Can Crowd-funding be a source of funding for you?

Crowd-funding as a way to raise money via the internet and social media for a wide variety of new ideas and projects is gaining popularity. On March 20, 2014, the securities commissions in several Canadian provinces* published a proposed prospectus exemptions as follows:

1. Crowd-funding Exemption: This is an integrated crowd-funding prospectus exemption, which will be available to reporting issuers and non-reporting issuers.
2. Start-Up Exemption: This is a start-up crowd-funding exemption available only to non-reporting issuers.

A reporting issuer is a company that has issued shares to the public and is required to continuous disclose their activities and financial status, as required by securities legislation. A non-reporting issuer (one that has not issued shares to the public) does not have to comply with disclosure requirements.

Crowd-funding Exemption

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Judicial Intervention in Arbitration in India

[Editorial Note: Since this post was published, the outlook for arbitration in India has brightened. A revised version of this post will be published in due course]

Recently, on 10 May, 2013, the Supreme Court of India decided a case (ANTRIX CORP. LTD. Vs. DEVAS MULTIMEDIA P. LTD.) that appears to have bolstered the viability of international commercial arbitration in India (there have been other similar recent decisions in the last few years.)

The facts were:

Antrix, an Indian government owned entity and Devas Multimedia entered into a contract which contained an arbitration clause that said that in the event of a dispute, the parties will arbitrate their dispute using either the UNCITRAL or the ICC Rules (bad drafting.)

When Devas referred a contractual dispute to the ICC, Antrix, the government entity, possibly attempting to delay proceedings, attempted to constute a separate tribunal under the UNCITRAL rules after not replying to the ICC efforts at constituting a tribunal, thereby creating a dispute as to the identity fo the arbitrators. Then they asserted that the governing law of the agreement and the arbitration was Indian law (quoting Dicey, no less) and that under section 11 of the Arbitration and Conciliation Act, 1996 (the “Act”) if the parties do not agree on the choice of arbitrators or do not follow the agreed upon procedure then one party could petition the Chief Justice of the Supreme Court of India to supervise the process.

The reasoning was very suspect. Antrix maintained that the choice of rules should have been made after the constitution of the tribunal and that the unilateral reference to an ICC tribunal (as opposed to the UNCITRAL tribunal) violated the arbitration agreement. This line of reasoning is strange, since it is unclear exactly how one is to constitute a tribunal if one does not choose the institutional rules under which it is to be constituted. A chicken and egg situation.

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Bases on which to challenge an award under the Arbitration Act


This blog post sets out some of the bases on which a party can challenge the enforcement of an arbitral award in England.

In England, The Arbitration Act, 1996 (the “Act“) provides a number of bases on which awards may be challenged, including section 67 (substantive jurisdiction, i.e. whether an arbitration agreement was in place underpinning the tribunal’s actions), section 68 (“serious irregularity”, i.e. where a tribunal “has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”[1]) section 33 (general duties to be impartiality and expeditiousness), and points of law in section 69.

However, in Lesotho Highlands, the House of Lords made it clear that errors of law and adjudication are not generally grounds for setting aside awards,[2] i.e. a court will generally not be willing to overturn an award on the basis of the merits of the case.

Interim Arbitral Awards

I was faced with counsel on the other side that agreed to our choice of NY law in a contract but objected to our arbitration clause in the following manner:

“We have a policy against using arbitration, since it is expensive and doesn’t provide for injunctive relief.”

This response shocked me because this was experienced legal counsel from a very large company saying this.

Their opinion on cost irritated me because the arbitration clause we had proposed referred to an institution which would appoint one arbitrator and use simplified procedural rules for small disputes (some institutions will even have documents-only procedures as a default to keep costs low and procedures as short lived as possible. For example, the IEAC ( )

But the whole notion that injunctive relief is not available under arbitration got me thinking.

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What is a Resolution?

A resolution is a form of approval. A resolution is an agreement or decision made by the directors of a company. For example: approval of the change of registered office address of a company, approval to amend the articles of a company, approval to enact by-laws of a company, etc. In some cases, certain matters must be approved by the directors and in other cases it may be that shareholder approval is required. In some cases, both directors and shareholders may need to approve a resolution.

How are Resolutions approved?

Resolutions can be approved at meetings of the directors or shareholders. A notice must be given of the meeting to every director and shareholder. A quorum of those directors and shareholders must attend the meeting (quorum is the minimum number of directors/shareholders that can form a quorum is outlined in the company’s by-law and frequently is a majority). Then the resolution is signed and approved.

What are the different types of Resolutions?

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Listing of Indian Companies Abroad

Unlisted Indian Companies are now allowed to directly list abroad, without any requirement of prior or subsequent listing in India with the approval of the approval of the Ministry of Finance. This scheme will be implemented on a pilot basis for a period of two years from the date of the notification, after which the impact of this arrangement will be reviewed by the Government. The Ministry of Finance, Department of Industrial Policy and Promotion and the Reserve Bank of India (RBI) will also issue notifications to implement the required changes in the existing rules.

The Central Government in its Notification, No. GSR 684(E) [F.NO.4/13/2012-ECB], dated October 11, 2013, amended the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993. The RBI followed this up with RBI A.P. (Dir Series) Circular No. 69, dated November 8, 2013 (the “circular”) directing the authorized dealers towards the amendment to the Scheme. The circular set out the following (see references to sections in the circular in brackets):

  • Unlisted Indian companies will be allowed to list abroad only on markets that are compliant with the International Organization of Securities Commissions (IOSC), which regulates securities and futures markets, and the Financial Action Task Force, an inter-government body that sets policies to combat money laundering and terrorist financing, or those jurisdictions with which the Securities and Exchange Board of India (SEBI) has signed bilateral agreements. (2a)
  • While raising funds abroad, the listing companies would have to be fully compliant with the FDI policy. (2b)
  • The pricing of such ADRs/GDRs that are to be issued to a person resident outside India shall be determined in accordance with the captioned scheme as prescribed under the Foreign Exchange Management Act. (2c)
  • The number of underlying equity shares offered for issuance of ADRs/GDRs that are to be kept with the local custodian shall be determined upfront and ratio of ADRs/GDRs to equity shares shall be decided upfront based on applicable FDI pricing norms of equity shares of the unlisted companies. (2d)
  • Unlisted Indian companies shall comply with the instructions on downstream investment as notified by the RBI from time to time. (2e)
  • The eligibility criteria of the unlisted companies raising funds through ADRs/GDRs shall be as prescribed by Government of India. (2f)
  • The capital raised abroad may be utilised for retiring outstanding overseas debt or for bona fide operations abroad including for acquisitions. (2g)
  • In case the funds raised are not utilised abroad as stipulated, the company shall repatriate the funds to India within 15 days and such money shall be parked only with Category-1 banks recognised by RBI and shall be used for eligible purposes as specified by them. (2h)
  • Unlisted companies are supposed to report to the RBI. (2i)

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Shotgun Clauses

In this post, we discuss what a shotgun clause is and how it works. A shotgun clause is a specific type of exit provision that may be included in a shareholders’ agreement. The shotgun clause allows a shareholder to offer a specific price per share for the other shareholder(s)’ shares; the other shareholder(s) must then either accept the offer or buy the offering shareholder’s shares at that price per share.

A shot gun clause enables shareholders to get out when all else has failed and they are unable to reach a compromise and have decided to go their separate ways. It has reached a stage where going their separate ways is the best idea because if they’ve reached a point where they had to trigger the shotgun clause then they are beyond reconciliation. The court in Kuksis v. Physical Planning Technologies Inc. said, “one of the purposes of a shotgun clause, if not its main purpose, is to allow shareholders who can no longer work together to separate yet leave the company intact.” When the situation has escalated to the point of no negotiation, it is in the best interests of the shareholders and the company to exercise the shotgun clause.

A shotgun clause has also been likened to a pre-nuptial agreement. As with a prenuptial agreement, it is important to set out an exit clause early on in the business relationship when interests are still aligned and partners can still reason with each other. Shotgun clauses can help in protecting interests of both parties in a ‘business divorce’. The clause is often triggered when both parties want to run the company, but not with each other..

 A shotgun clause works like this: any partner can approach the other, at any time, with a forced offer to buy or sell their shares within a fixed deadline, at a named price per share. The other partner at the receiving end of the shotgun has only one choice: they can choose whether to buy all their partner’s shares, or sell all of their shares. One or the other transaction must happen, within the deadline (ranging from as short as 48 hours to 30 days), at the price named by the person who triggers the shotgun.

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New Protocol to the Canada Barbados Treaty

On December 17, 2013 the Protocol (the “Protocol”) amending the Agreement between Canada and Barbados for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (the “Treaty”) entered into force.

This Article will provide a summary of important changes to the Treaty under the Protocol.

Amendment to Definition of “resident of a Contracting State”:

The Protocol in Article 1, defines the term, ‘resident of a Contracting State’. According to the new definition, any person who is liable to be taxed on the basis of their domicile, residence, place of management, any other criterion of a similar nature, under the laws of the state shall be considered to be a resident of a contracting state. The amendment made pursuant to the Protocol, excludes any person who is liable to tax only with respect to income from sources within each Contracting State.

International Business Companies and Similar Entities:

A Barbados International Business Company (the “IBC”) is an offshore legal entity, similar to a corporation that is required to conduct its business with customers outside of Barbados. The IBCs like any corporations have shareholders (members), officers and directors.

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Islamic Compliant Financing

Islamic finance rests on the application of Islamic law, or Shariah, whose primary sources are the Qur’an and the sayings and conducts of the Prophet Muhammad. Shariah is not a codified system of laws, and interpretations of its principles vary between different schools of thought.

The main principles of Islamic finance are as follows:

  • Wealth must be generated from legitimate trade and asset-based investment. The use of money for the purposes of making money is expressly forbidden. The charging and receiving interest, also called Riba is unacceptable and prohibited.
  • Risk should be shared between both the lenders and the borrowers.
  • Investments in businesses dealing with alcohol, gambling, drugs, pork, pornography or anything else that the Shariah considers unlawful or haram should be avoided.
  • No one must be allowed to profit from speculation, exploitation or uncertainty.

This article will discuss some of the issues faced by lenders under the system of Islamic finance. There are a number of financial instruments under the Islamic financial system that are Shariah compliant. Two of the most commonly used are:

  • Ijara is a lease finance agreement whereby the lender buys an item for a customer (borrower) and then leases it back over a specific period at an agreed amount. The amount of rent is agreed between the lender and the customer at the outset. Ownership of the asset remains with the lender, which will seek to recover the capital cost of the item plus and additionally a profit out of the rent.
  • Murabaha is a sales transaction where the lender purchases goods at a set price and immediately sells it on to the customer on a deferred basis at a higher price. This higher price is a mark-up for profit. The mark-up is fixed in advance and cannot be increased, even if the client does not take the goods within the time agreed in the contract. Payments can be made in installments. The risk that the lender faces here is that, if the customer does not take the goods, then they fall in value and no increase in mark-up is allowed.

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Qualifying Amalgamation Defined

Two British Columbia credit unions, Delta Credit Union and First Heritage Savings Credit Union (together the “Predecessors”) amalgamated to form Envision Credit Union (“Envision”). The parties structured the amalgamation in such a way so as to avoid coming under the purview of section 87 of the Income Tax Act (the “ITA”). Under the ITA, there are two types of amalgamations: Qualifying Amalgamations and Non-Qualifying (or Statutory) Amalgamations. Qualifying Amalgamations are those that meet the requirements of section 87 of the “ITA”. All other amalgamations are outside the scope of section 87. The 3 basic requirements of a ‘qualifying amalgamation’, according to the ITA, are as follows:

  • all of the property of the predecessor corporations immediately before the merger must become property of the amalgamated corporation by virtue of the merger;
  • all of the liabilities of the predecessor corporations immediately before the merger must become liabilities of the amalgamated corporation by virtue of the merger; and
  • all of the shareholders, who owned shares of the capital stock of any predecessor corporation immediately before the merger, must receive shares of the capital stock of the amalgamated corporation because of the merger.

If the requirements of section 87 of the ITA are met, then certain tax attributes of the amalgamating corporations “flow through” to the amalgamated corporation. It was this flow through that Envision attempted to avoid, by structuring the amalgamation in such a way, so as to prevent it from being a qualifying amalgamation under section 87. The taxpayer was trying to “double claim capital cost allowance and [produce] an enhanced capacity for a lower tax rate on a portion of its income”. The predecessors formed a subsidiary (“619”). They intended to avoid the implications of section 87 by having the beneficial interest in certain real properties (“Surplus Properties”) to pass on to Envision at the exact moment of amalgamation. In exchange for the Surplus Properties, 619 issued shares to the predecessors, which flowed through to Envision as a result of the amalgamation. The amalgamation was carried out under the Credit Union Incorporation Act, 1996, (“CUIA”). According to section 20(1) and section 23(a) of the CUIA, an amalgamated credit union is a continuation of the predecessor credit unions. Envision contended that the provisions of Section 87 did not apply to this amalgamation and it was not a qualifying amalgamation as not all of the property of the predecessors had passed on to Envision. Envision also contended that credit unions can contract out of section 23 of the CUIA. Envision argued that it is possible for predecessor credit unions to specify that certain property will not be subject to the rule in section 23(b) of the CUIA and will instead pass to a third party, at the exact moment of amalgamation. Envision takes the position that section 23(b) of the CUIA is only operative on property that the amalgamation agreement has not otherwise provided for. In this case, because the predecessor credit unions had agreed that the surplus properties would pass to the subsidiary, 619, section 23(b) could not cause Envision to be seized of those surplus properties.

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