Goodwood Inc. and Goodwood Capital Fund
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief to permit the fund subject to NI 81-102 to suspend for a period of 90 days the right of its unitholders to request that the Fund redeem their units of the fund and suspend calculation of its NAV during the period of redemption rights suspension for the purposes of processing subscriptions and redemptions.
Applicable Legislative Provisions
National Instrument 81-102 Investment Funds, s. 5.5(1)(d).
National Instrument 81-106 Investment Funds Continuous Disclosure, s. 14.2(3)(a).
January 30, 2025
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF GOODWOOD INC. (the Filer) AND GOODWOOD CAPITAL FUND (the Fund)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation):
(a) for approval pursuant to paragraph 5.5(1)(d) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Fund to suspend for a period of 90 days the right of its unitholders to request that the Fund redeem their units of the Fund (the Suspension of Redemptions); and
(b) for an exemption from the requirement in subparagraph 14.2(3)(a) of National Instrument 81-106 Investment Funds Continuous Disclosure (NI 81-106) for the Fund to calculate its net asset value once a week during the period of suspension for the purposes of processing subscriptions and redemptions (the Suspension of NAV Calculations);
(collectively, the Requested Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in MI 11-102, National Instrument 14-101 Definitions and NI 81-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is a corporation incorporated under the laws of the Province of Ontario. The Filer's head office is located in Oakville, Ontario.
2. The Filer is registered as an investment fund manager in Ontario, Quebec and Newfoundland and Labrador and as an investment dealer in Ontario, Quebec, British Columbia, Alberta and Nova Scotia.
3. The Filer is not in default of securities legislation in any of the Jurisdictions.
4. The Filer is the investment fund manager and portfolio adviser of the Fund.
The Fund
5. The Fund is an open-end mutual fund trust established under the laws of Ontario. The Fund was created pursuant to the provisions of a declaration of trust dated December 23, 1999. This declaration of trust was amended and restated as a trust agreement on January 27, 2006, and was further amended and restated on March 9, 2010 and June 11, 2014 (as amended from time to time, the Trust Agreement). Computershare Trust Company of Canada Inc. acts as trustee to the Fund pursuant to the terms of the Trust Agreement.
6. The investment objective of the Fund is to achieve capital appreciation by investing primarily in equity securities of North American companies over a broad range of industry sectors.
7. As disclosed in the prospectus of the Fund dated June 2, 2024, Gajan Kulasingam, CFA, CPA, CA (Mr. Kulasingam) is principally responsible for the day-to-day investment management of the Fund and is responsible for investment decisions executed on behalf of the Fund and Peter H. Puccetti, CFA, Chairman and Chief Investment Officer of the Filer (Mr. Puccetti), has ultimate investment oversight.
8. The Fund is a reporting issuer in each of the Jurisdictions and distributes its units to the public pursuant to disclosure documents prepared and filed in accordance with National Instrument 81-101 Mutual Fund Prospectus Disclosure.
9. The Fund calculates its net asset value on a weekly basis in accordance with subparagraph 14.2(3)(a) of NI 81-106 and is redeemable on a weekly and monthly basis.
10. The Fund is not in default of securities legislation in any of the Jurisdictions.
The Anticipated Redemption Requests
11. Effective January 24, 2025, Mr. Kulasingam departed from the Filer and is no longer responsible for the day-to-day investment management of the Fund or the investment decisions on behalf of the Fund (the Personnel Change). Mr. Puccetti assumed this role.
12. The Personnel Change is not a "material change" (as such term is defined under the Securities Act (Ontario)), as the Personnel Change would not be considered important by a reasonable investor in determining whether to purchase or continue to hold units of the Fund. Nonetheless, the Filer anticipates that significant redemptions will be effected following the Personnel Change (the Anticipated Redemption Requests) of approximately 48.6% or more of the Fund's net asset value of $3,585,514 as of January 24, 2025.
13. The portfolio of the Fund (the Portfolio) currently includes investments (the Illiquid Positions) that constitute illiquid assets as such term is defined in NI 81-102, equivalent to approximately 10.8% of the net asset value of the Fund as at January 24, 2025. If the Anticipated Redemption Requests are processed, it is expected that assets in the Portfolio other than the Illiquid Positions will be liquidated, with the result that the Illiquid Positions will become equivalent to approximately 20.9% of the net asset value of the Fund.
Termination of the Fund
14. Irrespective of the Anticipated Redemption Requests, the Filer is of the opinion that it is in the best interests of unitholders of the Fund to terminate the Fund.
15. Over the last several years, the Fund has seen a significant decline in its net asset value. The Fund is no longer being marketed. There were no subscriptions in 2024 and there have been no subscriptions in 2025 year-to-date.
16. The Filer intends to commence actions to terminate the Fund. However, the Fund termination cannot be effected immediately. In order to effect an orderly wind-down of the Fund, the earliest the Filer expects to be able to terminate the Fund is the end of April 2025.
17. The Anticipated Redemption Requests as well as an announcement that the Fund will be terminated is expected to result in significant redemptions. For the remaining unitholders in the Fund, these redemptions would result in:
(a) a proportionate increase in expenses;
(b) the risk of reduced diversification resulting from investing a smaller amount of assets across a smaller portfolio of securities;
(c) increased proportionate exposure to the Illiquid Positions, which cannot be immediately sold; and
(d) a disproportionate amount of risk resulting from this increased exposure to Illiquid Positions in the Portfolio.
18. The Filer submits that suspending redemptions and proceeding with an orderly wind-up of the Fund is in the best interests of unitholders of the Fund because:
(a) it will enable the Fund to distribute the maximum amount of assets pro rata to all its unitholders as quickly as possible in an orderly manner;
(b) it will enable the Fund to allocate termination costs equally across the remaining investor base; and
(c) it will ensure that all existing unitholders are treated in a similar manner in connection with the termination of the Fund, rather than providing an advantage to "first moving" unitholders who are quicker to submit their redemption requests.
Requested Relief
19. The Trust Agreement provides that the Filer may declare a suspension of the determination of net asset value of the Fund for a period not exceeding 90 days with the consent of the Ontario Securities Commission. The Trust Agreement also provides that if the determination of the net asset value of the Fund is postponed by reason of a suspension of determination of the net asset value, the right of a redeeming unitholder to have their units redeemed shall be similarly suspended. Accordingly, the Trust Agreement requires that the Requested Relief be obtained in order to suspend the determination of the net asset value of the Fund and redemptions from the Fund. The Filer intends to continue to determine the net asset value of the Fund for purposes other than processing redemptions and subscriptions.
20. Section 10.6 of NI 81-102 only permits an investment fund subject to that instrument to suspend the right of securityholders to request that the investment fund redeem its securities for the whole or any part of a period during which normal trading is suspended on a stock exchange, options exchange or futures exchange within or outside Canada on which securities are listed and posted for trading, or on which specified derivatives are traded, if those securities or specified derivatives represent more than 50% by value, or underlying market exposure, of the total assets of the investment fund without allowance for liabilities and if those securities or specified derivatives are not traded on any other exchange that represents a reasonably practical alternative for the investment fund. The present facts do not permit the Filer to suspend redemptions on this basis.
21. Pursuant to paragraph 5.5(1)(d) of NI 81-102, the approval of the securities regulatory authority is required before an investment fund suspends, other than under section 10.6 of NI 81-102, the rights of securityholders to request that the investment fund redeem their securities.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Requested Relief is granted, provided that:
(a) the Suspension of Redemptions may continue until, but not beyond, 90 days after date of this decision;
(b) the proceeds of the sale of all positions in the Portfolio, other than the Illiquid Positions, will be distributed to unitholders of the Fund (net of Fund expenses) as soon as commercially reasonable;
(c) during the Suspension of Redemptions, the Fund will continue to meet its continuous disclosure obligations under NI 81-106 as well as all other applicable securities law obligations (as modified by the Requested Relief);
(d) during the Suspension of NAV Calculations, the Fund will continue to meet its continuous disclosure obligations under NI 81-106 as well as all other applicable securities law obligations (as modified by the Requested Relief);
(e) the Manager will stop earning and collecting management fees from the Fund while the Suspension of Redemptions remains in effect;
(f) the Manager will stop earning and collecting management fees from the Fund while the Suspension of NAV Calculations remains in effect;
(g) the Fund will not distribute any further securities prior to its termination;
(h) the Filer will comply with section 5.8(2) of NI 81-102 with respect to providing notice to unitholders of the Fund regarding the termination of the Fund;
(i) the Filer shall promptly issue a press release announcing the Suspension of Redemptions and the reasons for the Suspension of Redemptions;
(j) the Filer will continue to determine the net asset value of the Fund for purposes other than processing redemptions and subscriptions; and
(k) the net asset value of the Fund will be provided on the Filer's designated website on a timely basis.
Application File #: 2025/0037
SEDAR+ File #: 6232109