Cortland Credit Group Inc. et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Approval granted for change of manager of investment funds – change of manager is not detrimental to unitholders or the public interest – change of manager to be approved by the funds’ unitholders at a special meeting of the unitholders – National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, s. 5.5(1)(a).

August 15, 2019

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
CORTLAND CREDIT GROUP INC.
(Cortland)

AND

IN THE MATTER OF
CALDWELL INVESTMENT MANAGEMENT LTD.
(Caldwell)

AND

IN THE MATTER OF
CLEARPOINT SHORT TERM INCOME FUND
(the Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from Cortland, on behalf of the Fund, for a decision under the securities legislation of the Jurisdiction (the Legislation) for approval of the proposed change of manager of the Fund from Caldwell to Cortland (the Change in Manager) pursuant to section 5.5(1)(a) of National Instrument 81-102 – Investment Funds (NI 81-102) (the Approval Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a)           the Ontario Securities Commission (the Commission) is the principal regulator (the Principal Regulator) for this application; and

(b)           Cortland has provided notice that subsection 4.7(1) of Multinational Instrument 11-102 – Passport System (MI 11-102) is intended to be relied upon in each equivalent provision in each of British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland (together with Ontario, the Canadian Jurisdictions).

Interpretation

Terms defined in MI 11-102; National Instrument 14-101 – Definitions; NI 81-102; and National Instrument 81-107 – Independent Review Committee have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by Cortland:

The Fund

1.             Clearpoint Short Term Income Fund is an open-ended mutual fund trust, which was established under the laws of the Province of Ontario by way of declaration of trust on October 17, 2016 (the Declaration of Trust).

2.             The Fund is a reporting issuer in each of the Canadian Jurisdictions and offers its securities to the public pursuant to a simplified prospectus, annual information form and fund facts documents, each dated February 28, 2019, as amended and restated on June 24, 2019 and July 18, 2019.

3.             The Fund's Declaration of Trust states that it is authorized to issue an unlimited number of series of units, and that the Fund may create or re-designate series of units at any time by amendment to the Declaration of Trust. Currently, the Declaration of Trust authorizes three series of units for issuance: Series A Units, Series F Units and Series I Units.

4.             The Fund is not in default of the securities legislation in any of the Canadian Jurisdictions.

Caldwell

5.             Caldwell is a corporation incorporated under the Business Corporations Act (Ontario).

6.             The head office of Caldwell is located in Toronto, Ontario.

7.             Caldwell is currently the manager and trustee of the Fund.

8.             Caldwell is registered as: (i) a portfolio manager in Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan; and (ii) an investment fund manager in Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Ontario, Quebec and Saskatchewan.

9.             The Commission made an order on July 19, 2019 that Caldwell comply with certain terms and conditions described therein. Except for such terms and conditions outstanding as of the date hereof, Caldwell is not in default of the securities legislation in any of the Canadian Jurisdictions.

Cortland

10.          Cortland is a corporation incorporated under the Business Corporations Act (Ontario).

11.          The head office of Cortland is located in Oakville, Ontario.

12.          Cortland is currently the portfolio adviser of the Fund.

13.          Cortland is registered as: (i) a portfolio manager in Ontario; (ii) an investment fund manager in Ontario and Quebec; and (iii) an exempt market dealer in Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan.

14.          Cortland is not in default of the securities legislation in any of the Canadian Jurisdictions.

Securities Law Requirements for Pre-Approval

15.          Under section 5.5(1)(a) of NI 81-102, the approval of the regulator is required before the manager of an investment fund is changed, unless the new manager is an affiliate of the current manager.

The Change in Manager

16.          The Fund wishes to change its manager and trustee from Caldwell to Cortland.

17.          Cortland possesses all registration under the securities legislation of the Canadian Jurisdictions and National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations to allow it to manage the Fund after completion of the Change in Manager.

18.          Cortland will have the appropriate personnel, policies and procedures and systems in place to assume the management of the Fund after completion of the Change in Manager.

19.          Pursuant to paragraph 5.1(1)(b) of NI 81-102, special meetings of the unitholders of the Fund will be held on or about August 15, 2019 for the purpose of seeking approval of the Change in Manager (the Meeting) At this Meeting, the affirmative vote of not less than a majority of the votes cast by unitholders of the Fund present in person or represented by proxy at the Meeting is required for approval of the Change in Manager, as applicable.

20.          On July 3, 2019, the current independent review committee (IRC) established for the Fund under National Instrument 81-107 – Independent Review Committee for Investment Funds (NI 81-107) reviewed the proposed Change in Manager and advised Caldwell that, in the opinion of the IRC, the Change in Manager, if implemented, would achieve a fair and reasonable result for the Fund.

21.          In accordance with National Instrument 81-106 – Investment Fund Continuous Disclosure, a press release announcing the Proposed Transaction was issued by Caldwell on July 10, 2019, and a material change report was filed on the System for Electronic Document Analysis and Retrieval (SEDAR) on July 11, 2019, relating to the proposed Change in Manager.

22.          The notice of the Meeting and the management information circular in respect of the Meeting (the Circular), asking unitholders of the Fund to approve, among other things, the appointment of Cortland as manager of the Fund was mailed to unitholders of the Fund on or about July 18, 2019, and copies thereof filed on SEDAR in accordance with applicable securities legislation. The Circular contains sufficient information regarding the business, management and operations of Cortland, including details of its officers and directors, and all information necessary to allow unitholders to make an informed decision on whether to approve the Change in Manager, which approval is required before the Change in Manager can be completed.

23.          Subject to receiving all necessary unitholder and regulatory approval, it is proposed that the Change of Manager be completed on or about August 19, 2019.

24.          In connection with the Change in Manager, if approved by the Commission and unitholders of the Fund, Caldwell shall resign as manager of the Fund pursuant to the management agreement, and the trustee of the Fund shall appoint Cortland as manager of the Fund.

25.          Upon the completion of the Change in Manager, the current members of the IRC, consisting of Sharon Kent, F. Michael Walsh and Trent Morris, will cease to act as members and will be deemed to have resigned pursuant to section 3.10(1)(b) of NI 81-107.

26.          Upon the completion of the Change in Manager, Cortland, as manager of the Fund at that time, will appoint the following members to serve on the new IRC: Ted Carmichael, John Varao and Paul Martin.

27.          Following the completion of the Change in Manager, Cortland will provide investment management services to the Fund through a team led by Sean Rogister, Alex Preobrazenski and Brandon Rogister.

28.          The individuals who will be principally responsible for the investment fund management of the Fund upon completion of the Change in Manager have the requisite integrity and experience, as required under section 5.7(1)(a)(v) of NI 81-102.

29.          Upon the completion of the Change in Manager: (a) a change in trustee of the Fund from Caldwell to Cortland will take place (the Change in Trustee); and (b) the auditor of the Fund will be changed from Deloitte LLP to KPMG LLP following completion of the current fiscal year of the Fund (the Change in Auditor). Unitholders of the Fund will be asked to approve the proposed Change in Trustee at the Meeting. The new IRC will convene to consider the proposed Change in Auditor.

Business Reasons for the Proposed Change in Manager

30.          Cortland is currently the portfolio adviser of the Fund under an agreement between Caldwell and Cortland dated October 17, 2016. Therefore, Cortland has in-depth understanding and knowledge of the portfolio of the Fund and is able to provide continuity and growth to the Fund, allowing unitholders of the Fund to benefit from economies of scale and to draw on Cortland's strength and expertise in the fixed income market.

31.          The Change in Manager is not expected to have any material adverse impact on the business, operations or affairs of the Fund or the unitholders of the Fund.

32.          The Change in Manager will not adversely affect the Fund's financial position or its ability to fulfill its regulatory obligations.

33.          The Fund will not bear any of the costs and expenses associated with the Change in Manager.

34.          Cortland intends to administer the Fund in substantially the same manner as Caldwell, with no intention to change the investment objectives or fees or expenses of the Fund. All material agreements regarding administration of the Fund will either be assigned to Cortland, or Cortland will enter into new agreements as required. Other than as required to reflect the Change in Manager, Cortland does not currently contemplate any changes to the material contracts of the Fund.

35.          The rationale, benefits and material terms of the Change in Manager will be disclosed to unitholders in the meeting materials in advance of the Meeting.

General

36.          The Approval Sought will not be detrimental to the protection of investors in the Fund or prejudicial to the public interest.

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 is that the Approval Sought is granted, provided that Caldwell obtains the prior approval of unitholders of the Fund for the Change in Manager at the Meeting.

“Neeti Varma”
Investment Funds and Structured Products Branch
Ontario Securities Commission