BRITISH COLUMBIA SECURITIES COMMISSION Securities Act, RSBC 1996, c Citation: Re TerraNova Partners LP, 2017 BCSECCOM 76 Date:

Transcription

1 BRITISH COLUMBIA SECURITIES COMMISSION Securities Act, RSBC 1996, c. 418 Citation: Re TerraNova Partners LP, 2017 BCSECCOM 76 Date: TerraNova Partners LP, Aventine Management Group Inc., TSX Venture Exchange Inc. and Inspira Financial Inc. Panel Nigel P. Cave Vice Chair Judith Downes Commissioner Don Rowlatt Commissioner Hearing dates January 9, 2017 Submissions completed January 9, 2017 Decision date January 12, 2017 Reasons for decision Appearances Linda Plumpton James Gotowiec February 28, 2017 For TSX Ventures Exchange Inc. Stephen Schachter, QC Kevin Loo Sean K. Boyle Alexandra Luchenko For Inspira Financial Inc. For TerraNova Partners LP and Aventine Management Group Inc. Decision I. Introduction [1] This is a hearing and review under section 28 of the Securities Act, R.S.B.C. 1996, c.418, of a decision (Decision) of the TSX Venture Exchange (Exchange) to approve an indirect acquisition (Acquisition) of RBP Healthcare Technologies (RBP) by Inspira Financial Inc. (Insipra) and the resultant issuance of an aggregate of 8,347,481 common shares of Inspira to the vending shareholders of RBP. [2] On January 12, 2017, we dismissed the application of TerraNova Partners LP and Aventine Management Group Inc (Applicants) and issued an order confirming the Decision of the Exchange with reasons to follow. [3] These are the reasons with respect to our decision on the hearing and review.

2 II. Background [4] Inspira s common shares are listed for trading on the Exchange. Inspira s common shares commenced trading on the Exchange on July 7, 2015, following completion of a reverse takeover. [5] The Applicants are shareholders of Inspira. As at October 31, 2016 (the date before the closing of the Acquisition) they collectively owned approximately 10.93% of Inspira s issued and outstanding shares. [6] At the time that Inspira went public, RM was listed as a promoter of the private company that went public through the reverse takeover transaction. [7] As will be discussed later, the role of MD and RG in the affairs of Inspira is one of the central issues in this hearing and review. Although MD and RG had formerly been directors of the private company that went public through the reverse takeover transaction, they were not directors or officers of Inspira at the time it went public nor thereafter. Neither MD nor RG owned more than 10% of the Inspira common shares. [8] DC was an officer and a director of Inspira at the time it went public and RGR was an officer of the company when it went public. [9] At the time Inspira went public, it was in the business of providing loans to medically related businesses. In its Filing Statement in connection with its reverse takeover transaction, Inspira described its business as marketing a range of financial services to healthcare providers and patients in the United States and that it intended to grow its business both organically and through acquisitions. [10] On May 31, 2016, Inspira entered into a non-binding Letter of Intent to acquire the outstanding shares of DeltaCore Service and Supply Corp., which in turn owned the shares of RBT. [11] On June 9, 2016, Inspira entered into a definitive agreement with respect to the Acquisition under which it would indirectly acquire all of the shares of RBT in return for the cash payment of $2,215,000 and the issuance to the RBT shareholders of 6,375,000 Inspira common shares having a value of $1.00 per share, for total consideration of $8,500,000. [12] A copy of the purchase agreement associated with this acquisition was not filed on the public record until after the Acquisition was completed. [13] On June 15, 2016, the Exchange received an application for approval of the Acquisition and issuance of the Inspira common shares thereunder. The application was filed by RGR, outside counsel to Inspira. The application for approval was filed as an Expedited Acquisition (discussed in greater detail below) under Section 5.3 of the Exchange s rules and policies.

3 [14] On June 28, 2016, the Exchange approved the Acquisition. [15] On August 10, 2016, the Exchange received communications from one of the Applicants expressing concerns about the Acquisition. It said that the Acquisition did not meet certain of the eligibility requirements for the Exchange to treat the Acquisition as an Expedited Acquisition under its rules and policies. [16] During the next two months, the Exchange was contacted several more times by counsel for the Applicants to raise new concerns or to provide further evidence in support of the Applicants previous concerns. [17] During this time period, the Exchange also contacted representatives from Inspira on several occasions asking for further information and clarification with respect to Inspira s current and future business, the nature of the relationships between the RBP shareholders and Inspira and for a history of the appointments and resignations of directors and officers of the company. [18] On October 25, 2016, the Exchange received a submission from RGR, as counsel for Inspira, requesting approval of amended terms for the Acquisition namely, that Inspira would no longer pay any cash consideration in the Acquisition and that the number of Inspira common shares to be issued to the RBP shareholders would be increased to 8,347,481. This request for approval of the amended terms of the Acquisition also was filed as an Expedited Acquisition under section 5.3 of the Exchange s rules and policies. The amended filing also provided an amended (and reduced) list of RBP shareholders who were to receive the Inspira shares. [19] On November 4, 2016, Inspira closed the Acquisition. [20] On November 7, 2016, the Exchange issued a bulletin indicating that they had provided final approval for the amended terms of the Acquisition. [21] In connection with the Acquisition, Inspira also agreed to pay three individuals an aggregate of 600,000 Inspira common shares for consulting services, including acting as finders for the Acquisition and for performing due diligence on RBP. The three individuals were shown on the original June 15, 2016 application to the Exchange for approval of the Acquisition, as minority shareholders of RBP. In the filing to the Exchange for approval at the amended terms of the Acquisition, they were no longer shown as shareholders of RBP. [22] The two largest shareholders of RBP, who received approximately 5.8 million Inspira common shares in aggregate under the Acquisition, were RG and MD. [23] The third largest shareholder of RBP, who received 1.95 million Inspira common shares under the Acquisition was EB. EB signed the original May 31, 2016 press release of

4 Inspira announcing the Acquisition as a corporate advisor to Inspira. EB has since become a director of Inspira following the closing of the Acquisition. [24] On November 14, 2016, following the closing of the Acquisition, Inspira announced a cash dividend to be paid on all of the outstanding common shares of Inspira, including those issued to the RBP shareholders under the Acquisition. [25] On November 29, 2016, the Applicants filed this application for a hearing and review of the Decision. In the application, the Applicants asked for: a) an order overturning the Decision; b) a stay of the Decision or, in the alternative, a temporary order that Inspira refrain from acts in furtherance of the issuance of the Inspira common shares under the Acquisition namely the payment of the dividends until the Commission held a hearing to review the Decision; c) an expedited hearing to review the Decision; and d) an order that Inspira disclose certain factual matters relating to the Acquisition. [26] On December 1, 2016, counsel for Inspira advised the Commission that the dividends had already been paid to the Inspira common shareholders. [27] As a consequence, the Applicants now seek the following orders in this hearing and review: a) an order overturning the Decision and an order permanently cease trading the Inspira common shares issued to the RBP shareholders under the Acquisition and the Inspira common shares issued to the three consultants; and b) in the alternative, an order that the Decision be overturned and remitted back to the Exchange for further review with directions that the Acquisition be treated as a Reviewable Transaction under the rules and policies of the Exchange and therefore be subject to a disinterested shareholder vote of the Inspira shareholders pursuant to Multilateral Instrument Protection of Minority Security Holders in Special Transactions (MI ). III. Positions of the Parties Applicants [28] The Applicants submitted that the Exchange erred in law and overlooked material evidence in reaching its Decision and that there was new and compelling evidence that, had it been before the Exchange, would have resulted in it reaching a different decision.

5 [29] In particular, the Applicants submitted that the Exchange should not have treated the Acquisition as an Expedited Acquisition (as defined under the Exchange s rules and policies) as it did not meet the requirements to be treated as such as the Acquisition: - was not an arm s length acquisition - was a Change of Business (as defined in the Exchange s rules and policies) - involved Inspira entering into a business in a different industry - created new Insiders (as defined under the Exchange s rules and policies) of Inspira - was a Fundamental Acquisition (as defined under the Exchange s rules and policies). [30] The Applicants further submitted that the Decision was obtained by Inspira filing information with the Exchange that contained misrepresentations. [31] Finally, the Applicants submitted that all of the above provided the basis for the Commission, under section 27 of the Act, to make an order, on its own volition, founded in our public interest jurisdiction. In particular, the Applicants submitted that it was in the public interest to order that the disinterested shareholders in Inspira approve the Acquisition, owing to the non-arm s length nature of the transaction. Exchange [32] The Exchange submitted that its decisions are entitled to considerable deference and that the Commission is not to offer a second opinion on the Decision. The Exchange further submitted that it was entitled to rely upon the representations made to it by Inspira and its representatives in furtherance of the Decision and that it was not obligated to conduct independent due diligence of the information provided to it. [33] The Exchange submitted that the objections raised by the Applicants were largely the same objections raised by them before the Exchange. The Exchange submitted that it reviewed each of those objections and rejected them. [34] Finally, the Exchange submitted that it did not make an error in law or overlook material evidence and that the additional evidence that the Applicants wished to introduce at the hearing did not meet the test of being new and compelling evidence. Inspira [35] Inspira s position was similar to that of the Exchange. [36] Inspira submitted that the Commission is required to offer considerable deference to SRO decisions. It further submitted that the Exchange did not make any errors in law in reaching the Decision and challenged each of the specific grounds on which the Applicants alleged that the Acquisition failed to meet the Expedited Acquisition definition. It also argued that the Applicants evidence that it wished to adduce at the hearing and review was not new and compelling; however, if the panel did consider that evidence then it had evidence of its own for us to consider in response.

6 [37] Lastly, Inspira argued that, the Acquisition having closed, there was no practicable remedy that we could order that would not impact innocent shareholders who have purchased Inspira shares in the market on the understanding that Inspira had acquired the RBP business. Inspira also submitted that permanent cease trade orders on the Inspira shares issued in connection with the Acquisition would render the vendors of the RBP shares without proper consideration and that there has been no basis for determining that that business had no value. Finally, it argued that the Applicants might have access to more appropriate remedies in other forums. IV. Law and Analysis New evidence [38] The Applicants applied to introduce new evidence in the hearing and review. The new evidence took the form of two affidavits. [39] Inspira, in the event that we granted the Applicants application to introduce their new evidence, applied to introduce their own new evidence in response to that introduced by the Applicants in the two affidavits. Inspira s evidence took the form of one affidavit. [40] The test for the introduction of new evidence in a hearing and review is set out in BC Policy Hearings (Policy ). The test is that the evidence must be new and compelling. [41] In order to be able to make a determination of these applications to introduce new evidence, the panel entered the three affidavits and heard submissions from the parties on the material included therein. [42] The following is a high level description of the evidence in the two affidavits filed by the Applicants: - evidence as to the connections between certain of the vending shareholders of RBP and one or both of MD and RG - evidence as to the connection between one of the vending shareholders of RBP and RGR - evidence of the qualifications of certain of the officers and/or directors of Inspira (thereby implying that they were mere nominees of MD and RG) - evidence of interviews given by MD and RG from July 2015 and February 2016 in which they talk about the business and affairs of Inspira - evidence of discussions between the affiant (a senior officer of one Applicant and a director of the other Applicant) (VK) and multiple representatives of Inspira and the Exchange - evidence of the status of RBP and certain other corporations involved in the Acquisition (ie. corporate registry searches). [43] The following is a high level description of the evidence in the affidavit filed by Inspira: - evidence as to the business and affairs of Inspira

7 - evidence of the history and business purpose of the Acquisition - evidence of the role of MD and RG within Inspira - evidence of the timing of resignations of certain officers of Inspira - evidence of certain of the discussions between the affiant and VK. [44] None of the evidence filed by the Applicants with respect to the relationships between certain of the shareholders of RBP and MD and RG and the evidence with respect to the qualifications of certain of the directors and/or officers of Inspira can, in one sense, be said to be new. It was all publicly available throughout the relevant time period. The corporate registry information and the interviews were also publicly available throughout the time period. [45] However, the Applicants say that the information about the connections between the RBP shareholders and MD and RG is new or that we should view it as new as they had no idea who the RBP shareholders were until after the Acquisition had closed and the Exchange produced the record of its decision in this proceeding. [46] We have considerable sympathy for the Applicants on the issue of whether this evidence might be viewed as new ; however, we do not need to interpret further the question of what constitutes new evidence or even the relative weighting to be attached to the concepts of new versus compelling as we decided not to consider any of the evidence on this application because it failed the compelling aspect of the test. [47] The Applicants evidence certainly raised substantial questions about the nature of the various relationships between Inspira, MD, RG and the remainder of the RBP shareholders. Similarly, it raised questions about the role of MD and RG within the affairs of Inspira. However, Inspira s evidence differed from that inferred by the evidence of the Applicants with respect to the role of MD and RG in its affairs. [48] In totality, at its best, the Applicants new evidence did raise questions about the accuracy of the information provided to the Exchange by Inspira in connection with its application to approve the Acquisition. However, it falls short of being definitive on various factual matters and therefore fails to confirm that misrepresentations were made to the Exchange. Furthermore, the Applicants new evidence is contested by that sought to be introduced by Inspira. As a consequence, the Applicants new evidence fell short of being compelling evidence that must be considered by this panel in its determination of the Decision reached by the Exchange. Procedural issues associated with application for review Standing [49] The Applicants applied under both section 27 and 28 of the Act for a hearing and review of the Decision. [50] Section 28(1) of the Act provides:

8 28(1) The executive director or a person directly affected by a direction, decision, order or ruling made under a bylaw, rule or other regulatory instrument or policy of a self regulatory body, an exchange, a quotation and trade reporting system, or a clearing agency may apply by notice to the commission for a hearing and review of the matter under Part 19, and section 165(3) to (8) applies. [51] Inspira filed written submissions alleging that the Applicants were not persons directly affected by the Decision. Those submissions were abandoned by Inspira during the hearing and that was not an issue before the panel. Therefore, there was no issue of whether the Applicants had standing under section 28 of the Act to bring this application. [52] The Applicants also brought their application under section 27 of the Act. There were no submissions by any party on whether the Applicants had standing to bring its application under section 27. It is debatable whether a member of the public can bring an application under section 27; however, as we did not receive submissions from the parties on this issue and for the reasons discussed below, we ultimately decided that we did not need to decide the issue of whether the Applicants could properly bring their application under section 27 of the Act. Delay [53] Inspira also filed written submissions alleging that the Applicants had failed to bring their application within the time requirements of section 165(3) of the Act, which requires an application to be filed within 30 days from the date of the decision subject to review. These submissions were founded upon the notion that the date of the Decision was the date of the Exchange s original approval of the Acquisition, June 28, 2016 and that the Decision was not made on November 7, 2016 when the Exchange approved the amended terms of the Acquisition. These submissions were also abandoned by Inspira during the hearing. Therefore, the issue of compliance with section 165(3) of the Act was not before the panel. [54] However, for reasons discussed below, the date of the Decision is relevant to our analysis and for that reason we needed to make a finding as to the date of the Decision. A revised application was made by Inspira in connection with the amended terms of the Acquisition and a further approval was made by the Exchange as a consequence. We find that the Decision under review is that made by the Exchange on November 7, 2016 (albeit that that Decision represents an amalgam of the decisions made in both June and November 2016). Standard of review [55] Policy clearly articulates the Commission s standard of review of a decision made by an SRO it is one of reasonableness not correctness.

9 [56] That Policy goes on to state that the Commission will generally not interfere with an SRO decision unless the applicant is able to establish that, in reaching the decision in question, there was an error in law, an overlooking of material evidence, new and compelling evidence has come to light or that the Commission s view of the public interest is different than that of the SRO. [57] The onus for establishing one of these grounds is upon the Applicants. [58] None of the above was questioned by any of the parties in the proceedings before us. Error in law [59] The fundamental question under this aspect of the Applicants submissions was whether the Exchange made an error in law by treating the Acquisition as an Expedited Acquisition and not, as the Applicants argue, as a Reviewable Transaction. [60] The Exchange s Policy 5.3 Acquisitions and Dispositions of Non-Cash Assets deal with the requisite filings and approvals required by listed entities when acquiring assets, including the shares of companies. [61] Policy 5.3 provides the following definitions Expedited Acquisitions are arm s length acquisitions that do not require prior Exchange review because of their size and other built-in restrictions. The criteria and filing requirements for Expedited Acquisitions are outlined in Section 4. Reviewable Transactions are transactions which are considered more significant than Exempt or Expedited Transactions, either by virtue of the size of the acquisition or disposition, or the fact that it involves Non- Arm s Length Parties. All transactions that do not qualify as either Exempt Transactions or Expedited Acquisitions are Reviewable Transactions. Issuers must obtain prior Exchange acceptance for all Reviewable Transactions. [Note: we interpret the reference to Expedited Transactions as an erroneous reference to Expedited Acquisitions as no separate definition of Expedited Transactions exists and by virtue of the remaining wording of the definition] Fundamental Acquisitions are Reviewable Transactions where one or more assets, properties or businesses or an interest therein is acquired, in respect of which: a) at least 50% of the Issuer s assets, resources, planned expenditures or management time commitment will be devoted over the next 12 month period; or b) at least 50% of the Issuer s anticipated revenues for the next 12 months are expected to be derived.

10 [62] Exchange Policy 1.1 provides a number of definitions used in subsequent Policies, including Non-Arm s Length Party means: a) in relation to a Company: i) a Promoter, officer, director, other Insider or Control Person of that Company and any Associates or Affiliates of any such Persons; or ii) another entity or an Affiliate of that entity, if that entity or its Affiliate have the same Promoter, officer, director, Insider or Control Person as the Company. b) in relation to an individual, any Associate of the individual or any Company of which the individual is a Promoter, officer, director, Insider or Control Person. Arm s Length Transaction means a transaction which is not a Related Party Transaction as defined below. Related Party Transaction has the meaning ascribed to that term under MI , and includes a related party transaction that is determined by the Exchange, to be a Related Party Transaction. The Exchange may deem a transaction to be a Related Party Transaction where the transaction involves Non-Arm s Length Parties, or other circumstances exist which may compromise the independence of the Issuer with respect to the transaction. [63] Section 4.1 of Policy 5.3 sets out a list of criteria for an Expedited Acquisition, including, among other things, that: a) the vendor (or optionor) of the asset, property or business is not a Non-Arm s Length Party of the Issuer or its Associates or Affiliates; b) the acquisition is not a Change of Business ; c) the acquisition is not of an asset or business which is in an industry which is different from the Issuer s primary business; d) any securities issued as consideration for the acquisition do not result in any Person who was previously not an Insider becoming an Insider of the Issuer; e) the transaction is not a Fundamental Acquisition. [64] The nature of the Exchange s approval regime is fundamentally different as between Expedited Acquisitions and Reviewable Transactions. Expedited Acquisitions are, conceptually, to be smaller, arm s length transactions which are submitted to nominal review by the Exchange. Reviewable Transactions, as is suggested by the very name, are those which, by virtue of being non-arm s length and/or of sufficient size, undergo more substantial review by the Exchange.

11 [65] Section 4.4 of Policy 5.3 sets out that although the Exchange does not generally review Expedited Acquisitions as they are submitted, that the Exchange may audit the filings from time to time. Section 4.6 provides that listed issuers are to file a Form 5B Expedited Acquisition Form and a filing fee to the Exchange in connection with an Expedited Acquisition. [66] The Applicants submitted that the Acquisition did not meet the qualifications of an Expedited Acquisition on the grounds set out in paragraph 29 above. We consider each of these submissions below. Non-arm s length transaction [67] The Applicants principal complaint with the Acquisition was that, in their view, the Acquisition was not an arm s length transaction. [68] Their first argument on this point was that the definition of Expedited Acquisition in Policy 5.3 references the words arm s length acquisitions. They argue that since this phrase is not specifically defined, it should be interpreted by looking at the Exchange s definition of Arm s Length Transaction. That definition, the Applicant s submitted, would lead to a broader interpretation of when someone is, or is not, arm s length to an issuer than would be arrived at by virtue of considering whether someone is, or is not, within the definition of Non-Arm s Length Party. [69] The Exchange s position on this point is that the eligibility requirements for Expedited Acquisitions are set out in section 4.1 of Policy 5.3 and that section specifically requires that the transaction not involve Non-Arm s Length Parties. They submitted that the definition of Expedited Acquisition must be interpreted in a manner consistent with the specific requirements of section 4.1 of Policy 5.3. [70] We did not agree with the Applicants submission on this question of interpretation - viewed from the perspective of correctness, let alone reasonableness. [71] The definition of Reviewable Transaction sets out that something becomes a Reviewable Transaction when it involves a Non-Arm s Length Party. This combined with the itemized eligibility requirements for an Expedited Acquisition set out in section 4.1 make it clear that, to be an Expedited Acquisition, it must not involve Non-Arm s Length Parties. We do not see why one would look to the definition of Arm s Length Transaction to interpret the words arm s length acquisition, instead of the Exchange s interpretation that you look to see if the vendors were Non-Arm s Length Parties. [72] The remainder of the Applicants submissions on this issue involved allegations that the Acquisition involved Non-Arm s Length Parties because: - RG and MD were Promoters of Inspira at the time of the Acquisition - certain other RBP shareholders were Associates of one or both of RG and MD

12 - one of the RBP shareholders was a senior officer of Inspira at the time of the Acquisition - one of the RBP shareholders was an Associate of a senior officer of Inspira at the time of the Acquisition. [73] Inspira disputed these assertions on a factual basis. It said that RG and MD were not Promoters at the time of Inspira s listing, and were not such at the time of the Acquisition. It says that the RBP shareholder who is alleged to have been a senior officer of Inspira at the time of the Acquisition had previously resigned, as had the other RBP shareholder whose Associate was also alleged to have been a senior officer at the time of the Acquisition (without, in either case, their having been any public filing to the Exchange or press release to the market disclosing these resignations). [74] The Exchange submitted that it received two Form 5Bs (one in June and an amended one in November) from Inspira that asserted that none of the RBP vendors were Non-Arm s Length Parties and that it was entitled to rely upon those representations. It further submitted that when the Applicants raised concerns about the Acquisition in August 2016, it commenced an audit or review of the Expedited Acquisition materials filed by Inspira. The Exchange said that it asked specific questions as to the relationships of the vendors of RBP to Inspira and received further confirmations that they were not Non- Arm s Length Parties. It further says that it considered the failure to disclose the purported resignations of the senior officers and considered this failure to be non-material to the Decision. [75] The Applicants said that these assertions by Inspira to the Exchange were misrepresentations. They said that the Exchange should have conducted its own due diligence investigations and, in so doing, would have uncovered some of the evidence that the Applicants tried to introduce as new evidence in this hearing and review. [76] The Ontario Securities Commission has considered the issue of whether The Toronto Stock Exchange was entitled to rely upon representations made to it in connection with an application made by a listed issuer in Re HudBay Minerals Inc., (2009), 32 O.S.C.B (at para 139): In our view, the TSX was entitled in this matter to make its decision based on the documents, information and representations that were before it. While the TSX must be careful to ascertain that it has all the relevant facts, it does not generally have an obligation to conduct an investigation or carry out due diligence when it is considering the exercise of its discretion under a provision of the TSX Manual. The process followed by the Filing Committee in considering the complaints and submissions of Jaguar and the other objecting shareholders of HudBay was appropriate in the circumstances.

13 [77] We see no reason to depart from that reasoning in the case before us. Policy 5.3 sets out an approval framework whereby, for allocation of resources reasons, only certain transactions are subject to detailed Exchange review. To impose an obligation that the Exchange must conduct its own due diligence on every filing to determine if the representations made to it are accurate, would undermine the entire purpose of the approval structure of the Policy. [78] We note, however, that there must be some reasonable limit to the Exchange s ability to rely on representations made to it. One of the troubling aspects of this case is that when Inspira made its original filing to the Exchange in June, the press release of Inspira that accompanied the filing was signed by the third largest shareholder of RPB. That this person was the third largest shareholder of RPB was evident on the face of the Form 5B filed by Inspira. Yet this does not appear to have elicited any interest from the Exchange. On its face, this application should have prompted the Exchange to ask questions as to whether, in fact, the transaction qualified as an Expedited Acquisition. It did not and, instead, issued its original approval of the Acquisition. [79] At this stage in the approval process, and were this to have been the Decision under review, it would not have been possible to characterize the Exchange s process, in the words of HudBay, as appropriate in the circumstances. However, as noted above, the Decision under review is that made by the Exchange on November 7, [80] However, before the Acquisition closed, the Applicants raised concerns about the nonarm s length nature of the transaction and the Exchange was able to ask further, specific questions of Inspira, to which it received further, specific answers and representations. By the time that it issued its Decision, approving the amended Acquisition terms on November 7, 2016, the Exchange had carried out a more extensive review and received answers to its satisfaction. On a reasonableness basis and in light of the public interest benefits of allowing an exchange to rely upon representations made to it, we considered that review to have been appropriate in all the circumstances. [81] Even if we are wrong in that determination, the evidence that the Applicants point to in support of their submissions that the vendors of the RBP shares were not Non-Arm s Length Parties is the new evidence that the Applicants wished to introduce at the hearing and review. This information was not before the Exchange when it reached the Decision. We rejected the application to introduce this new evidence in the hearing and review as described above. Even if we had not, the new evidence, in its totality, is inconclusive on whether any of the vendors of RBP were Non-Arm s Length Parties. [82] Given all of the above, we did not see any error in law in the conclusions reached by the Exchange on this issue. Change of Business [83] The Applicants submitted that Inspira s acquisition of RBP represented a Change of Business (as such term is defined in the Exchange s policies).

14 [84] Policy 1.1 of the Exchange s policies provides the following definition Change of Business means a transaction or series of transactions which will redirect an Issuer s resources and which changes the nature of its business, for example, through the acquisition of an interest in another business which represents a material amount of the Issuer s market value, assets or operations, or which becomes the principal enterprise of the Issuer. See section 1.2 of Policy 5.2 Changes of Business and Reverse Takeovers for guidance on the general application of this definition. [85] The Applicants relied on the Commission s decision in Mercury Partners & Company v. Canadian Venture Exchange, 2002 LNBCSC 166, in support of its submissions on this issue. [86] In its reasons for the Decision, it is clear that the Exchange considered the issue of whether the Acquisition constituted a Change of Business and concluded that it did not. The reasons it set out for this are that: - Inspira continued to have an active lending business and that the acquired business was complimentary to that lending business - Inspira represented that the RBP business would not become its principal business - the Exchange did not have sufficient information to conclude that the acquisition would redirect Inspira s business to the extent necessary to meet the definition of Change of Business - the acquisition did not result in any change in the board or management of Inspira. [87] The Exchange submitted that there is nothing incorrect or unreasonable in these conclusions. [88] Inspira also submitted that the acquisition of RBP represented a vertical integration and did not change Inspira s business to any substantial degree nor did the business of RBP become its principal business. Inspira also submitted that the Applicants incorrectly calculated that the projected revenues from the acquired business would represent more than 50% of Inspira s revenues in the next twelve months. The Applicants did not dispute this last submission. [89] We did not find the decision in Mercury Partners analogous to the circumstances before us. In that case, the listed entity s previous business had failed and its remaining asset was cash. It was engaged in a private placement, a wholesale restructuring of the board and an intended switch from its historical business of being a technology R&D company to an investment company. As the panel in that decision held, any new business conducted by the listed entity would have constituted a Change of Business. That was not Inspira s situation and the reasoning at that decision was not helpful to the case before us.

15 [90] Again, the Exchange was entitled to rely upon the representations made to it by Inspira. There is nothing in the evidence that was before the Exchange at the time of the Decision that suggests that it made an error of law in concluding that the Acquisition was not a Change of Business. Fundamental Acquisition [91] The Applicant s submissions on this point were dependent on their view that the revenues derived by RBP, in the twelve months following completion of the Acquisition, would constitute more than 50% of Inspira s total revenue during that period. [92] Inspira represented to the Exchange that would not be the case. [93] The calculations that the Applicants appeared to have relied upon in arriving at their view with respect to the 50% number were not correct on their face. [94] We do not see that the Exchange made an error in law in determining that the Acquisition was not a Fundamental Acquisition. Change of Industry [95] The Applicants submission on this point was that Inspira was, prior to the Acquisition, in the lending business and that RBP was in the software business. [96] The Exchange, as part of its reasons for the Decision, concluded that both Inspira s former business and RBP were in the healthcare industry and that as a consequence this was not a change of industry. [97] Inspira s submission on this issue was that the Acquisition constituted a vertical integration and that both its old lending business and its new business would be offered to the same customers. [98] This entire question is highly subjective as to how broadly or narrowly you define a particular industry and as to whether you define your business based on your inputs or your customer base. We were not given any guidance as to how those issues might be considered. [99] Inspira s Filing Statement for its original listing set out a definition of its business as being that of providing financial services to the healthcare industry. It is not unreasonable to assess this particular issue in the context of that description. In that context, we do not see that the Exchange made an error in law in concluding that this did not constitute a change in industry.

16 Creation of new Insiders [100] The Applicants submissions on this issue were that RG and MD should be regarded as joint actors and, as such, their shareholdings of Inspira should be aggregated. An aggregation of their shareholdings would take them above the 10% share ownership threshold that would make someone an Insider (as defined in policies of the Exchange, which definition is substantively similar to the definition of Insider under the Act). [101] The problem with this submission is that nowhere in the definition of Insider (as there is in other places in securities legislation) is there a reference to aggregating the holdings of joint actors. Further, there was not sufficient evidence for us to determine, on a balance of probabilities, that RG and MD are, in fact, joint actors. There was no merit to this submission. Overlooked material evidence [102] The Applicants submitted that the Exchange overlooked material evidence in reaching the Decision. However, they did not point to any specific evidence that was part of the record of the Decision that they say the Exchange overlooked or did not consider. [103] Without pointing to specific evidence that they say was overlooked, this submission amounted to little more than, in the Applicants view, the Exchange simply came to the wrong conclusion with respect to the Acquisition s status as an Expedited Acquisition. We have addressed all of those submissions above. [104] We did not see that the Exchange overlooked any material evidence. [105] In summary, we did not find, on a reasonableness basis, that the Exchange made either an error in law or overlooked material evidence in reaching the Decision. As a consequence, the Applicants application under section 28 of the Act was dismissed. Section 27 application public interest [106] The Applicants submitted that the circumstances of this case were such that the Commission, of its own volition, under section 27 of the Act, should exercise its public interest jurisdiction and make the orders requested by the Applicants. [107] As we noted above, there is an issue of whether the Applicants had standing to bring such an application under section 27. However, this issue was not argued by the parties and, for the reasons set out below, we did not need to reach a conclusion on this issue. [108] Section 27 grants the Commission a wide discretion to make orders, in the public interest, with respect to decisions reached by the Exchange.

17 [109] The Applicants submitted that the test under section 27 for us to exercise our discretion is that found in a now considerable body of case law from our courts and decisions from Commission panels on the scope of the Commission s power to exercise this public interest jurisdiction when there has not been a contravention of a specific provision of the Act. For the purposes of this decision, we think it sufficient to say, for simplicity reasons, that that jurisprudence sets out that to exercise this public interest jurisdiction there must be a finding that the conduct in question constitutes an abuse, in some manner, of the public markets and not merely conduct which is in some manner unfair. [110] We are not certain that this is the correct lens through which to view the basis on which the Commission should exercise its discretion under section 27. That discussion can be left for another decision, as we think, in any event, there must be some basis for the Commission to exercise its public interest jurisdiction under section 27 that outweighs the potential harm of doing so. We do not find that to be the case on the evidence before us. [111] The Applicants submitted that, regardless of the Exchange s policies and the specific definition of an Expedited Acquisition, we should view the Acquisition as a non-arm s length transaction and that it is in the public interest to have such transactions voted upon by the disinterested shareholders of the issuer. They pointed to the provisions of MI as support for this policy perspective. [112] The difficulty with this submission is that a finding, if one could be made at all, that the Acquisition was a non-arm s length transaction would be dependent on the new evidence that the Applicants attempted to adduce at the hearing and review. As noted above, we rejected the admission of this evidence. Notwithstanding this, as we noted above, while the totality of the new evidence brought by both Inspira and the Applicants created significant concerns for the panel about the nature of the relationships between the vendors of RBP and Inspira, it was not conclusive. [113] The other problem with this submission is that even if there was evidence that the transaction was not arm s length, there is no evidence as of yet (as the Applicants themselves conceded), to challenge the business terms or valuation associated with the Acquisition. At present, the concerns with the Acquisition that were raised were: i) the process for approving the Acquisition (i.e. the lack of disinterested shareholder approval therefor); and/or ii) possible misrepresentations made by Inspira and its representatives to an exchange. [114] With respect to the first possible concern, we did not have either the evidence (or the submissions) before us to find that the public interest in offering a remedy for a transaction that has already closed because of a possible problem in the process for approving it, outweighed the following: - the possible public harm that might be done by trying to unwind the transaction, particularly as the markets have been trading on this information for some time; - the need for us to show deference to exchange decisions in order to provide market certainty; and

18 - imposing an express or implied obligation on an exchange to perform its own due diligence with respect to every representation made to it by a market participant. [115] This finding should not be interpreted to mean that there will never be circumstances in which it is in the public interest to make an order to unwind a completed transaction; rather, that there was not sufficient evidence, in this case that it would be in the public interest to make such an order, considering the potential harms of doing so. [116] With respect to the second concern, we note that if further evidence determines that misrepresentations have been made by a person to an exchange, then other remedies for that activity may be sought in future. [117] For all of the above reasons, we decline to exercise our public interest jurisdiction to interfere with the Decision under section 27 of the Act. February 28, 2017 For the Commission Nigel P. Cave Vice Chair Judith Downes Commissioner Don Rowlatt Commissioner