Section 183.3

Vertical amalgamations

• It is common for an “Acquisitionco” to acquire all the shares of a public company target (“Targetco”), whose shares are not delisted until after a delay, and to vertically amalgamate with it.
• In order to qualify as a “reorganization transaction” under para. (b) of the definition, the equity holders of the covered entity (Acquisitionco as the holder of Targetco shares) must receive equity of Amalco – and such equity is instead cancelled for no consideration.
• Since Targetco continues as a "covered entity" after the acquisition, the amalgamation may result in the imposition of the share buyback tax.

Wind-Up of Targetco into Acquisitionco

• A public company target (“Targetco”), whose shares are not delisted until after a delay, is acquired by “Acquisitionco” and then wound-up into it.
• In order for the wind-up of Targetco to qualify as a "reorganization transaction" under para. (c) of the definition, all or substantially all of the property of Targetco must be distributed to Acquisitionco (as the equity holder of Targetco).
• This requirement is problematic where more than 10% of Targetco's assets are debt or equity of Acquisitionco (which could have been held prior to the acquisition), since such shares or debt will be extinguished by operation of law on the wind-up rather than being "distributed" to Acquisitionco.

Dividends determined re pref share redemption amount ((pp. 7-8)

• Para. (c) of the definition of substantive debt references a test under which the preferred shares bear a dividend rate that is fixed, or computed generally as a percentage of the FMV of the consideration for which the shares were issued, rather than as a percentage of the redemption amount of the shares, even though it is commercially common for dividends to be computed on the latter basis. Furthermore, para. (d) does not generally permit the preferred shares to be issued at a discount to their general redemption amount.
• Accordingly, the definition of substantive debt should be amended to accommodate the computation of dividends on shares computed by reference to their redemption amount, where they were not issued at anything other than at a shallow discount or shallow premium to their redemption amount.