via Calgary Herald - Connacher Denied Bid To Restructure

The following article is about an Oil and Gas company attempting to restructure. The first step is to write off debt and recapitalize. Connacher has been unable to force creditors to accept shares in lieu of debt.

The position of GBN.H is entirely different, where the proceedings are pro-forma, 'as-if' there were actual creditors. But it is a legal proceeding just the same. The recent filings in May contain no assets, no date of execution, no force-majeur clauses, no settlement price for anything, and is essentially the same material we've had to live with for years.

http://calgaryherald.com/business/energy/connacher-denied-bid-to-restructure-in-canada

via Taxlawforchb.com - Recapitalize With Care!

In the US, a recapitalization that GBN.V might be undertaking would be considered the 'Type E' recapitalization. This type of recapitalization is considered a tax-free reorganization.

This is a good example to go by as it clarifies how a company may go about recapitalizing without paying taxes, as the capital is not considered revenue under very specific conditions.

GBN.H is a closely held business, so it's likely that the company will be steered as if it were privately held. If you had voted in favour of the company strategy for the last shareholder meeting, then you are part of the closely held majority and agree with the actions taken.

http://www.taxlawforchb.com/2014/02/recapitalize-with-care-the-irs-is-watching/

http://smallbusiness.chron.com/7-types-corporate-reorganization-17885.html

via ctf.ca -The Taxation Of Corporate Reorganizations

In Canada, the law is essentially the same, where the very specific language in the law refers to "Transfers Of Property To A Corporation" On page 20(1460) of this pdf file, the language is very specific, that the cost of the capital to the transferee (GBN.H) must equal the value of the asset transferred. The transferrer is Sprott Physical Precious Metals Fund, who presently holds the capital for the recapitalization, who will transfer the capital once the cost of capital is met. Under the guise of a default, just the legal proceeding is the circumstance that will allow for a recapitalization(or requires that it occur) Sprott Physical Precious Metals Fund is also considered the "taxpayer". The tranferrred property is cash. Shares issued by the transferree corporation(GBN.H) are the unrefined doré bars, which is not considered inventory under the circumstances. Unrefined gold bars hold a certain "share" of the proceeds and thus can be considered a "share" rather than inventory.

"Subject to these limitations, the amount elected by the taxpayer and the transferee corporation is deemed to be the transferor’s proceeds of disposition of the transferred property and the transferee cor- poration’s cost of the property."

Thus GBN.H will necessarily recapitalize by writing down the entire five years of production since 2010, all of the capital paid for by mine production, which will not be considered revenue. There are two "tranches" of financing, one asset-based, one revenue-based. The revenue-based tranche 'borrowed from the borrowing' and contributes to the overall cost of capital.

It took several tries before comprehending the legal structure.

https://www.ctf.ca/ctfweb/Documents/PDF/1995ctj/1995CTJ5_19_Tetreault.pdf

-F6