of time following Closing. There are no immediate plans to make changes to the Manager's business model;

(iii) it is not expected that there will be any change to the fund accounting and other administrative functions undertaken by the current providers, both internal and external;

(iv) wholesale and client service support for the Funds will continue to be performed by the Manager; and

(v) it is not expected that there will be any change in how any of the Funds are managed, or the expenses that are charged to any of the Funds as a result of the Proposed Transaction. Therefore, it is expected that the management fees and operating expenses of each of the Funds will remain unchanged,

(d) the Proposed Transaction is not anticipated to impact the financial stability of the Manager,

(e) it is not expected that there will be any change to the investment objectives or strategies of any of the Funds, nor is it expected that there will be any material change to the investment mandates, processes, philosophies, and styles relating to any of the Funds. However, the portfolio management and advisory services provided across the entities within ParentCo may be consolidated following Closing, as set out in further detail below,

(f) it is not expected that there will be any change to the custodian, auditor, or trustee, as applicable, of any of the Funds, and

(g) the members of the Independent Review Committee (the IRC) of each of the Funds will cease to be IRC members by operation of section 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107). Immediately following Closing, the same members of the IRC will be re-appointed by the Manager.

38. The parties to the Proposed Transaction have proposed to streamline the operations and structure of the portfolio management and advisory services provided by various subsidiaries of ParentCo following Closing. This may involve consolidating all such services under a single legal entity, which may be PM Amalco or the Manager. Therefore, such consolidation may result in a change to the adviser to the Funds or may result in the Manager entering into a sub-advisory relationship; however, the consolidation may also result in no change at all in respect of such service providers to the Funds. The parties have no firm target date and have not finalized any plans for making any such change.

39. In any event, if such consolidation is effected, it is not expected that there will be any change to the investment objectives or strategies of any of the Funds, nor is it expected that there will be any material change to the investment mandates, processes, philosophies, and styles relating to any of the Funds. In addition, any decision to make a change to the adviser or sub-adviser to the Funds shall be made in accordance with the Manager's standard of care, including a consideration of whether such change is appropriate in the circumstances.

40. In connection with the Proposed Transaction, the Manager may become the IFM of certain pooled funds currently managed by CPWM or PPWM. Acting as IFM for such additional pooled funds is not expected to materially affect the Manager's ability to provide IFM services to any of the Funds.

41. To the extent that any change is made after Closing that constitutes a "material change" to any of the Funds within the meaning of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106), the Funds will comply with the continuous disclosure obligations set out in section 11.2 of NI 81-106. Further, any notices that are required to be delivered to, or approvals obtained from, applicable securities regulatory authorities or regulators, or securityholders of one or more Funds in connection with any such material change will be delivered or obtained, as required under applicable securities legislation in the applicable jurisdictions of Canada.

42. The Manager considers the Proposed Transaction to constitute a potential conflict of interest matter within the meaning of NI 81-107 and has referred the matter to the IRC of the Funds for its review and recommendation. The IRC of the Funds has reviewed the Proposed Transaction and the potential conflict of interest matters related to the Proposed Transaction and has provided a positive recommendation to the Manager having determined that the Proposed Transaction, if implemented, would achieve a fair and reasonable result for the applicable Funds.

43. To the extent that any related party issues arise following Closing, the Manager will address such in accordance with applicable securities legislation, including, as applicable, establishing written policies and procedures, if not already established, to address the conflict of interest matter and referring such policies and procedures to the IRC for its review and input, in accordance with its obligations under NI 81-107.

Notice Requirement

44. Written notice (the Notice) of the Change of Control was sent to securityholders of the Funds on or around February 8, 2018, which, if Closing occurs on or around April 27, 2018, means that securityholders of the Funds will have received the Notice approximately 78 calendar days before the Closing of the Proposed Transaction.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for such Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Approval Sought is granted.

"Denise Weeres"
Manager, Legal
Corporate Finance

 

SCHEDULE "A"

FUNDS

PUBLIC RETAIL MUTUAL FUNDS

NORREP GROUP OF FUNDS

Mutual Fund Trusts

Norrep Fund

Norrep High Income Fund

Norrep Short Term Income Fund

Classes of Norrep Opportunities Corp.

Norrep Income Growth Class

Norrep II Class

Norrep US Dividend Plus Class

Norrep Energy Plus Class (formerly, Norrep Energy Class)

Norrep Entrepreneurs Class

Norrep Global Income Growth Class

Norrep Tactical Opportunities Class

Classes of Norrep Core Portfolios Ltd.

Norrep Premium Growth Class

Norrep Core Global (formerly, Norrep Core Global Pool)

Norrep Core Canadian (formerly, Norrep Core Canadian Pool)

ARCS OF FIRE GROUP OF FUNDS

Mutual Fund Trust

Arcs of Fire Tactical Balanced Fund

NON-REDEEMABLE INVESTMENT FUND

Norrep Short Duration 2017 Flow-Through Limited Partnership