Depositary receipts, which are a type of security that is traded
on a stock exchange but which represent an interest in an
underlying security that is issued by a publicly traded company in
another jurisdiction, have been around since the 1920s in the form
of American Depositary Receipts (ADRs), and more recently, in the
form of Global Depositary Receipts (GDRs). GDRs are a means for
companies to raise their profile with foreign investors, make their
shares more easily available to foreign investors and raise new
capital outside of a domestic market. Many companies have ADRs
listed on the New York Stock Exchange and the American Stock
Exchange, and there are a number GDRs listed on exchanges such as
the London Stock Exchange. There have also been a few companies
which have listed GDRs on the Toronto Stock Exchange.
Recently, McCarthy Tétrault acted for UNX Energy Corp. in
its acquisition by HRT Participações S.A. (HRT) for
consideration of $720 million paid in the form of GDRs. This
acquisition was significant for a number of reasons, including that
it was the first ever acquisition of a Canadian public company
using GDRs as consideration. The GDRs of HRT listed on the TSXV
represent, among other things, the right to obtain common shares of
HRT at a predetermined ratio, vote on matters that holders of
HRT's common shares vote on, participate in dividends and other
distributions of HRT and participate in any winding up of HRT.
HRT, a Brazilian-based and listed exploration and production
company, and UNX, a Calgary-based TSXV listed exploration and
production company with oil and gas assets in offshore Namibia,
agreed that the transaction would be completed by utilizing a
securities exchange. This presented significant challenges for the
advisory teams, including multiple layers of issues related to
Brazilian regulatory matters, taxation, as well as Brazilian
corporate law issues. HRT shares only trade on the BM&FBOVESPA,
but UNX was a Canadian company with a North-American-based retail
shareholder base. Although individuals residing outside Brazil can
hold shares traded on the BM&FBOVESPA, doing so involves a
registration process that has both administrative and cost
implications. Moreover, the shares held by individuals residing
outside Brazil must be registered or maintained in deposit accounts
or under the custody of a licensed Brazilian entity. To complicate
matters further, HRT executed a listing agreement with the
BM&FBOVESPA at the time of its IPO, stipulating that HRT shares
must trade board lots of not less than 100 shares until October
2011, which meant that the HRT shares would have had to have been
traded in increments of approximately $100,000 or more. An investor
holding less than 100 HRT shares (which would have included many
UNX shareholders based on the agreed deal terms), would therefore
be unable to trade their HRT shares prior to October 2011. These
restrictions made it impractical for many non-Brazilian retail
investors to hold HRT shares. To solve these problems, the advisory
teams structured GDRs which now trade on the TSXV.
Each global depository share for HRT represented 1/100th of an
HRT share (approximately $10 US at the time of announcement),
facilitating greater liquidity for UNX shareholders. These shares
also eliminated the need for non-Brazilian investors to go through
a registration process.
In my next post, I will outline some of the potential pitfalls
of implementing a GDR structure.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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