The Mutual Fund Dealers Association of Canada has published a guide to members regarding the procedure for obtaining MFDA approval of resignations, corporate reorganizations and changes in ownership.

A firm wishing to resign, or that ceases to carry on business as a mutual fund dealer, must send a letter of resignation to the MFDA board in the care of the corporate secretary. The letter must state the reasons for the resignation. If the member is resigning because it is transferring its book of business, the acquiring member must notify and receive the prior approval of the MFDA.

The resigning member must also provide the following: an audited balance sheet indicating that it has liquid assets sufficient to meet its liabilities; the report on compliance for segregation of cash and securities; copies of the documentation sent to the securities commission(s) surrendering registration and confirmation of this from the securities commission(s) if applicable; and, details regarding the procedure to transfer client accounts, including any documentation sent to clients relating to the transfer. Clients of the resigning member must be given sufficient advance notice and an opportunity to direct that their accounts be transferred elsewhere.

Corporate reorganizations, mergers and amalgamations require prior notification to, and approval by, the MFDA. Members that effect a corporate reorganization without notifying and receiving the approval of the MFDA may be subject to regulatory sanctions. Firms must notify the MFDA in writing not less than 30 days prior to the proposed effective date of any reorganization, merger or amalgamation.

The MFDA will review the proposed transaction and may request certain additional information, as it deems necessary. It will either: approve the proposed transaction (which may be subject to terms and conditions); or direct that the transaction not be completed if the MFDA determines in its sole discretion that the obligations of the member to its clients cannot be satisfied or the by-laws and rules will not be complied with by the member or any continuing, new or reorganized entity.

Firms must also receive approval prior to the transfer or acquisition of a “significant equity interest” in a member. A “significant equity interest” means the holding of: voting securities carrying 20% or more of the votes carried by all voting securities of the member or of a holding company of the member; 20% or more of the outstanding participating securities of the member or of a holding company of a member; or an interest of 20% or more of the total equity in the member.

The notice should be directed to the MFDA secretary and should include a description of the proposed transaction including information regarding how the acquired member will operate in future.

In particular, the notice should advise as to whether the acquired member will continue to operate separately or whether the business and operations of the member will be amalgamated with the acquiring member at some point. Separate MFDA approval must be requested and obtained prior to any such amalgamation.

Upon receipt of the notice, the MFDA will review the proposed transaction and request additional information, as it deems necessary. Such additional information may include an updated corporate organization chart or details regarding any changes in directors or officers.