Securities Law & Instruments


Headnote

Section 144 – application for variation of cease trade order – issuer cease traded due to failure to file certain continuous disclosure documents required by Ontario securities law – issuer previously granted a partial revocation order to permit the issuer to proceed with a proposal under the Bankruptcy and Insolvency Actand to permit the issuer to proceed with a private placement, in connection with the proposal, with an accredited investor (as such term is defined under Ontario securities law) – issuer has applied for a variation of certain conditions of the partial revocation order – variation of partial revocation granted.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 127, 144.

IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED
(the Act)

AND

IN THE MATTER OF
BESRA GOLD INC.

ORDER
(SECTION 144)

                WHEREAS the securities of Besra Gold Inc. (the Filer) are subject to a temporary cease trade order made by the Director of the Ontario Securities Commission (the Commission) dated December 17, 2014 pursuant to paragraph 2 of subsection 127(1) and subsection 127(5) of the Act and a further cease trade order issued by the Director of the Commission on December 29, 2014 pursuant to paragraph 2 of subsection 127(1) of the Act (together, the Cease Trade Order) directing that trading in securities of the Filer cease until further order by the Director;

                AND WHEREAS by order dated October 14, 2016 the Commission granted the Filer a partial revocation of the Cease Trade Order pursuant to section 144 of the Act (the Partial Revocation Order) to permit trades and acts in furtherance of trades that are necessary for and are in connection with an amended proposal (the Amended Proposal) to creditors made by the Filer pursuant to the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3) (the BIA) and in connection with a proposed financing (the Proposed Exit Financing) that will satisfy a condition of the completion of the transactions contemplated by the Amended Proposal;

                AND WHEREAS the Filer has applied to the Commission pursuant to section 144 of the Act for a variation of the Partial Revocation Order;

                AND WHEREAS the Filer has represented to the Commission that:

1.             The Partial Revocation Order requires that prior to completing the Proposed Exit Financing the Filer will provide a copy of the Cease Trade Order and a copy of the Partial Revocation Order to each creditor of the Filer under the Amended Proposal (or such creditor’s legal representative) and will obtain a signed and dated acknowledgement (a CTO Acknowledgement) from each creditor (or such creditor’s legal representative) stating, among other things, that all of the Filer's securities, including the securities to be issued in connection with the Amended Proposal, will remain subject to the Cease Trade Order until it is revoked.

2.             Creditors of the Filer that elect under the Amended Proposal to receive cash in settlement of their proven claims (each, a Cash Electing Creditor and, collectively, the Cash Electing Creditors) will not receive securities in settlement of their claim and the settlement of each such claim will not involve a “trade” (as such term is defined in the Act). However, the Partial Revocation Order may be interpreted to require the Filer to provide a copy of the Cease Trade Order and a copy of the Partial Revocation Order to each Cash Electing Creditor (or such creditor’s legal representative) and to receive a CTO Acknowledgement from each Cash Electing Creditor (or such creditor’s legal representative).

3.             The Filer does not contemplate being able to close the transactions contemplated by the Amended Proposal concurrently with the closing of the Proposed Exit Financing.

4.             Pursuant to the Amended Proposal, the Filer has up to forty-five (45) days from the implementation date of the Amended Proposal to deliver to the proposal trustee under the Filer’s BIA proceedings the convertible notes, common shares and warrants issuable to creditors who are not Cash Electing Creditors. The Filer intends to obtain a CTO Acknowledgement from each creditor that is not a Cash Electing Creditor, on or prior to the date on which the Proposal Trustee distributes the Filer’s securities, on the Filer’s behalf, to such creditors. However, the Partial Revocation Order may be interpreted to require that the Filer receive all required CTO Acknowledgements prior to the completion of the Proposed Exit Financing.

5.             A condition of the Amended Proposal is that an exit financing be completed on or before November 17, 2016. The Proposed Exit Financing will satisfy this condition, provided it is completed on or before November 17, 2016. However, the Partial Revocation Order would require the Filer to provide a copy of the Cease Trade Order and a copy of the Partial Revocation Order to each creditor under the Amended Proposal (or such creditor’s legal representative), and receive a CTO Acknowledgement from each creditor under the Amended Proposal (or such creditor’s legal representative) before completion of the Proposed Exit Financing. The Filer does not contemplate being able to obtain all required CTO Acknowledgements by the November 17, 2016 deadline.

6.             The definition of “Proposed Investor” in the Partial Revocation Order refers only to Hedger Management SA. (Hedger). Pursuant to the financing commitment letter the Filer entered into with Hedger, Hedger is entitled to assign its rights thereunder. Hedger has advised the Filer that it intends to assign its rights to entities that are each an “accredited investor” (as such term is defined in the Act). However, the Partial Revocation Order may be interpreted to the effect that it does not apply to Hedger’s assignees. Furthermore, the Partial Revocation Order listed the securities issuable under the Proposed Exit Financing as secured convertible notes, preferred shares or similar instruments ranking in preference to the Common Shares as well as warrants to purchase Common Shares. The terms of the Proposed Exit Financing will also include the issuance of Common Shares.

7.             As a result of further negotiations between the Filer and Hedger, the Filer intends to reallocate the proceeds of the Proposed Exit Financing to allow for the repayment of the Filer’s outstanding secured debt. In addition, Hedger has agreed to provide an additional committed tranche of $2,000,000 conditional on a full revocation of the Cease Trade Order and two subsequent tranches of $3,000,000 and $5,000,000, respectively, which subsequent tranches will be at the discretion of the Proposed Investor.

8.             The Filer confirms the representations made to the Commission in connection with the Partial Revocation Order, except as expressly varied by this order.

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

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

                IT IS ORDERED, pursuant to section 144 of the Act, that the Partial Revocation Order be varied to:

(a)           delete paragraph 24 of the Partial Revocation Order and replace it with the following:

“The Filer has entered into a commitment letter with Hedger Management SA pursuant to which Hedger Management SA or its assignees (each a Proposed Investor) may invest up to $20,000,000 by way of one or more of secured convertible notes, preferred shares or similar instruments ranking in preference to the Common Shares, or Common Shares as well as warrants to purchase Common Shares (the Proposed Exit Financing). The up to $20,000,000 proposed investment consists of a committed first tranche in the amount of $10,000,000 (the Committed Tranche), a subsequent committed tranche of $2,000,000 conditional on a full revocation of the Cease Trade Order and two subsequent tranches of $3,000,000 and $5,000,000, respectively, which subsequent tranches will be at the discretion of the Proposed Investor. The Filer will not close on any amounts under the Proposed Exit Financing unless the full Committed Tranche is received. The proposed valuation for the Proposed Exit Financing is such that a $15,000,000 investment is expected to result in the issuance on an as-converted basis of 50.1% of the Common Shares of the Filer post-issuance.”

(b)           delete paragraph 25 of the Partial Revocation Order and replace it with the following:

“The Filer intends to use the $10,000,000 from the Committed Tranche as follows:

Cash settlement in relation to the Amended Proposal

$2,200,000

Compliance, Audit and associated professional fees

$960,000

Bau Project & Malaysian costs

$650,000

Acquisition Payments for Bau Project

$1,250,000

Payment to suppliers, management and staff

$650,000

Repayment of Secured Debt (including interest)

$3,006,864

Ongoing Working Capital

$1,233,136

Applications to apply for a full revocation of all cease trade orders issued against the Filer

$50,000

Total

$10,000,000

(c)           delete paragraph 27 of the Partial Revocation Order and replace it with the following:

“As described above, for creditors of the Filer who elect Option 1, Option 2 or Option 3 (each a Securities Electing Creditor and, collectively, the Securities Electing Creditors), the Amended Proposal when completed will involve the issuance to the Securities Electing Creditors of convertible notes (pursuant to Option 1 and Option 3) and Common Shares and warrants (pursuant to Option 2 and Option 3).”

(d)           delete the order of the Partial Revocation Order commencing with “IT IS ORDERED” and ending with “90 days from the date hereof” and replace it with the following:

IT IS ORDERED, pursuant to section 144 of the Act, that the Cease Trade Order be and is hereby partially revoked solely to permit trades and acts in furtherance of trades that are necessary for and are in connection with the Amended Proposal and the Committed Tranche of the Proposed Exit Financing and all other acts in furtherance of the Amended Proposal and the Committed Tranche of the Proposed Exit Financing that may be considered to fall within the definition of "trade" within the meaning of the Act, provided that:

(a)           prior to the completion of the Committed Tranche of the Proposed Exit Financing, the Filer, or the Proposal Trustee on the Filer’s behalf, will:

(i)            provide a copy of the Cease Trade Order to each Proposed Investor;

(ii)           provide a copy of this order to each Proposed Investor; and

(iii)          obtain a signed and dated acknowledgement from each Proposed Investor clearly stating that all of the Filer's securities, including the securities to be issued in connection with the Proposed Exit Financing, will remain subject to the Cease Trade Order until it is revoked, and that the granting of this order does not guarantee the issuance of a full revocation order in the future;

(b)           on or prior to the date on which the Proposal Trustee distributes the Filer’s securities, on the Filer’s behalf, to Securities Electing Creditors, the Filer, or the Proposal Trustee on the Filer’s behalf, will:

(i)            provide a copy of the Cease Trade Order to each Securities Electing Creditor or such creditor’s legal representative;

(ii)           provide a copy of this order to each Securities Electing Creditor or such creditor’s legal representative; and

(iii)          obtain signed and dated acknowledgements from each Securities Electing Creditor or such creditor’s legal representative, clearly stating that all of the Filer's securities, including the securities to be issued in connection with the Amended Proposal, will remain subject to the Cease Trade Order until it is revoked, and that the granting of this order does not guarantee the issuance of a full revocation order in the future;

(c)           the Filer undertakes to make available copies of the signed and dated written acknowledgments referred to in paragraphs (a)(iii) and (b)(iii) above to staff of the Commission on request; and

(d)           the order will terminate on the earlier of the completion of the Amended Proposal and 90 days from the date hereof.”

                DATED at Toronto, Ontario on this 16th day of November, 2016.

 

“Michael Balter”
Manager, Corporate Finance Branch
Ontario Securities Commission