Richards Oil & Gas Limited -- s. 144

Order

Headnote

Section 144 -- application for variation of cease trade order -- issuer cease traded due to failure to file with the Commission annual financial statements -- issuer has applied for a variation of the cease trade order to permit the issuer to proceed with a proposal under the Bankruptcy and Insolvency Act -- partial revocation granted subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O., c. S.5, as am., ss. 127 and 144.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S.5, AS AMEMDED

(the Act)

AND

IN THE MATTER OF

RICHARDS OIL & GAS LIMITED

ORDER

(Section 144 of the Act)

WHEREAS the securities of Richards Oil & Gas Limited (the Filer) are subject to a temporary cease trade order issued by the Director on May 14, 2010 pursuant to subsections 127(1) and 127(5) of the Act and a further cease trade order issued by the Director on May 26, 2010 pursuant to subsection 127(1) of the Act (together the Ontario CTO), directing that all trading in the securities of the Filer cease until further order by the Director;

AND WHEREAS the Filer has applied to the Ontario Securities Commission (the Commission) for an order pursuant to section 144 of the Act (the Application) for a partial revocation of the Ontario CTO.

AND WHEREAS the Filer has represented to the Commission that:

1. The Filer is a corporation existing under the Business Corporations Act (Alberta) incorporated on May 18, 2004.

2. The Filer's head office is located in Calgary, Alberta.

3. The Filer is a reporting issuer in British Columbia, Alberta, Saskatchewan, Ontario and New Brunswick.

4. The authorized capital of the Filer consists of an unlimited number of common shares of which 77,818,850 are currently issued and outstanding (the Common Shares).

5. The Filer has 2,845,000 options outstanding to purchase Common Shares, with a weighted average exercise price of $0.62 (the Options).

6. The Filer has issued $6.5 million of convertible unsecured subordinated debentures which bear interest at 8.0% per annum which is to be paid semi-annually and which have an initial maturity date of June 26, 2011 (the Debentures).

7. The Filer has no securities outstanding other than the Common Shares, the Options and the Debentures.

8. The Common Shares were delisted from trading on the TSX Venture Exchange on July 9, 2010 for failure to pay the corporate sustaining fee and no securities of the Filer are currently listed or quoted on any exchange or market.

9. As a result of declining oil and natural gas prices and the costs associated with abandonment liabilities with its oil and gas properties, the Filer has experienced significantly reduced revenues and depreciating asset values. The Common Shares and Options have no economic value because the Filer's liabilities substantially exceed the fair value of its assets.

10. On May 11, 2010 the Commission issued the Ontario CTO in response to the Filer's failure to file its annual audited financial statements, annual management's discussion and analysis, and certification of annual filings for the year ended December 31, 2009 (the 2009 Annual Filings). The Alberta Securities Commission issued a cease trade order against the Filer on May 7, 2010 (the Alberta CTO) and the British Columbia Securities Commission (the BCSC) issued a similar cease trade order on May 11, 2010 (the BCSC CTO).

11. In addition to the 2009 Annual Filings, the Filer subsequently failed to file its interim unaudited financial statements, interim management's discussion and analysis, certification of interim filings for the three quarterly periods ended March 31, June 30 and September 30, 2010 and its annual oil and gas disclosure prescribed by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (Interim Filings).

12. The Filer is also included on the list of defaulting issuers maintained by each of the Saskatchewan Financial Services Commission and the New Brunswick Securities Commission.

13. Other than the failure to file the 2009 Annual Filings and Interim Filings the Filer is not in default of any of the requirements of the Act or the rules and regulations made pursuant thereto.

14. On May 5, 2010 the Filer was granted protection from its creditors under the Bankruptcy and Insolvency Act (theBIA). The protection afforded by the BIA has been extended several times pursuant to orders granted by the Court of Queen's Bench in the Judicial Centre of Calgary (the Court). The purpose of seeking protection from creditors under the BIA was to allow the Filer time to file with the official receiver a proposal to effect a compromise and arrangement of all claims of the Filer's creditors against the Filer.

The Proposal

15. On September 2, 2010, the Filer filed a proposal (the Proposal) with the official receiver in accordance with the BIA, naming Alger & Associates Inc. as the proposal trustee.

16. The Proposal was approved by the creditors of the Filer on September 24, 2010 and the Court on October 22, 2010, as required under the BIA.

17. An extension for the completion date of the Proposal (to December 30, 2010) was approved by the creditors of the Filer on November 30, 2010.

18. The steps of implementation of the Proposal involve a reorganization of the Filer's share capital and includes two distinct trades of securities of the Filer in Alberta and Ontario. Consequently, the Filer has concurrently applied to the Alberta Securities Commission for a partial revocation of the Alberta CTO.

19. Initially, the Proposal will involve a trade of 500,000 convertible non-voting class B common shares (Class B Shares) to four unsecured Debenture holders who are owed approximately $6.3 million (the Creditor Trade).

20. All remaining Debenture holders will be treated as ordinary creditors and will receive cash payments from a cash pool of $210,000 pursuant to the Proposal.

21. Holders of the existing Common Shares and Options will not receive any payment or compensation. Upon completion of the Proposal all Common Shares and Options will be redeemed for no consideration and cancelled, without any vote or approval by, or payment to, the holders of the Common Shares and Options.

22. In addition, the Corporation intends to conduct a private placement of 600,000 voting class A common shares (Class A Shares) at a price of $1.00 per share, to six arm's length investors (the Investor Trade).

23. The proceeds of the Investor Trade will be used as follows:

(a) $210,000 to satisfy the claims of most other creditors, both secured and unsecured, who are not eligible to participate in the Creditor Trade, according to the amount of their claim, as set forth in the Proposal; and

(b) the balance to provide capital for the Filer to pay its advisors and fees with respect to the Proposal, complete the reorganization process and for continuing operations.

24. The claims of a secured creditor and certain operating creditors will not be affected by the Proposal.

25. The new investors who participate in the Investor Trade (the Investors) and the creditors participating in the Creditor Trade (the Creditors) will receive a copy of the Proposal and will acquire the Class A Shares and Class B Shares, respectively, pursuant to the exemption in section 2.3 of National Instrument 45-106 Prospectus and Registration Exemptions. The Investors and Creditors will execute acknowledgements that the Filer's securities are currently subject to the Ontario CTO, Alberta CTO and BCSC CTO.

26. The Filer intends to apply for full revocations of the Ontario CTO, Alberta CTO and BCSC CTO, respectively.

27. The Filer will apply to cease to be a reporting issuer in each of the jurisdictions in which it is a reporting issuer following the completion of the Proposal.

AND UPON considering the Application and the recommendation of the staff of the Commission;

AND UPON the Director being satisfied to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to section 144 of the Act, that the Ontario CTO is partially revoked solely to permit trades in securities of the Filer (including for greater certainty, acts in furtherance of trades in securities of the Filer) that are necessary for and are in connection with the Proposal, provided that:

1. Prior to the completion of the Proposal and Investor Trade:

(a) Investors and Creditors will receive:

(i) a copy of the Proposal;

(ii) a copy of the Ontario CTO; and

(iii) a copy of this order; and

(b) written notice from the Filer, and the Filer will provide the Commission, on request, written acknowledgement by each Investor and each Creditor of their understanding that the securities of the Filer will remain subject to the Ontario CTO until it is revoked and are therefore not capable of being sold, and that the granting of this partial revocation order does not guarantee the issuance of a full revocation in the future.

DATED at Toronto this 23rd day of December, 2010.

"Jo-Anne Matear"
Assistant Manager, Corporate Finance
Ontario Securities Commission