On July 1, 2015, the regulations setting out the process for
mutual property and casualty (or, P&C) companies to convert to
share companies (demutualization) came into force. Two sets of
regulations were created to govern the demutualization of: 1)
P&C companies comprised of only mutual policyholders (Single
Structure Conversions), and 2) P&C companies with both mutual
and non-mutual policyholders (Dual Structure Conversions). The
final regulations are the result of a public consultation process
that was launched in 2011and led to the publication of draft
regulations for public comment in February of this year.
Please see our previously issued e-lert for additional background
Overall Changes From the Draft Regulations
Mutual and Non-mutual Policyholder Conversion
In response to comments received during the consultation period,
the Department of Finance made the following adjustments to the
final regulations for Dual Structure Conversions:
The negotiated conversion proposal: policyholder
committees for the two classes of policyholders will only negotiate
the method of a) allocating the value of the company, and b)
identifying additional persons or classes of persons to receive
benefits. The committees will no longer negotiate the
"conversion proposal" itself (e.g. post-conversion share
structures/strategies of the company), as this responsibility will
remain with the board.
Technical and other adjustments:
the company must explicitly describe how it will assist
policyholders to sell their shares on public markets within the
first two years following demutualization;
a court may limit the circumstances under which confidential
information can be used or disclosed;
clarification that at least three and not more than nine
policyholders may be appointed to each policyholder committee;
clarification regarding compensation provided to directors,
officers and employees, as well as any contracts awarded to
entities related to those individuals in connection with the
demutualization process (also applies to Single Structure
ownership restrictions were also revised to make it clear that
the company can issue shares to eligible policyholders prior to the
listing of its shares and the one year blackout period (also
applies to Single Structure Conversions).
In addition, OSFI has indicated that it will issue transaction
instructions in connection with the duties of actuaries pursuant to
the regulations and the Department of Finance has noted that it
will undertake, if required, a review to provide for a mechanism to
manage litigation in regards to potential policyholder eligibility
Only Mutual Policyholder Conversion Regulations
The final regulations for Single Structure Conversions (a
process arguably less contentious than Dual Structure Conversions)
are virtually unchanged from the form proposed during the
The final regulations for Dual Structure Conversions reframe the
purpose of negotiations between policyholder groups to issues of
allocating value and eligibility, as opposed to the conversion
process itself. The conversion proposal, which contains among other
things the mechanisms to effect the conversion, will be up to the
board of directors to determine. Negotiations between the two
policyholder groups will become more focused.
Following the release of the final regulations, Economical
Mutual Insurance Company, one of Canada's largest P&C
mutuals with over $5.2 billion in assets, announced that it expects
to call a first vote of eligible mutual policyholders this fall,
pending board approval.
Please see below for links to each of the final regulations:
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.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).