Scully Royalty Ltd. current report, Q2 FY2017

Full document

Business Context and Reporting Period

Company: MFC Bancorp Ltd. (Note: Metadata listed "Scully Royalty Ltd." but the filing text confirms the registrant is MFC Bancorp Ltd.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: June 14, 2017
Reporting Period: The filing announces a material change and a special shareholder meeting scheduled for July 10, 2017, regarding a corporate reorganization.

Key Financial Metrics

The filing is a corporate governance announcement and does not contain a full set of financial statements for the period. However, the following financial data points are disclosed:

  • Retained Deficit: As of March 31, 2017, the company had a retained deficit of $87.9 million (Canadian dollars), largely resulting from discontinued operations and asset impairments.
  • Share Capital Reduction: The proposed arrangement includes a reduction of stated shareholders' capital equal to the retained deficit.
  • Outstanding Shares: As of the record date (May 17, 2017), there were 62,692,272 MFC Shares issued and outstanding.
  • Cash Consideration: Shareholders will receive US$0.0001 per share in cash upon the exchange of shares.
  • Odd Lot Payments: Cash payments of less than US$10.00 will not be made due to administrative costs.

Material Changes and Corporate Action

The primary material change is the approval of a Plan of Arrangement to reorganize the company's corporate structure. Key components include:

  • Jurisdiction Change: The company will move its listing from British Columbia to the Cayman Islands. A new Cayman Islands entity, "MFC 2017 Ltd." (to be renamed "MFC Bancorp Ltd."), will become the public parent company.
  • Share Consolidation and Split:
    • Consolidation: 100-for-1 basis.
    • Fractional Shares: Eliminated and paid in cash based on the weighted average price over the 10 trading days prior to effectiveness.
    • Split: 1-for-20 basis following consolidation.
  • Share Exchange: Each post-consolidation/split MFC Share will be exchanged for one New MFC Share and US$0.0001 in cash.
  • Stock Options: Existing options will be exchanged for new options on a 5-for-1 basis with an exercise price multiplied by five.

Guidance, Outlook, and Risks

Management Commentary and Benefits: The Board unanimously recommends the arrangement, citing the following benefits:

  • Stable Jurisdiction: The Cayman Islands offers political stability and a well-developed legal system based on English common law.
  • Corporate Flexibility: Separation of the public parent from operating businesses facilitates future strategic transactions (spin-offs, reorganizations).
  • Fiscal Flexibility: The Cayman Islands has no corporate income, dividend, or capital gains taxes.
  • Cost Reduction: Reduced administrative and compliance expenses.
  • Global Exposure: Better reflects the international nature of operations and potential for secondary listings.
Conditions to Closing: The arrangement is subject to:
  • Shareholder approval (at least 66 2/3% of votes cast).
  • Final order from the Supreme Court of British Columbia.
  • NYSE listing approval for the new shares.
  • Dissent rights not exceeding 5% of outstanding shares.
Risks and Contingencies:
  • Completion Risk: The arrangement may not be completed if conditions are not met.
  • Tax Characterization: US holders may face taxable events; the company does not calculate earnings and profits under US tax rules.
  • PFIC Status: There is a risk the company could be classified as a Passive Foreign Investment Company (PFIC) for US tax purposes.
  • Shareholder Rights: Differences exist between British Columbia and Cayman Islands laws regarding derivative actions, oppression remedies, and dissent rights.

Investor Verification Checklist

  • Verify the shareholder vote outcome at the July 10, 2017 meeting to ensure the 66 2/3% threshold is met.
  • Confirm the Final Order from the Supreme Court of British Columbia is granted on or about July 12, 2017.
  • Check for NYSE listing approval for the new Cayman Islands shares under the symbol "MFCB".
  • Review the Management Information Circular for specific tax implications relevant to your jurisdiction (Canada vs. US).
  • Monitor the weighted average share price over the 10 trading days prior to the effective date to calculate cash payments for fractional shares.
  • Confirm the retained deficit amount ($87.9 million) and the impact of the capital reduction on the balance sheet.