Transition of Investment Funds to Corporate Issuer Status

This article was originally published in the Investment Funds Practitioner in December 2015.

We have recently seen closed-end investment funds seeking to transition to corporate issuers for various reasons, one of which is to change the investment strategy of the fund to focus on obtaining control of, or becoming involved in, the management of underlying investee companies.

Staff generally take the view that a fund manager’s decision to change a fund’s operation from investment fund to corporate issuer constitutes a “restructuring” that triggers the requirement for a securityholder vote as contemplated by subparagraph 5.1(1)(h)(iii) of NI 81-102.

Staff’s view is that the following disclosure should be provided in the management information circular¹ for the securityholder meeting:

• financial statements and management's discussion & analysis for the issuer's two most recently completed financial years and most recent interim period prepared in accordance with applicable Canadian securities legislation as if the issuer were a corporate issuer instead of an investment fund;
• a discussion of the key differences between the requirements in securities legislation that apply to an investment fund versus a corporate issuer, for example, the differences in the disclosure requirements; and
• a statement of executive compensation prepared in compliance with Form 51-102F6 Statement of Executive Compensation.

Fund managers considering the transition of investment funds they manage to corporate issuers should be mindful of the above requirements and are encouraged to engage staff in the Corporate Finance Branch of the Commission prior to transitioning if their framework for transition raises novel issues outside of the above-noted parameters.