Approval granted for change of manager and change of custodian of investment fund – change of manager is not detrimental to securityholders or the public interest – change of manager to be approved by the fund’s securityholders at a special meeting of securityholders – National Instrument 81-102 Investment Funds.
National Instrument 81-102 Investment Funds, ss. 5.5(1)(a), 5.5(1)(c), 19.1.
October 5, 2018
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
B.E.S.T. INVESTMENT COUNSEL LIMITED
(BEST, and together with 1832, the Filers)
DYNAMIC VENTURE OPPORTUNITIES FUND LTD.
The Ontario Securities Commission (the Commission) has received an application from the Filers for an order under the securities legislation of Ontario (the Legislation) for approval of (a) the proposed change of manager of the Fund from 1832 to BEST pursuant to section 5.5(1)(a) of National Instrument 81-102 Investment Funds (NI 81-102), and (b) the proposed change of custodian of the Fund from State Street Trust Company Canada (State Street) to CIBC Mellon Trust Company (CIBC Mellon) pursuant to section 5.5(1)(c) of NI 81-102 (collectively, the Approvals Sought).
Terms defined in National Instrument 14-101 Definitions have the same meanings if used in this order, unless otherwise defined.
This order is based on the following facts represented by the Filers:
1. The Fund is a corporation established under the Canada Business Corporations Act (the CBCA) and is registered as a labour-sponsored investment fund corporation under the Community Small Business Investment Funds Act, 1992 (Ontario), as amended, and as a labour-sponsored venture capital corporation under the Income Tax Act (Canada) and the regulations thereunder.
2. The Fund is a reporting issuer in Ontario only, and not in any other jurisdiction in Canada.
3. Securities of the Fund were distributed in Ontario under a prospectus dated January 25, 2016, which was prepared in accordance with the requirements of National Instrument 41-101 General Prospectus Requirements.
4. The Fund is not in default of the securities legislation in any jurisdiction of Canada.
5. 1832 is a limited partnership existing under the laws of the Province of Ontario.
6. The head office of 1832 is located in Toronto, Ontario.
7. 1832 is the current investment fund manager, portfolio manager, service provider and principal distributor of the Fund.
8. 1832 is registered as: (i) a portfolio manager in all of the provinces of Canada, and in Yukon and the Northwest Territories; (ii) an exempt market dealer in all of the provinces of Canada (except Prince Edward Island and Saskatchewan); (iii) an investment fund manager in Ontario, Québec, Newfoundland and Labrador, and the Northwest Territories; and (iv) a commodity trading manager in Ontario.
9. 1832 is not in default of the securities legislation in any jurisdiction of Canada.
10. BEST is a corporation incorporated under the Business Corporations Act (Ontario).
11. The head office of BEST is located in Toronto, Ontario.
12. BEST is registered as an investment fund manager, portfolio manager and exempt market dealer in Ontario.
13. BEST is not in default of the securities legislation in any jurisdiction of Canada.
14. BEST currently manages the B.E.S.T. Total Return Fund Inc., a labour-sponsored investment fund corporation formed in 2003 (the BEST Fund), which is distributed in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Prince Edward Island by way of a prospectus dated August 8, 2018. BEST manages no other investment funds.
15. On July 31, 2018, the Fund issued a press release announcing that the board of directors of the Fund (the Board) approved the entering into by the Filers of an acquisition agreement (the Acqui-sition Agreement) providing for the acquisition by BEST of the management, services and principal distribution contracts of the Fund from 1832 by way of assignment (the Transaction).
16. The Transaction will result in a change of investment fund manager and portfolio manager of the Fund from 1832 to BEST (the Change of Manager).
17. Under the Acquisition Agreement and in con-nection with the Change of Manager, the Filers have also agreed to change the custodian of the Fund from the current custodian, State Street, to CIBC Mellon, the current custodian of the BEST Fund, subject to the agreement of such parties (the Change of Custodian).
18. The Acquisition Agreement also contemplates that, following the completion of the Change of Manager, the name of the Fund will be changed from Dynamic Venture Opportunities Fund Ltd. to B.E.S.T. Venture Opportunities Fund Inc. (the Change of Name).
19. The Board established an independent committee (the Special Committee) comprised of certain of the independent members of the Board to consider appropriate options for the future operation of the Fund, including the Transaction. After reviewing the Transaction and the Acquisition Agreement, and conducting detailed due diligence on BEST and its management team, the Special Committee issued a report to the Board stating that the Special Committee viewed the Transaction as being in the best interests of the Fund and its shareholders, and accordingly recommended the Transaction to the Board for the Board’s approval.
20. The Board has approved the Transaction as being in the best interests of the Fund and its shareholders.
21. The current independent review committee of the Fund (the IRC) has reviewed the Transaction and has provided a recommendation to 1832 that, in the IRC’s opinion, after reasonable inquiry, the Transaction, if implemented, would achieve a fair and reasonable result for the Fund.
22. The completion of the Transaction, including the Change of Manager, Change of Custodian and Change of Name (the Closing), is subject to the satisfaction of certain closing conditions, including:
a. customary conditions of closing;
b. the approval of shareholders of the Fund in respect of (i) the Change of Manager, pursuant to section 5.1(1)(b) of NI 81-102 (the Change of Manager Shareholder Approval), and (ii) the Change of Name, pursuant to section 173(1)(a) of the CBCA; and
c. the Approvals Sought.
23. A special meeting, including any adjournment or postponement thereof, of shareholders of the Fund (the Meeting) has been called and will be held on October 10, 2018 for shareholders to vote on resolutions approving the Change of Manager, Change of Name, and related matters.
24. The meeting materials, including the notice of the Meeting (the Notice of Meeting) and manage-ment information circular (the Circular) and forms of proxy, were mailed to shareholders of the Fund in accordance with applicable securities laws on or about September 17, 2018. Copies of the Notice of Meeting and the Circular were filed on the System for Electronic Document Analysis and Retrieval (SEDAR) in accordance with applicable securities legislation.
25. The Circular contains a summary of the information that the Filers, the Special Committee and the Board consider necessary to allow shareholders of the Fund to make an informed decision about the Change of Manager and Change of Name before voting on the Change of Manager and Change of Name resolutions at the Meeting. The Change of Name resolutions, if approved, will authorize the filing of Articles of Amendment to amend the Articles of Incorporation of the Fund to reflect the Change of Name. Such filing will be the only change required to the constating documents of the Fund as a result of the Transaction.
26. The press release, a copy of the Acquisition Agreement and a material change report have been filed on SEDAR. BEST, on behalf of the Fund, will file a further press release upon completion of the Transaction.
27. The Closing is expected to occur no later than the third business day following satisfaction of all conditions of the Closing. Subject to satisfaction of the above, the Closing is expected to occur on or about October 12, 2018 and no later than October 20, 2018.
28. None of the costs of the Transaction, including the Change of Manager and Change of Custodian, will be borne by the Fund. The costs of the Transaction will instead be borne by 1832 and/or BEST. These costs include legal and accounting fees, back office fund conversion costs, proxy solicitation, printing and mailing cost, and regulatory fees.
29. The Transaction, including the Change of Manager and Change of Custodian, is not expected to adversely affect the respective financial positions of the Filers or their respective abilities to fulfill their regulatory obligations.
30. The Transaction, including the Change of Manager and Change of Custodian, is not expected to have any material impact on the business, operations or affairs of the Fund or the shareholders of the Fund.
Change of Manager
31. The Filers have proposed the Transaction because 1832 wishes to exit the business of managing labour-sponsored investment funds (LSIFs), including the Fund. BEST is, and following the Closing will remain, in the business of managing LSIFs, and has therefore chosen to focus more on the management of LSIFs.
32. Upon the Closing, the current members of the IRC will cease to act as members pursuant to section 3.10(1)(b) of National Instrument 81-107 Independent Review Committee of Investment Funds (NI 81-107), and BEST, as manager of the Fund at that time, will appoint new members to serve on the IRC. BEST intends to appoint the members of the independent review committee that BEST has established for the BEST Fund, to form the new IRC. Accordingly, upon the Closing, the new IRC is expected to comprise Geoffrey Ralph Bedford, Aleksandar Daskalovic and Brent William Bere.
33. On or prior to the Closing, it is expected that Justin Ashley will resign as director of the Fund. Further changes to the current makeup of the Board may take place at the next annual general meeting of the Fund. It is expected that the Board will be reconstituted with the same independent directors who serve as directors for the BEST Fund, being John-David Alkema, George Russell Paterson, David Andrew Turnbull and G. Keith Graham.
34. Following the Change of Manager, BEST intends to appoint the following officers for the Fund: John Richardson as Chief Executive Officer, Thomas Lunan as Chief Financial Officer and Mark Donatelli as Corporate Secretary.
35. Following the Change of Manager, BEST will provide investment advisor services to the Fund through a team of portfolio managers comprising John Richardson, Thomas Lunan and Mark Donatelli.
36. The individuals that will be principally responsible for the investment fund management of the Fund upon the Closing have the requisite integrity and experience, as required under section 5.7(1)(a)(v) of NI 81-102.
37. BEST intends to manage and administer the Fund in substantially the same manner as 1832. There is no current intention to change the investment objectives, investment strategies, or increase the fees and expenses of the Fund.
38. Other than as required to effect the Transaction, BEST does not currently contemplate any changes to the material contracts of the Fund.
39. Under section 5.5(1)(a) of NI 81-102, the approval of the applicable securities authority is required before the manager of an investment fund is changed, unless the new manager is an affiliate of the current manager.
40. 1832 and BEST are not affiliates. Therefore, the approval of the Commission is required before the Change of Manager can occur.
Change of Custodian
41. State Street is the current custodian of the Fund. State Street’s most recent custodian report for the Fund was filed on September 25, 2018.
42. CIBC Mellon is the custodian of the BEST Fund. CIBC Mellon’s most recent custodian report for the BEST Fund was filed on September 27, 2018. This report was provided to BEST.
43. CIBC Mellon is not affiliated with either of the Filers.
44. CIBC Mellon meets the requirements of Part 6 of NI 81-102.
45. The Change of Custodian and the custodial agreements and arrangements will be imple-mented in compliance with Part 6 of NI 81-102.
46. The Fund’s new custodian agreement with CIBC Mellon will be filed on SEDAR within 10 days following its execution. The new custodian agreement will not be executed before the Change of Custodian is approved by the Commission.
47. The Filers believe that the Change of Custodian will be beneficial to the Fund because it is expected to achieve operational efficiencies given that CIBC Mellon is the custodian of the BEST Fund.
48. The Filers believe that the Change of Custodian will have no adverse impact on continued compliance with Part 6 of NI 81-102
49. Details of the Change of Custodian will be set out in the Fund’s next annual information form.
50. 1832 does not regard the Change of Custodian as either a “material change”, as defined in section 1.1 of National Instrument 81-106 Investment Fund Continuous Disclosure, or as a “conflict of interest matter”, as defined in section 1.2 of NI 81-107.
51. Under section 5.5(1)(c) of NI 81-102, the approval of the applicable securities regulatory authority is required before a change of the custodian of an investment fund is implemented, if there has been or will be, in connection with the proposed change, a change of the investment fund manager to an unaffiliated manager.
52. The Change of Custodian will be made in connection with the proposed Change of Manager. Therefore, the approval of the Commission is required before the Change of Custodian can occur.
53. The Approvals Sought will not be detrimental to the protection of investors in the Fund or prejudicial to the public interest.
The Commission is satisfied that the order meets the test set out in the Legislation for the Commission to make the order.
The order of the Commission under the Legislation is that the Approvals Sought are granted, provided that the Change of Manager Shareholder Approval is granted at the Meeting.
Manager, Investment Funds and Structured Products Branch
Ontario Securities Commission