Clench Fraud Trust Agreement Amendments: Voting Package

Summary

July 15, 2013

Clench Fraud Trust Amendments - TimelinesCommunity consultation meeting – August 14, September

15 and October 9 2012Meetings with Chief and Council April 14, 2012, Sept. 17,

2012 & June 20, 2013Presentation of Amended agreement to community May 25,

2013Website feedback posted April 2013-July 2013Questions and feedback to the Trustees have been

incorporated July 2013 – final draft completedSpreecast Q and A’s scheduled July 30 at 7-8pm check

website for link.Vote date is August 10, 2013

Amendment teamAmendment process was directed by the

Trustees of the Clench Fraud Trust

Consultations with Membership

Assisted by:Legal Counsel – Jeff HarrisFinancial Advisor – Kelly RodgersTax Advice – Gowlings (Jamie Lickers and

Mark Siegel)

Proposed amendments –

Purpose for changes – why?CF Trust Agreement outdated and does not reflect

‘best practices’To a large extent, the amendments reflect the

policy approach that the Trustees have taken with the administration and governance of the Trust.

By making these policies part of the Trust, it will ensure consistent good governance of the Trust and management of Trust Capital and Income.

The core elements of the CF Trust have not changed:To provide benefits over the long term to the FN and

members

What will NOT changeThe beneficiary will not change

Chippewas of the Thames First Nation and its Members

The role and appointment of the TrusteesThe Purposes of the Trust and use of Trust Property

(income and capital)Economic DevelopmentHousingBenevolent PurposesMember Payments

The ability to fund projects proposed by Council and members

The project funding limits that require community consultation

Summary of Changes

Summary- What will changeTrust Governance

A. The name of the Trust (to be determined by vote)

B. The organization and layout of the Trust document

C. Trustees - a requirement that a majority of Trustees be resident on reserve (Article 5)

D. Trustees - qualifications to be a Trustee (Article 5) and duties (Article 6), Disqualification, removal and replacement of Trustees (Article 5)

E. clearer Conflict of Interest guidelines (Article 17)

F. Procedures for Amendments (Article 20)G. Duration and Termination of Trust (Article 18)

Summary - What will change (con’t.)Trust Administration

H. Special Purposes: Housing – eliminate the Trust as developer but maintain ability to support housing projects of Members and the COTTFN Housing Authority;

I. Special Purposes: Economic Development – to COTTFN economic development programs and to assist members in establishing or acquiring an interest in a business;

J. introduction of definition of “Consultation” (Article 2) and other protective measures to ensure trust property is used for intended purposes (Article 19)

K. the procedure to apply for and obtain approval for projects & Management of projects by either a project manager hired by the Trustees or by Council (Article 10)

Summary - What will change (con’t.)Trust Investment Management

L. Calculation of interest on Member payments (paras. 8.14 & 8.16)

M. Definition of Annual Income (Article 9)

N. Establishment of a Minimum Amount of capital that must be held in the trust (Article 12) & capital encroachment

O. Improved governance of investments (Article 15)

In More Detail….– going into depth on each of the proposed changes

A. Trust Name & Document layoutInput from members was sought and three names

are being proposed for a vote. The name with most votes will become the new name of the trust. They are listed on the ballot. Choose one.

11

B. The Trust Agreement has been reorganized to allow for easier reading• Table of contents added, clearer sub-titles and organizing of like

components together

C. Trustees – Residence (Article 5)

A majority of Trustees to reside on reserve – this strengthens factors considered by CRA to ensure income of Trust is earned tax free. (section 5.2)

7 Trustees: 2 appointed by Council and 5 elected by Members (same as original trust).

Terms of Trustees will coincide with terms for

Council (same as original trust).

D. Duties & Qualifications (Article 5&6)Qualification additions:Must get trustee accreditation within first year of term if

they don’t have it Disqualification parameters:Fails to attend 3 meetings, complete training, fails

disclose conflict of interestAdded duty requirements:

to ensure transparency of expendituresto ensure accountability to members of use of Trust

Propertyto develop policies and procedures for the filing and

consideration of applicationsto develop policies which protect the Trust Property

and ensure that it is used only for permitted purposesto develop policies for the election and appointment

of Trustees

13

E. Conflict of Interest (Article 17)Where there is a contract being considered

which would provide a benefit to a family member or business of a Trustee, that Trustee is to declare a conflict of interest and is not entitled to participate in discussion or vote on the contract.

A Trustee who violates this must be removed as a Trustee.

That Trustee can also be sued for any losses to the Trust and even for the value of the benefit to the family member etc.

F. Procedures for AmendmentsCurrent document very difficult to amendAmended Trust will have three (3) levels of

amendment1. Administrative and to correct errors or due to

changes in law and tax2. Important changes that do not change the

intent of the trust3. Substantive changes that go to the heart of

the document

F. Procedures for Amendments - Level 1- Administrative AmendmentsMay be made by the Trustees and Council

Must have written legal opinion and advice of Financial Advisor

Level 2 - Important Amendments / Changes

Must have approval of 50% + 1 of members who vote, provided that at least 10% of members who can vote, do so, in a vote conducted in accordance with Voting Procedures and with advice from legal counsel and financial advisor

Conduct of Meetings of the TrusteesThe TrusteesConflict of InterestGeneral provisions

F. Level 3 - Amendments that change the core of the TrustA vote in accordance with Ratification

ProceduresApproved by 25% + 1 of all members who are

eligible to voteAdvice from legal counsel & financial advisorAll other sections

Purposes of the Trust Uses of Trust Property & Procedures for UseDuties and Powers of TrusteesDuties and Powers of CouncilInvestments & Annual IncomeMinimum Amount & Capital EncroachmentsProhibitions & Protective MeasuresDuration & Termination of Trust

G. Duration and Termination – Article 18Perpetuities Act of Ontario – trust must end

20 years after the death of the last person who was alive on the Effective Date

Can also be transferred to a new Trust before that if the Members approve it

H. Special Purposes: HousingRequirement for a Strategic Plan

To develop funding strategy incorporating needs of all Members

Create opportunities to purchase or build homes for the personal use of Members

Repairing or renovating homes including improving accessibility for disabled and elderly

Work with COTTFN Housing Authority in development and implementation of housing programs

I. Special Purposes: Economic DevelopmentTo support COTTFN economic development

programs Focus on Beneficiary owned, controlled and

operated businesses

To assist Beneficiaries in establishing or acquiring an interest in a business

Funding support could be as a loan, a grant or such as other structure as determined by the Trustees and the program plan

J. Consultation requirement & Other Protectionsimproved Consultation requirement (Article

2)enhanced reporting to Members (Article 6)requirement for policies and procedures for

filing and consideration of applications for funding (Article 10)

requirement to provide orientation to newly elected and appointed Trustees and to make it available to Council after each general election (Article 6)

improved governance and oversight of investments (Article 10)

obligations of Trustees clarified (Article 6)

J. Protective Measures – Article 19 Trust Property cannot be used:

to pay the debt or operational deficit of the First Nation; or

to make a per capita distribution to any Member except as provided in Article 8.0 (Member Payments); or

except as provided for in Articles 11 (Pledging of Annual Income) and 13 (Capital Encroachments) , the Trustees are not permitted to mortgage, pledge, assign, encumber or grant a security interest of any kind whatsoever against the Trust Property.

K. Project Approval: Trust not sole source of funds (Article 10)

Those who make proposals for funding are expected to demonstrate that they have sought financial support from other sources such as government and banks.

Management of projects identifiedRequired reporting of resultsThis will strengthen community capacity and enable the

Trust to support a broad range of projects for the COTFN.

L. Payments to Minors (Article 8.14 and 8.16)Upon graduation or becoming 21 years of

age, will receive a payment of $1500 plus interest

If not requested by age of 21, the payment plus accrued interest will be adjusted only by CPI after the 21st birthday

Payments not requested 10 years after attaining the age of 21 years will be returned to Trust Account and no longer payable

L. Payments to other Members

For those Eligible Members who are 21 years of age as of the Effective Date of the Trust (the date it is signed), interest will be paid until the Effective Date

Thereafter, the payment is adjusted by the CPI

For Members who do not request their payment by November 26, 2024, their payment will be returned to Capital and the Member no longer has the right to receive that payment.

M. Annual Income (Article 9)Provides 2 alternatives for calculating income

Payment is based on the higher of the two amounts

All income according to Canada Revenue AgencySame as the current definition

A minimum Annual paymentMinimum payment of 3% annually to fund

projectsIf not earned it is treated as an interest free

loan and must be repaid out of future years income that is greater than 3%

Provides for stability of income amount from one year to the next

M. Annual Income ExampleEXAMPLE ONLY

2005 2006 2007 2008 2009 2010 2011

Earnings 7.1% 13.8% -0.4% -10.8% 6.9% 13.5% 1.8%Trust Expenses 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3%

Disbursement for Projects 5.8% 12.5% -1.7% -12.1% 5.6% 12.2% 0.5%

Minimum Guaranteed Payment 3% 3% 3% 3% 3% 3% 3%

Repayment of Prior Year Income Advances 0.0% 0.0% 0.0% 0.0% 2.6% 3.4% 0.0%

Cummulative Income Advances 3.0% 6.0% 3.4% 0.0% 3.0%

Net Amount Available for Projects 5.8% 12.5% 3.0% 3.0% 3.0% 8.8% 3.0%

M. Annual Income and Taxationobjective is to earn income tax freethe Trust is not an “Indian” nor an “Indian

Band” for tax purposesbut where both the First Nation is both the

Settlor and the Beneficiary of the Trust, the income is attributed to the Settlor and tax rules which apply to the Settlor are applied to income

so, the income is deemed to be earned by the First Nation

M. Annual Income and TaxationThere are a couple of ways to protect the income

from taxation once it is deemed to be earned by the First Nation:under section 87 of Indian Act – establish that

the income was earned on reserve – need to establish “factors connecting” the income with reserve – such as majority of Trustees resident on reserve, Trustee meetings held on reserve

The idea is to have as many elements as possible to support the non-taxability of the income in case CRA challenges the Trust.

M. Annual Income and TaxationAnother way is to establish that First Nation

is a public body carrying on the function of government under the Income Tax Act – income earned by such a body is earned tax free

Preliminary opinion that based upon the progressive and highly developed management of the First Nation, COTFN would qualify for this status

N. Minimum Amount (Article 12)Designed to protect the Trust and future

beneficiaries from the impact of inflationAdjusted at the rate of Consumer Price Index

Capital encroachments - a draw on capital cannot be made if the result would leave the Trust with less than the Minimum Amount ($15 million)

Ensure the Trust’s ability to fund projects for members in the future

N. Impact of InflationYear Value

2004 $12,000,000

Adjusted for Inflation (1.84%)

2012 $13,885714.29

32

Ensure that Trust Property keeps pace with inflation to protect future members

Additions to Trust to maintain Minimum Amount are made out of Realized Capital Gains, if as and when earned

Reliable stream of Annual Income is maintained to fund projects

Year Value

1995 $12,000,000

Adjusted for Inflation (1.94%)

2012 $16,638540.48

N. Capital Encroachments (Article 13)When Trust Capital is at least 115% of the

Minimum Amount, Capital can be used for funding any of the Purposes of the Trust (the 115% is to provide protection from unexpected market declines at the time of the encroachment)

The Encroachment can be by pledging Trust Capital as security

Approval Process: Encroachments up to $150,000 require consultation

with the MembersEncroachments over $150,000 require a Member vote.

O. Governance of Investments (Article 15)Establish minimum credentials & registration

requirements for investment manager

Require Investment Policy Statement

Independent review of investment performance and investment manager at a minimum of once every 4 years

Thank you for your attention

If you have any questions,

please contact the Clench Fraud Trust Office at

1-519-264-2626

Check website periodically. CFT will be hosting on-line Q and A sessions before the vote date to answer your questions. Check www.clenchfraudtrust.ca