Sussex Group Limited, The Proposed Restructuring of - s. 74(1)

Headnote

Section 74(1) -- interim manager to implement court approved plan of restructuring -- key element of plan of restructuring involves issuance of shares -- plan of restructuring approved by court in reliance upon court's inherent jurisdiction -- statutory exemptions for trades made in connection with court approved reorganizations technically not available.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990. CHAPTER S.5, AS AMENDED (THE "ACT")

AND

IN THE MATTER OF

THE PROPOSED RESTRUCTURING OF SUSSEX GROUP LIMITED

ORDER

Section 74(1)

UPON the application (the "Application") by of each of The Export Investors Group Ltd. ("Export") and the Saxton Corporations (as hereinafter defined) to the Ontario Securities Commission (the "Commission") for an order pursuant to section 74 of the Act exempting 1591924 Ontario Inc. (hereinafter referred to as "Newco") from the registration and prospectus requirements under sections 25 and 53 of the Act in connection with the issuance of Newco common shares as part of a Plan of Restructuring (as hereinafter defined);

AND UPON considering the Application and the recommendation of the staff of the Commission;

AND UPON the Boards of Directors of Saxton and Export having represented to the Commission as follows:

1. The issuance of Newco common shares will be completed as part of a Plan of Restructuring of Sussex Group Limited ("Sussex Barbados") and 2001654 Ontario Limited (together with Sussex Barbados, the "Sussex Group") presented to Mr. Justice Cumming of the Ontario Superior Court of Justice (the "Court") by way of a motion dated October 2, 2003 and approved by the Order of Mr. Justice Cumming at that time.

The Saxton Corporations

2. Between January 1995 and September 1998, the following 39 financing corporations were incorporated pursuant to the laws of the Province of Ontario (collectively, the "Saxton Corporations"):

1. The Saxton Trading Corp.

2. The Saxton Export Corp.

3. The Saxton Export (II) Corp.

4. The Saxton Export (III) Corp.

5. The Saxton Export (IV) Corp.

6. The Saxton Export (V) Corp.

7. The Saxton Export (VI) Corp.

8. The Saxton Export (VII) Corp.

9. The Saxton Export (VIII) Corp.

10. The Saxton Export (IX) Corp.

11. The Saxton Export (X) Corp.

12. The Saxton Export (XI) Corp.

13. The Saxton Export (XII) Corp.

14. The Saxton Export (XIII) Corp.

15. The Saxton Export (XIV) Corp.

16. The Saxton Export (XV) Corp.

17. The Saxton Export (XVI) Corp.

18. The Saxton Export (XVII) Corp.

19. The Saxton Export (XVIII) Corp.

20. The Saxton Export (XVIX) Corp.

21. The Saxton Export (XX) Corp.

22. The Saxton Export (XXI) Corp.

23. The Saxton Export (XXII) Corp.

24. The Saxton Export (XXIII) Corp.

25. The Saxton Export (XXIV) Corp.

26. The Saxton Export (XXV) Corp.

27. The Saxton Export (XXVI) Corp.

28. The Saxton Export (XXVII) Corp.

29. The Saxton Export (XXVIII) Corp.

30. The Saxton Export (XXIX) Corp.

31. The Saxton Export (XXX) Corp.

32. The Saxton Export (XXXI) Corp.

33. The Saxton Export (XXXII) Corp.

34. The Saxton Export (XXXIII) Corp.

35. The Saxton Export (XXXIV) Corp.

36. The Saxton Export (XXXV) Corp.

37. The Saxton Export (XXXVI) Corp.

38. The Saxton Export (XXXVII) Corp.

39. The Saxton Export (XXXVIII) Corp.

3. The following Saxton Corporations have since been voluntarily dissolved: The Saxton Export (XXIV) Corp., The Saxton Export (XXV) Corp., The Saxton Export (XXVI) Corp., The Saxton Export (XXIX) Corp., The Saxton Export (XXX) Corp. and The Saxton Export (XXXI) Corp.

4. The registered office of each of the Saxton Corporations is located at 5420 North Service Road, Suite 500, Burlington, Ontario, Canada L7L 6C7.

5. None of the Saxton Corporations is currently a reporting issuer in Ontario or in any other jurisdiction in Canada.

6. On October 7, 1998, on application of the Commission, the Ontario Court (General Division) (now the Ontario Superior Court of Justice) appointed KPMG Inc. as the custodian of the assets of the Saxton Corporations.

Export

7. Export was incorporated on November 17, 1994 pursuant to the laws of the Province of Ontario under the name of Sussex Export Ltd.. On October 18, 1995, Export changed its name to The Export Investors Group Ltd.

8. Export's registered office is located at 5420 North Service Road, Suite 500, Burlington, Ontario, Canada L7L 6C7.

9. Export is currently not a reporting issuer in Ontario or in any other jurisdiction in Canada.

10. The Saxton Corporations and Export are the only major creditors of the Sussex Group.

Newco

11. Newco was incorporated and organized pursuant to the laws of the Province of Ontario.

12. Newco's registered office is located at 595 Bay Street, Suite 300, Toronto, Ontario M5G 2C2.

13. Newco is not, and has no present intention of becoming, a reporting issuer in Ontario or in any other jurisdiction in Canada.

14. Newco is currently owned by the Horwath Orenstein Consultants Inc. (the "Interim Manager") on a temporary basis. Newco has nominal capital which will be cancelled or donated back to Newco immediately upon completion of the Plan of Restructuring.

The Financings

15. Between January 1995 and the summer of 1998, the Saxton Corporations entered into subscription agreements with approximately 850 Ontario investors and raised approximately $37 million (the "Saxton Financings"). The investors believed that they were acquiring either equity in or debt of the Saxton Corporations (the "Saxton Securities").

16. Export also raised funds from Ontario investors. Export entered into subscription agreements with approximately 60 Ontario investors using a confidential offering memorandum with respect to the issuance of units, which consisted of special shares and common shares (the "Export Financing" and, together with the Saxton Financings, the "Financings"), raising approximately $10 million.

17. Export and the Saxton Corporations purported to rely on the "seed capital" prospectus exemption contained in subparagraph 72(1)(p) of the Act in connection with the Financings. Neither the "seed capital" exemption, nor any other prospectus exemption, was available to them.

18. Neither Export nor the Saxton Corporations filed a preliminary prospectus or a prospectus with the Commission in connection with the Financings, or was issued a receipt for a prospectus by the Commission.

19. Certain of the funds raised pursuant to the Saxton Financings were advanced to 1125956 Ontario Inc. by certain of the Saxton Corporations.

20. 1125956 Ontario Inc. advanced certain of the funds raised pursuant to the Saxton Financings to Export.

21. The Saxton Corporations and Export advanced certain of the funds raised pursuant to the Saxton Financings and certain of the funds raised pursuant to the Export Financing to Sussex Group Ltd., a company incorporated pursuant to the laws of Bahamas ("Sussex Admiral").

22. Sussex Admiral in turn advanced certain of the funds received by it to Sussex Barbados, which used the funds to develop an operating business in Cuba.

23. All of the outstanding common shares of Sussex Barbados are owned by Sussex Admiral.

24. Beginning in 1998, Commission staff commenced proceedings against a number of persons involved in the Saxton Financings alleging, among other things, that the distribution of Saxton Securities contravened Ontario securities laws, and in particular that none of the exemptions from the prospectus requirements or registration requirements under Ontario securities laws were available for the sale of the Saxton Securities. Certain of the proceedings have been settled, while others are pending.

25. In early 1999, KPMG reported that the Saxton Corporations raised approximately $37 million from Ontario investors. At that time, KPMG held the view that the value of the Saxton assets, at its highest (as reported by related companies), was approximately $5.5 million.

26. On May 8, 2003, after an investigation that began in September 1998 by the Ontario Provincial Police ("OPP") Anti-Rackets Section, the OPP laid charges against a number of persons involved in the Financings for fraud over $5,000 and theft over $5,000. The OPP investigation indicated that over 800 investors may have been defrauded of the money that they invested in the Saxton Corporations and Export.

27. On April 2, 2002, the Court appointed the Interim Manager as the interim manager of the undertaking, property and assets of the Sussex Group. The Interim Manager has since undertaken various steps, with the supervision of the Court, to stabilize the business of the Sussex Group and to ascertain its assets and liabilities, including a creditor review and approval process which has now been completed.

28. Following the completion of the credit review and approval process by the Interim Manager, and as of the date hereof, the Sussex Group has only six creditors remaining, (i) the Saxton Corporations and Export holding a total of $6,744,000 in debt, and (ii) four other creditors holding an aggregate of $49,000 in debt.

Plan of Restructuring

29. The Interim Manager has proposed to restructure the corporate affairs of the Sussex Group (the "Plan of Restructuring"). By Court Order dated October 2, 2003 the Plan of Restructuring was approved and the Interim Manager was Ordered to implement the Plan of Restructuring. The October 2, 2003 Court Order also gave the Interim Manager the discretion to revise the Plan of Restructuring where practicable or necessary.

30. Under the Plan of Restructuring, the Saxton Export Corporation, as successor to the Saxton Corporations and Export, will transfer to Newco the debt (the "Saxton Export Debt") originally owed by the Sussex Group to the Saxton Corporations and Export in exchange for common shares of Newco. Following the implementation of the Plan of Restructuring, Saxton Export Corporation will be the controlling shareholder of Newco. Newco will own all of the shares of Assetco, which in turn will own all of the assets presently held by the Sussex Group and will have no liabilities. The only assets of Saxton Export Corporation will be its shareholdings in Newco.

AND UPON the Commission being satisfied that the Issuance would not be prejudicial to the public interest;

IT IS HEREBY ORDERED pursuant to Section 74 of the Act that sections 25 and 53 of the Act shall not apply to the issuance of Newco common shares to the Saxton Export Corporation, as contemplated by representation 30 above, provided the first trade in such Newco common shares will be subject to section 2.6 of Multilateral Instrument 45-102 Resale of Securities.

December 8, 2004.