Discover Wellness Solutions Inc.
Headnote
National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions -- Section 144 -- Application for partial revocation of a cease trade order against an issuer to permit the transfer of security held by a securityholder to an acquiror as part of the dissolution of the securityholder -- Purchaser of the security is a sophisticated purchaser who understands the nature of the cease trade order -- Each of the purchaser and securityholder are not aware of any material information regarding the issuer that has not been generally disclosed -- Partial revocation of the cease trade order granted subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as amended s. 144.
ALBERTA SECURITIES COMMISSION
PARTIAL REVOCATION ORDER
Under the securities legislation of Alberta and Ontario
(the Legislation)
Citation: Re Discover Wellness Solutions Inc., 2023 ABASC 88
June 12, 2023
Discover Wellness Solutions Inc.
Background
1. Discover Wellness Solutions Inc. (the Issuer) is subject to a failure-to-file cease trade order (the FFCTO) issued by the regulator or securities regulatory authority in each of Alberta (the Principal Regulator) and Ontario (each a Decision Maker) respectively on May 6, 2022.
2. Olive Resources Capital Inc. (the Filer) has applied to each of the Decision Makers for a partial revocation of the FFCTO.
3. This order is the order of the Principal Regulator and evidences the decision of the Decision Maker in Ontario.
Interpretation
4. Terms defined in National Instrument 14-101 Definitions or in National Policy 11-207 Failure-to-File Cease Trade Orders and Revocations in Multiple Jurisdictions have the same meaning if used in this order, unless otherwise defined.
Representations
5. This decision is based on the following facts represented by the Filer:
a) the Issuer
(i) is a corporation incorporated under the laws of the province of Alberta,
(ii) has its head office located in Calgary, Alberta; and
(iii) is a reporting issuer in British Columbia, Alberta and Ontario;
b) the Filer
(i) is incorporated pursuant to the Canada Business Corporations Act (CBCA),
(ii) has its head office located in Toronto, Ontario;
(iii) is a reporting issuer in British Columbia, Alberta, Manitoba and Ontario, and
(iv) is listed on the TSX Venture Exchange under the stock symbol OC;
c) the FFCTO was issued by the Decision Makers due to the failure of the Issuer to file its annual audited financial statements, annual management's discussion and analysis and certification of annual filings for the year ended December 31, 2021 (the CD Materials);
d) subsequent to the failure to file the CD Materials, the Issuer has not filed any further financial statements or any continuous disclosure documents required by applicable securities legislation (the Subsequent Filings);
e) the Issuer has not been subject to any cease trade orders other than the FFCTO;
f) the Filer seeks to vary the FFCTO to permit the transfer of a debt security of the Issuer currently held by CannaIncome Fund Corporation (CIF);
g) on September 13, 2019, CIF entered into a secured loan agreement with RMMI Corp. (the predecessor of the Issuer) and its subsidiary Rocky Mountain Marijuana Inc. (the Subsidiary, and together with RMMI Corp., the Debtors) pursuant to which it lent $175,000, which agreement has been extended and amended on multiple occasions since that date (the agreement as amended and extended, being the Loan Agreement). As of March 31, 2023 the amount owed to CIF pursuant to the Loan Agreement was approximately $365,000. Concurrently with CIF's entry into the Loan Agreement, nine other persons (together with CIF, the Secured Parties) also entered into loan agreements with the Debtors. The loans were collectively secured by a general security agreement and mortgage (the Mortgage) over a property owned by the Subsidiary (the Newell Property);
h) all amounts owing under the Loan Agreement were to be repaid on October 31, 2022. The Issuer defaulted under the Loan Agreement and the other loan agreements and the Secured Parties are currently in the process of enforcing their rights under the Mortgage;
i) on July 28, 2022, CIF filed a Form 19 -- Statement of Intent to Dissolve with the Director under the CBCA and commenced the orderly winding-up of its business, all as previously approved by its shareholders;
j) the Filer and CIF entered into a purchase and sale agreement (the Sale Agreement) pursuant to which the Filer acquired substantially all of CIF's assets. The Sale Agreement also contemplated that the proceeds, if any, from the Loan Agreement and, subject to addressing the requirements of the FFCTO, its interest in the Loan Agreement would also transfer to the Filer. The Filer understands that once enforcement proceedings under the Mortgage have been completed, the proceeds, if any, will be paid out to the Secured Parties and the Loan Agreement will be terminated. The Sale Agreement is governed by the laws of the Province of Ontario;
k) the Filer acknowledges that entering into the Sale Agreement may have constituted "an act in furtherance of a trade" in contravention of FFCTO;
l) CIF has completed the transfer of all of its assets other than the Loan Agreement and certain common shares in one public company which are in the process of being liquidated at this time. The proceeds of the liquidation of these common shares (along with existing cash) will be used to satisfy all remaining liabilities. At that point, the only remaining asset in the name of CIF will be the Loan Agreement;
m) CIF cannot be dissolved until the Loan Agreement is transferred or otherwise dealt with, and CIF does not have the resources to continue its existence indefinitely;
n) the transfer of the Loan Agreement will be conducted on a prospectus exempt basis to the Filer who is an "accredited investor" pursuant to subsection 1.1(m) of National Instrument 45-106 -- Prospectus Exemptions;
o) the Filer has been advised by counsel and is fully aware of the implications of the FFCTO. The Filer has no plans for the Loan Agreement other than to hold it until the enforcement proceedings under the Mortgage have been completed. Neither the Filer, nor, to the knowledge of the Filer, CIF are insiders of the Issuer nor do they share any common management or directors;
p) as the transfer of the Loan Agreement will involve a trade in securities of the Issuer, the transfer cannot be completed and CIF will be unable to effect its dissolution without a variation of the FFCTO;
q) the Filer and CIF are not aware of any material information concerning the affairs of the Issuer that has not been generally disclosed.
Order
6. Each of the Decision Makers is satisfied that a partial revocation order of the FFCTO meets the test set out in the Legislation for the Decision Maker to make the decision.
7. The decision of the Decision Makers under the Legislation is that the FFCTO is partially revoked as it applies to the Issuer solely to permit the transfer of the Loan Agreement to the Filer pursuant to the Sale Agreement, provided that:
(a) prior to completion of the transfer of the Loan Agreement to the Filer, the Filer will provide CIF with a written acknowledgement that all of the Issuer's securities, including the debt securities transferred in connection with the transfer of the Loan Agreement, will remain subject to the FFCTO until such orders are revoked and that the issuance of the partial revocation order does not guarantee the issuance of a full revocation in the future; and
(b) the Filer undertakes to make available a copy of the written acknowledgement referred to in paragraph (a) to staff of the Decision Makers upon request.