National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Exemptions granted to flow-through limited partnerships from the requirement in National Instrument 81-106 Investment Fund Continuous Disclosure to file an annual information form (except in Quebec which only provides relief from filing the first AIF). In all jurisdictions outside of Quebec, also granted relief from preparing and maintaining a proxy voting record – Flow-through limited partnerships have a short lifespan and do not have a readily available secondary market – Should not be used as a precedent.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 9.2, 10.3, 10.4, 17.1.
Citation: Re Canoe Financial LP, 2014 ABASC 436
November 4, 2014
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
CANOE FINANCIAL LP (Canoe),
CANOE 2014 FLOW-THROUGH LP – CDE UNITS (the 2014 CDE Fund) AND
CANOE 2014 FLOW-THROUGH LP – CEE UNITS (the 2014 CEE Fund)
(collectively, the Filers)
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filers on behalf of the 2014 CDE Fund and the 2014 CEE Fund (referred to collectively as Canoe 2014 Flow-Through LP or the 2014 Partnership) and each future limited partnership that is identical to the 2014 Partnership in all material respects (the Future Partnerships, and together with the 2014 Partnership, the Partnership Filers) for a decision under the securities legislation of the Jurisdictions (the Legislation) granting an exemption from:
(a) except in Québec, the requirement in Section 9.2 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) to prepare and file an annual information form (AIF) (the AIF Relief);
(b) in Québec only, for the first year an AIF would be required to be prepared and filed, the requirement in Section 9.2 of NI 81-106 to prepare and file an AIF (the Modified AIF Relief);
(c) except in Québec, the requirement in Section 10.3 of NI 81-106 to maintain a proxy voting record (the Proxy Voting Record); and
(d) except in Québec, the requirements in Section 10.4 of NI 81-106 to prepare a Proxy Voting Record on an annual basis for the period ending June 30 of each year, to post the Proxy Voting Record on Canoe's website no later than August 31 of each year, and to send the most recent copy of the proxy voting policies and procedures and Proxy Voting Record, without charge, to the limited partners of the Partnership Filers (the Limited Partners) upon request (paragraphs (c) and (d) are collectively, the Proxy Voting Record Relief).
(the AIF Relief, the Modified AIF Relief and the Proxy Voting Record Relief are collectively, the Requested Relief).
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 Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon (i) in respect of the AIF Relief, in each of the provinces and territories of Canada other than Alberta, Ontario and Québec, (ii) in respect of the Modified AIF Relief, in the province of Québec, and (iii) in respect of the Proxy Voting Record Relief, in each of the provinces and territories of Canada other than Alberta, Ontario and Québec; and
(c) this decision is the decision of the Principal Regulator and also evidences the decision of the securities regulatory authority or regulator in Ontario.
Defined terms contained in MI 11-102 and National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined herein.
This decision is based on the following facts represented by the Filers:
1. The principal office of the Filers is located at 3900, 350 – 7th Avenue S.W., Calgary, Alberta, T2P 3N9.
2. Canoe 2014 General Partner Corp. (the General Partner), a wholly-owned subsidiary of Canoe, is the general partner of the 2014 Partnership.
3. Canoe will act as the investment fund manager to the 2014 Partnership and will provide all administrative services required by the 2014 Partnership. Canoe has also been retained by the 2014 Partnership and the General Partner as the portfolio manager to the 2014 Partnership.
4. Canoe is registered as an exempt market dealer, investment fund manager and portfolio manager in all of the Provinces and Territories of Canada. Canoe provides a wide range of financial, operational, administrative and investor services to a variety of: (i) public mutual funds, closed-end investment funds and flow-through limited partnerships; and (ii) private investment funds. As of March 31, 2014, Canoe managed approximately $2.3 billion in assets and, through its predecessor, has been in the investment management business for over 14 years.
5. The Filers are not currently in default of any requirements of applicable securities legislation.
6. The Partnership Filers were or will be formed to provide Limited Partners with the opportunity for capital appreciation by investing in securities of resource issuers, which issuers are involved in oil and natural gas and mineral exploration, development and/or production in Canada (Resource Issuers). Each Partnership Filer will seek to achieve its investment objectives by investing in certain flow-through securities (Flow-Through Securities) and other securities of Resource Issuers such that Limited Partners will be entitled to claim certain deductions from their taxable income. Each Partnership Filer will subscribe for Flow-Through Securities of the Resource Issuer and the Resource Issuer will agree to incur and renounce to such Partnership Filer expenditures in respect of resource development and exploration which qualify as Canadian development expense (CDE) or Canadian exploration expense (CEE).
7. The 2014 Partnership’s investment objectives are to provide Limited Partners with exposure to either or both of its investment portfolios, one consisting primarily of CDE Flow-Through Securities, in the case of the 2014 CDE Fund, and one consisting primarily of CEE Flow-Through Securities, in the case of the 2014 CEE Fund, with: (a) potential capital appreciation in the assets of the 2014 Partnership; (b) potential liquidity through the transfer of the 2014 Partnership’s assets to a mutual fund corporation in exchange for redeemable shares of the mutual fund corporation or another liquidity alternative; and (c) certain tax assistance in the form of deductions, which will be achieved through participation in the development and production of, and exploration for, oil and natural gas using the investment strategies described in the 2014 Partnership’s (final) prospectus dated January 28, 2014. It is Canoe’s current intention that any Future Partnership will have investment objectives identical to the 2014 Partnership in all material respects.
8. The 2014 Partnership is a limited partnership formed pursuant to the provisions of the Partnership Act (Alberta) on December 13, 2013. The 2014 CDE Fund and the 2014 CEE Fund are reporting issuers in each of the Provinces of Canada, other than Québec. The 2014 CDE Fund and the 2014 CEE Fund became reporting issuers in each of the Provinces of Canada, other than Québec, on January 29, 2014, the date of the receipts issued to the 2014 CDE Fund and the 2014 CEE Fund for the 2014 Partnership’s (final) prospectus dated January 28, 2014 (the Prospectus), offering for sale up to: (i) 1,600,000 CDE limited partnership units (CDE Units) of the 2014 CDE Fund; and (ii) 800,000 CEE limited partnership units (CEE Units) of the 2014 CEE Fund, at a price of $25.00 per CDE Unit and $25.00 per CEE Unit. On or before October 31, 2016, the 2014 Partnership will be dissolved and its Limited Partners will receive their pro rata share of the net assets of the 2014 Partnership.
9. It is the current intention of Canoe and the General Partner that the 2014 Partnership will transfer its assets to an existing mutual fund corporation or one to be created prior to June 30, 2016 (the Mutual Fund Corporation) in exchange for redeemable shares of the Mutual Fund Corporation (the Rollover Transaction). The Mutual Fund Corporation will be established and managed by Canoe and is also expected to be advised by Canoe. Within 60 days after such transfer, upon the dissolution of the 2014 Partnership, the shares of the Mutual Fund Corporation will be distributed to Limited Partners, pro rata, on a tax-deferred basis. The Rollover Transaction is subject, inter alia, to the necessary regulatory and other approvals, and in the event that it is not implemented on or prior to June 30, 2016, the 2014 Partnership may: (i) be dissolved on or before October 31, 2016 and its net assets distributed pro rata to the Limited Partners; or (ii) subject to approval by extraordinary resolution of the Limited Partners, the 2014 Partnership may choose to pursue a liquidity alternative that is proposed by the General Partner. It is Canoe's current intention that any Future Partnership will be terminated approximately two years after it was formed on the same basis as the 2014 Partnership.
10. The limited partnership units, including for clarity the CDE Units and the CEE Units, of the Partnership Filers (the Units) are not and will not be listed or quoted for trading on any stock exchange or market. The Units are not redeemable by the Limited Partners. Generally, Units are not transferred by Limited Partners since Limited Partners must be holders of the Units on the last day of each fiscal year of a Partnership Filer in order to obtain the desired tax deduction.
11. Since its formation, the 2014 Partnership's activities have been limited to (i) completing the issue of the Units under the Prospectus, (ii) investing its available funds in accordance with its investment objectives and (iii) incurring expenses as described in the Prospectus. Any Future Partnerships will be structured in a similar fashion.
12. By subscribing for Units offered by the 2014 Partnership under the Prospectus, each of the Limited Partners has agreed to the irrevocable power of attorney contained in Article 18 of the Limited Partnership Agreement of the 2014 Partnership dated January 28, 2014. The power of attorney authorizes the General Partner to apply for exemptions from reporting obligations under the Legislation.
13. All material information concerning the business and activities of a Partnership Filer will be contained in the Partnership Filer’s publicly available documents filed on SEDAR. An AIF is intended to assist prospective and current investors in evaluating investment funds so that they may make an informed investment decision. In the case of the Partnership Filers, following a Partnership Filer’s initial public offering, a prospective investor will generally not acquire a Partnership Filer’s Units and Limited Partners will have access to the continuous disclosure documents of the Partnership Filer, such as its annual and interim financial statements and management reports of fund performance, in order to get information on their investment. In addition, upon the occurrence of any material change to the Partnership Filer, Limited Partners would receive all relevant information from the material change reports the Partnership Filer is required to file with the Decision Makers.
14. Given the limited range of business activities to be conducted by the Partnership Filers, the short duration of their existence and the nature of the investment of the Limited Partners, the preparation and filing of an AIF by the Partnership Filer will not be of any benefit to the Limited Partners and may impose a material financial burden on the Partnership Filer.
15. Pursuant to NI 81-106, investors purchasing Units of the Partnership Filer were provided with a prospectus containing written policies on how the Flow-Through Securities held by the Partnership Filer are voted (the Proxy Voting Policies), and had the opportunity to review the Proxy Voting Policies before deciding whether to invest in Units.
16. The Proxy Voting Policies prescribe that the Partnership Filer exercise its voting rights in respect of securities of Resource Issuers with a view to the best interests of the Partnership Filer and its Limited Partners.
17. Given the short lifespan of the Partnership Filer, the production of a Proxy Voting Record would provide Limited Partners with very little opportunity for recourse if they disagreed with the manner in which the Partnership Filer exercised or failed to exercise its proxy voting rights, as the Partnership Filer would likely be dissolved by the time any potential change could materialize.
18. Preparing and making available to Limited Partners a Proxy Voting Record will not be of any benefit to Limited Partners and may impose a material financial burden on the Partnership Filer.
19. The 2014 Partnership did not prepare a Proxy Voting Record for the period ending on June 30, 2014 because it was relying on future-oriented relief issued to partnerships with general partners that were subsidiaries of EnerVest Management Ltd. (a predecessor of Canoe).
20. The Filers are of the view that the Requested Relief is not against the public interest, is in the best interests of the Partnership Filers and their Limited Partners and represents the business judgment of responsible persons uninfluenced by considerations other than the best interest of the Partnership Filers and their Limited Partners.
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 Requested Relief is granted.