SHSC Financial Inc. et al.
Headnote
NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Approval granted for change of control of mutual fund manager under s. 5.5(2) of NI 81-102 -- The Filer has no current plans to change the manager of the Funds, or to amalgamate or merge the current manager with any other entity, for the foreseeable future.
Statutes Cited
National Instrument 81-102 Mutual Funds, ss. 5.5(2), 19.1.
September 12, 2014
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 SHSC FINANCIAL INC. (THE MANAGER) AND IN THE MATTER OF SOCIAL HOUSING CANADIAN SHORT-TERM BOND FUND, SOCIAL HOUSING CANADIAN BOND FUND AND SOCIAL HOUSING CANADIAN EQUITY (THE SOCIAL HOUSING INVESTMENT FUNDS)
DECISION
Background
The Ontario Securities Commission has received an application from the Manager for a decision under the securities legislation of the Jurisdiction (the Legislation) for approval pursuant to subsection 5.5(2) of National Instrument 81-102 Mutual Funds (NI 81-102) of a change of control of the Manager (the Approval Sought).
Interpretation
Terms defined in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined in this decision.
Representations
This decision is based on the following facts represented by the Manager:
Housing Services Corporation, the Manager and the Social Housing Investment Funds
1. Housing Services Corporation (HSC) was established under the provisions of the Social Housing Reform Act, 2000 (Ontario) as a non-profit, non-share capital corporation under its former name, Social Housing Services Corporation. HSC is principally engaged, directly or through the Manager or another wholly owned subsidiary, in: i) managing the pooling of capital reserve funds for certain co-operative and non-profit housing providers in Ontario; ii) establishing and coordinating insurance programs and joint purchase programs; and iii) advising on benchmarks and best practices to achieve efficient and effective provision of non-profit social housing.
2. HSC is not registered under securities, commodity futures or derivatives legislation in any Canadian jurisdiction (Securities Legislation) and, except for its ownership of the Manager, does not own, directly or indirectly, an interest in a firm which is registered under Securities Legislation.
3. The Manager has its head office in Toronto, Ontario. The Manager is registered as an investment fund manager in Ontario and is not registered in any other capacity under Securities Legislation. As at the date of this application, the Manger is wholly-owned by HSC.
4. The Manager is the investment fund manager of the Social Housing Investment Funds and does not provide securities advice to, nor distribute the securities of, the Social Housing Investment Funds.
5. The Social Housing Investment Funds are mutual fund trusts established under the laws of Ontario which are offered for sale primarily to co-operative and non-profit housing providers in Ontario. The Social Housing Investment Funds are reporting issuers in Ontario and the securities of the Social Housing Investment Funds are qualified for distribution in Ontario by a simplified prospectus and annual information form.
6. Neither the Manager nor any of the Social Housing Investment Funds is in default of the securities laws of Ontario.
7. The Social Housing Investment Funds are marketed and distributed through registered dealers.
The Proposed Acquisition
8. On July 25, 2014, each of the Co-operative Housing Federation of Canada (CHF Canada), the Co-operative Housing Federation of BC (CHF BC), and the BC Non-Profit Housing Association (BCNPHA), entered into a share purchase agreement with HSC to purchase 20% of the issued and outstanding shares of the Manager owned by HSC (the Acquisition).
9. Upon completion of the Acquisition, HSC will own 40% of the issued and outstanding shares of the Manager, and each of CHF Canada, CHF BC and BCNPHA will own 20% of the issued and outstanding shares of the Manager.
10. The completion of the Acquisition is subject to receipt of all required regulatory approvals and other customary closing conditions and it is anticipated that the Acquisition will be completed on or about September 30, 2014 (the Closing Date) following receipt of the regulatory approvals and the expiration of the notice period provided for in section 5.8(1)(a) of NI 81-102.
The Purchasers
11. CHF Canada is a co-operative association incorporated under the Canada Cooperatives Act (S.C. 1998, c.1). Its members are non-profit housing co-operatives in Canada and organizations that are closely linked with such housing co-operatives.
12. CHF Canada is not registered under Securities Legislation and does not own, directly or indirectly, an interest in a firm which is registered under Securities Legislation.
13. CHF BC is a co-operative association incorporated under the Cooperative Association Act (British Columbia). Its members are non-profit housing co-operatives in British Columbia (BC) and organizations that are closely linked with such housing co-operatives.
14. CHF BC is not registered under Securities Legislation and does not own, directly or indirectly, an interest in a firm which is registered under Securities Legislation.
15. BCNPHA is a society incorporated under the Society Act (British Columbia) and is the industry association for affordable housing in BC. It represents, educates and provides services to non-profit social housing providers and stakeholders across BC. BCNPHA members are primarily non-profit housing providers. Other members include non-profit organizations with an interest in housing, and for-profit companies providing products and services to the non-profit housing sector.
16. BCNPHA is not registered under Securities Legislation and does not own, directly or indirectly, an interest in a firm which is registered under the Securities Legislation.
Proposed Change of Control
17. The Acquisition will result in a change of control of the Manager.
18. Upon completion of the Acquisition, HSC, CHF Canada, CHF BC, BCNPHA and the Manager will enter into a shareholders' agreement which will provide that certain matters require the unanimous approval of HSC, CHF Canada, CHF BC and BCNPHA, including, but not limited to (i) amending the Manager's by-laws, (ii) the creation of additional shares in the capital of the Manager, (iii) materially changing the business carried on by the Manager, (iv) a merger, amalgamation, plan of arrangement, continuance, reorganization or consolidation other than in connection with a bona fide internal corporate reorganization approved by the Manager's board, and (v) the winding-up, re-organization or dissolution of the Manager. Such amendments will not have any material impact of the day to day operations of the Manager or on the management and administration of the Funds within a foreseeable period of time following the closing of the Acquisition.
19. A press release disclosing the proposed Acquisition was issued and posted on the websites of the Manager and the Social Housing Investment Funds on July 28, 2014 and filed under SEDAR Project No. 2236861.
20. A notice to unitholders describing the Acquisition and the resulting change of control was posted on SEDAR under SEDAR Project No. 2236825 and was sent to unitholders of the Social Housing Investment Funds on July 28, 2014, pursuant to section 5.8(1)(a) of NI 81-102.
21. A notice regarding the change of control of the Manager was submitted to the Compliance and Registrant Regulation branch of the Ontario Securities Commission on July 28, 2014 pursuant to section 11.10 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. The Manager received a non-objection letter dated August 22, 2014.
22. In respect of the impact of the proposed change of control of the Manager on the management and administration of the Social Housing Investment Funds, the Manager has confirmed that there are no current plans:
(i) to make any substantive changes to how the Manager operates or manages the Social Housing Investment Funds; or
(ii) to amalgamate or merge the Manager with another investment fund manager.
23. Following the completion of the Acquisition:
a) The Acquisition will not have a negative impact on the Social Housing Investment Funds or their unitholders;
b) the Social Housing Investment Funds will be maintained as a distinct brand and products with the Manager as their manager;
c) the Manager will continue to act as the investment fund manager of the Social Housing Investment Funds as a discrete, separate and distinct legal entity in materially the same manner as it has conducted such activities immediately prior to the Closing Date;
d) upon completion of the Acquisition, HSC will own 40% of the issued and outstanding shares of the Manager, and each of CHF Canada, CHF BC and BCNPHA will own 20% of the issued and outstanding shares of the Manager;
e) it is anticipated that the Manager's board of directors will comprise one nominee from each of HSC, CHF Canada, CHF BC and BCNPHA, and additional independent directors as may be necessary, who will have appropriate education, knowledge and experience to effectively serve on the Manager's board;
f) it is anticipated that HSC, CHF Canada, CHF BC and BCNPHA will collectively appoint a new CEO who will be designated as the Manager's new ultimate designated person;
g) except as noted in (e) and (f), the Manager will continue to operate as it currently operates with the same management, employees and office;
h) the current members of the Independent Review Committee (IRC) of the Social Housing Investment Funds will cease to be IRC members pursuant to section 3.10(1)(c) of National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107), however, the Manager will appoint the same individuals as members of the IRC in accordance with section 3.3(5) of NI 81-107 if such individuals wish to continue to serve as members of the IRC;
i) there will not be any change in how the Social Housing Investment Funds are managed, to the investment objectives and strategies of the Social Housing Investment Funds or to the expenses that are charged to the Series A units (the only issued and outstanding units) of the Social Housing Investment Funds, as a result of the Acquisition;
j) the Manager and the Social Housing Investment Funds will have greater access to capital and therefore strengthened financial viability and sustainability moving forward;
k) the Manager has policies and procedures for addressing conflict of interest matters including compliance with the self-dealing provisions of applicable securities law. The Manager does not foresee that the Acquisition will give rise to any conflicts of interest of a type different from those which are currently subject to oversight by the compliance personnel of the Manager;
l) the change of control of the Manager will have no negative consequences on the ability of the Manager to comply with all applicable regulatory requirements or its ability to satisfy its obligations to the Social Housing Investment Funds; and
m) the proposed Acquisition is only expected to benefit the Manager and will not adversely affect the Manager's financial position or its ability to fulfill its regulatory obligations.
Decision
The regulator is satisfied that the decision meets the test set out in the Legislation for the regulator to make the decision.
The decision of the regulator under the Legislation is that the Approval Sought is granted.