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ARCHIVED - Broadcasting Decision CRTC 2012-593

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Route reference: 2012-224

Ottawa, 26 October 2012

Radio Sept-Îles inc.
Sept-Îles, Quebec

Applications 2011-1427-2 and 2011-1429-8, received 21 October 2011, and application 2011-1578-3, received 7 December 2011
Public hearing in the National Capital Region
19 June 2012

CKCN-FM Sept-Îles – Changes in ownership and effective control

The Commission approves the application by Radio Sept-Îles inc. (Radio Sept-Îles) for authorization to change its effective control under paragraph 11(4)(a) of the Radio Regulations, 1986 (the Regulations) by transferring to Mr. Langis St-Gelais the voting shares held by Mr. Richard Bourgoing in the parent company of Radio Sept-Îles, Média Nord-Côtiers inc. (Médias Nord-Côtiers).

The Commission also approves the application by Radio Sept-Îles for authorization under paragraph 11(4)(a) of the Regulations to transfer to Mr. Yvan Beaulieu the responsibilities related to the operations, management and employees of Radio Sept-Îles according to the terms of a local management agreement.

Finally, the Commission approves the application by Radio Sept-Îles for authorization to change its effective control under paragraph 11(4)(a) of the Regulations by transferring the shares held by Mr. St-Gelais in Médias Nord-Côtiers to Mr. Jean Laverdière, Mr. Luc Hovington, Mr. Alban Plourde and Mr. Yvan Beaulieu through their holding corporations. The effective control will be exercised by their respective boards of directors.

Introduction

1. The Commission received three applications by Mr. Langis St-Gelais on behalf of Radio Sept-Îles inc. (Radio Sept-Îles) for authorization to change the effective control of Radio Sept-Îles, licensee of the French-language commercial radio undertaking CKCN-FM Sept-Îles, Quebec.

2. In June 2008,1 the Commission approved an application to change the effective control of Radio Sept-Îles to Médias Nord-Côtiers inc. (Médias Nord-Côtiers), a company owned by Mr. St-Gelais (33.33% of voting shares) and Mr. Richard Bourgoing (66.67% of voting shares). As principal shareholder, Mr. Bourgoing exercised effective control of the company.

3. This decision addresses various transactions affecting the effective control of Radio Sept-Îles that occurred between 2009 and 2011, as follows:

Transfer of shares and change in effective control (application 2011-1427-2)

Transfer of shares and change in effective control (application 2011-1429-8)

4. The Commission received interventions offering general comments concerning the last two applications, as well as several interventions in support of these applications. The public record for this proceeding can be found on the Commission’s website at www.crtc.gc.ca under “Public Proceedings.”

5. In Broadcasting Notice of Consultation 2012-224, the Commission noted that Radio Sept-Îles may have failed to comply with section 11(4)(a) of the Radio Regulations, 1986 (the Regulations) on three occasions by changing its effective control without obtaining the Commission’s prior approval.

6. The Commission also indicated in that notice that the licensee was in apparent non-compliance with section 15 of the Regulations with respect to its contributions to Canadian content development (CCD) for the 2009–2010 broadcast year. The Commission further noted that the tangible benefits flowing from the 2008 transaction had not been paid in full.

7. In that notice, the Commission stated that it intended to inquire into this matter at the hearing and that it expected the licensee to show cause as to why the Commission should not issue a mandatory order under section 12 of the Broadcasting Act (the Act) requiring the licensee to comply with the Regulations and its conditions of licence.

8. The Commission further reminded the licensee that it could consider additional measures, such as suspension or revocation of the licence, pursuant to sections 9 and 24 of the Act.

Commission’s analysis and decisions

9. After reviewing the public record for this proceeding in light of applicable regulations and policies, the Commission considers that the issues it must address are the following:

Transfer of shares and change in effective control (application 2011-1427-2)

10. Mr. St-Gelais, on behalf of Radio Sept-Îles, filed an application with the Commission on 21 October 2011 seeking authorization to change the effective control of Radio Sept-Îles under section 11(4)(a) of the Regulations. This application is pursuant to a transaction that would have occurred on 17 December 2009 upon signature of a purchase agreement between the two shareholders of Médias Nord-Côtiers (the agreement) and for which the licensee did not obtain the Commission’s prior approval.

11. The voting shares held by Mr. Bourgoing in Médias Nord-Côtiers would have thus effectively been transferred to Mr. St-Gelais upon signature of the agreement. The agreement covered the temporary transfer to Mr. St-Gelais of the voting shares held by Mr. Bourgoing in accordance with specific terms and for compensation in the amount of $1.

12. According to the terms of the agreement, Mr. Bourgoing fully and finally released Médias Nord-Côtiers, Radio Sept-Îles or Mr. St-Gelais from any past, present or future claim of any kind that he had or might have as a shareholder, administrator, employee or in any other capacity. For their part, Médias Nord-Côtiers, Radio Sept-Îles and Mr. St-Gelais acknowledged that they had no obligations to Mr. Bourgoing and that nothing more was owed to him.

13. The Commission notes that the agreement also discussed the potential buyback of all voting shares of Médias Nord-Côtiers by Mr. Bourgoing for $100,000 and some adjustments set out in the agreement.

14. The Commission notes that Mr. St-Gelais and Mr. Bourgoing were in disagreement regarding the events that led to the signature of the agreement and that at the hearing the Commission heard each party’s arguments relating to the transaction. The Commission notes that the agreement dated 17 December 2009 was indeed signed by all parties and that no one contests its existence. The Commission also notes that the option to buy back the voting shares of Médias Nord-Côtiers set out in the agreement was not exercised within the specified timeframe. The Commission also received confirmation at the hearing that as of 19 June 2012, no legal challenge had been filed by either party.

15. In light of the preceding, the Commission concludes that the transfer of shares and change in effective control as described above did in fact occur, such that Mr. St-Gelais holds all the voting shares in Média Nord-Côtiers, and that this occurred without prior notification of the Commission.

Change in effective control – temporary management (application 2011-1578-3)

16. After the agreement was signed, Mr. St-Gelais began negotiations with a group of potential purchasers, namely Mr. Laverdière, Mr. Hovington, Mr. Plourde and Mr. Beaulieu and their holding corporations (the purchasers). These negotiations led to the signature on 7 July 2010 of an agreement in principle with an option to purchase voting shares in the capital of Médias Nord-Côtiers, which could be exercised no later than 31 August 2011. This purchase option was conditional upon the financial recovery of Radio Sept-Îles.

17. On 26 July 2010, 19 days after the agreement in principle was signed, Mr. St-Gelais signed an employment contract with Mr. Beaulieu, one of the purchasers, under which Mr. Beaulieu would be compensated for the day-to-day management of CKCN-FM, including accounting and staff, with a mandate to rectify the station’s financial situation. Mr. Beaulieu then assumed the duties of general manager and approved the local management agreement through the signature of an employment contract dated 26 July 2010. Since that time, Mr. Beaulieu has supervised the station’s day-to-day activities and operations, and managed and supervised the employees.

18. In addition to his role as station manager, on 15 August 2010 Mr. Beaulieu signed, as a representative of Radio Sept-Îles, a two-year lease with Gestion Laverco Inc. (Laverco), (a holding corporation of Mr. Laverdière, one of the purchasers), for the building at Sept-Îles, with the result that as of that date Radio Sept-Îles has been located at the same address as CIPC-FM Port-Cartier. The Commission notes that Radio Port-Cartier inc. (Radio Port-Cartier), licensee of CIPC-FM, is owned by Vision Marine inc. (80% of voting shares) and Jean Vézina (20% of voting shares). Radio Port-Cartier is controlled by its board of directors, which consists of Mr. Laverdière (Chair), Mr. Hovington (Vice-Chair) and Mr. Hervieux (Chief Executive Officer), two of which number among the purchasers. The Commission also notes that beginning in 2006, Mr. Beaulieu assumed the duties of Chief Executive Officer of Radio Port-Cartier until he was replaced in early 2011.

19. In light of the above, the Commission finds that the day-to-day management of CKCN-FM was in fact transferred to Mr. Beaulieu when the employment contract was signed on 26 July 2010 and that this occurred without prior notification of the Commission.

Transfer of shares and change in effective control (application 2011-1429-8)

20. As set out in the agreement in principle dated 7 July 2010, the purchasers had the option to purchase all the voting shares of Médias Nord-Côtiers. They exercised this option on 31 August 2011 and subsequently filed an application with the Commission seeking authorization to acquire through their holding corporations all the voting shares in the capital of Médias Nord-Côtiers held by Mr. St-Gelais.

21. Pursuant to the transaction, the holding corporations would become equal shareholders, each holding 25% of the voting shares in Médias Nord-Côtiers. These corporations, namely Laverco, Gestion Albanco inc. (Albanco), Investissements HLC inc. (HLC) and Gestion Yvanco inc. (Yvanco), are owned and controlled by their respective single shareholders, namely Mr. Laverdière, Mr. Plourde, Mr. Hovington and Mr. Beaulieu.

22. Following this transaction, the effective control of Radio Sept-Îles and Médias Nord-Côtiers would be exercised by their respective boards of directors, both of which consist of Mr. Laverdière, Mr. Hovington, Mr. Plourde and Mr. Beaulieu. Once again, the Commission notes that it was not given prior notification of this transaction, as required under section 11(4)(a) of the Regulations.

Value of the transaction (application 2011-1578-3)

23. As set out in Broadcasting Public Notice 2008-57, the Commission determines the value of a transaction for the purposes of calculating tangible benefits by using the overall value of the transaction and taking into account adjustments such as the recovery of debts and leases.

24. The applicant submitted a calculation of the value of the transaction in accordance with Commission practice. The calculation is shown below:

Price paid for voting shares           $302,500

Adjustments:                     

   Recovered debts                   

Shareholder advance                     $35,000

Bank debt                                  $211,306

Balance of sale                             $47,282

Recovered leases                          $34,006

Value of the transaction               $630,094

25. The Commission is satisfied that the transaction value as calculated by the applicant is consistent with its general practice. Therefore, the Commission considers it appropriate to use the transaction value of $630,094 for the purposes of calculating the tangible benefits.

Proposed tangible benefits package

26. In Broadcasting Public Notice 2006-158, the Commission set out the requirement that applicants seeking to acquire ownership or control of profitable radio undertakings make contributions to CCD in the form of tangible benefits amounting to no less than 6% of the value of the transaction.

27. Because CKCN-FM has been profitable for a number of years, the Commission considers it appropriate to require tangible benefits in the amount of $37,806. The applicant committed to paying $37,806 in tangible benefits, representing 6% of the value of the transaction, to be allocated over a period of seven consecutive broadcast years as follows:

28. Consistent with Broadcasting Regulatory Policy 2010-499, the Commission has amended the allocation of tangible benefits as follows:

29. The Commission expects the tangible benefits package to be allocated according to this formula over a period of seven consecutive broadcast years.

Non-compliance with section 11(4)(a) of the Regulations

30. In Broadcasting Notice of Consultation 2012-224, the Commission noted that Radio Sept-Îles appeared to be in non-compliance with section 11(4)(a) of the Regulations due to changes in its effective control that occurred without the Commission’s prior approval.

31. At the hearing, the Commission questioned the licensee concerning the three instance of non-compliance and in particular, the reasons for which prior approval was not obtained and for the licensee’s delay in informing the Commission of the situation following each transaction. Of the main reasons raised by the parties at the hearing, the Commission retains the nature of the first transaction, the lack of communication between the parties and their personal issues.

32. Having determined that each of the three transactions and changes in effective control were effected without the Commission’s prior approval, the Commission finds that Radio Sept-Îles failed to comply with section 11(4)(a) of the Regulations on three separate occasions.

Unfulfilled tangible benefits flowing from the 2008 transaction

33. In its June 2008 letter, the Commission approved an application for change in effective control of Radio Sept-Îles. In this letter, the Commission stipulated that a tangible benefits package of $48,243 was to be paid over a period of seven consecutive broadcast years as follows:

34. To date, Radio Sept-Îles has reported a contribution of $11,486 since the 2008-2009 broadcast year, the first year of payments, leaving $36,757 in unpaid tangible benefits.

35. However, upon verification, the Commission notes that some of the proofs of payment submitted by the licensee are insufficient, including those for the 2008-2009 to 2010-2011 broadcast years, as described in the table below.

Broadcast Year Sums reported by the licensee without proof Remarks
2008–2009 $2,297 to MUSICACTION A single cheque as proof for two separate years (2009 and 2010). Payment for one of these two years therefore remains unjustified.
2009–2010 $3,446 to Fonds Radiostar Oral confirmation to the licensee of receipt of payment; Commission awaiting written proof.
2010–2011 $3,446 to Fonds Radiostar Oral confirmation to the licensee of payment; Commission awaiting written proof.
TOTAL: $9,189

36. In the absence of satisfactory proofs of payment, the Commission considers these amounts to be unpaid. Consequently, the total amount of unpaid tangible benefits is $45,946 (i.e., the original amount of $48,243 minus the $2,297 paid and for which proof of payment was submitted). In the event that the licensee is able to provide the missing proofs for the other alleged payments of $9,189 by the end of the tangible benefits period (i.e., by the 2014–2015 broadcast year), the Commission will adjust the amount of unfulfilled tangible benefits to be allocated accordingly.

Non-compliance concerning contributions to CCD

37. Under section 15 of the Regulations, a licensee of a commercial radio programming undertaking is required to make an annual basic contribution to CCD based on its revenues in the previous broadcast year.

38. In Broadcasting Notice of Consultation 2012-224, the Commission noted that the licensee appeared to be in non-compliance with section 15 of the Regulations as regards its CCD contributions for the 2009-2010 broadcast year. Specifically, the Commission notes that the licensee reported the payment of mandatory CCD contributions for that broadcast year, but that the proofs of payment provided were insufficient. In effect, the licensee included a copy of cheques made out to the recipients, but proof that the cheques were received and cashed by the recipients was still missing. The Commission notes that without the appropriate proof, the payments must be considered past due.

39. In response to a letter from the Commission dated 7 November 2011, the licensee sent the necessary proofs of payment. The Commission acknowledges the efforts made by the licensee to rectify the non-payment for the 2009-2010 broadcast year. It considers that the documents provided effectively rectify this non-payment and that the licensee met its obligations relating to CCD, as set out in section 15 of the Regulations.

40. The Commission notes, however, that there may have been a non-compliance by Radio Sept-Îles with regard to the filing of its annual return for the 2009-2010 broadcast year.

41. Section 9(2) of the Regulations states that licensees must submit to the Commission a statement of accounts, on the annual return of their licensee form, for the year ending on the previous 31 August. As set out in Broadcasting Information Bulletins 2009-251 and 2011-795, a licensee is required to submit details concerning the CCD initiatives funded by its station with its annual return. These details include the name of the recipient of the CCD payment, the amount paid and the cheque and/or invoice number, as well as copies of cancelled cheques or receipts and documentation supporting the eligibility of the initiative.

42. The Commission notes that licensees are required to ensure that all of the appropriate forms and documents are included with their annual returns. Given the lack of information provided by the licensee when it submitted its annual returns for the 2009-2010 broadcast year, the Commission concludes that the licensee is in non-compliance with section 9(2) of the Regulations for that broadcast year. The Commission is encouraged by the licensee’s efforts to rectify the non-payment for the 2009-2010 broadcast year. However, on a going forward basis, it expects the licensee to provide all necessary proofs with its annual returns.

Regulatory measures

43. The Commission notes in particular the licensee’s three instances of non-compliance with section 11(4)(a) of the Regulations. It also notes the comments made by each party relating to these non-compliances. Of the main reasons for non-compliance raised by the parties, the Commission retains the nature of the first transaction, the lack of communication between the parties and their personal problems.

44. The Commission is of the view that in this case, the licensee’s non-compliance with regulatory requirements was in large part involuntary. The Commission considers that the explanations provided are satisfactory under the circumstances and finds that the licensee has understood the gravity of the situation and its shortcomings as regards compliance with the Regulations. Consequently, the Commission considers it appropriate to approve the present applications without imposing additional regulatory measures, such as a mandatory order under section 12 of the Act requiring the licensee to comply with the Regulations. However, the Commission reminds the licensee that it must comply with all of its regulatory requirements at all times. The Commission notes that the non-compliances could be taken into account at the next licence renewal for the station.

45. The Commission also reminds the licensee that it must follow up on its adherence to its regulatory requirements, including the non-compliances, and must ensure that it follows up, when undergoing changes in effective control, with persons that will one day be required to exercise control. 

Conclusion

46. In light of all of the above, the Commission considers that the three applications constitute the best possible proposals under the circumstances and that their approval would be in the public interest.

47. Therefore, the Commission approves the application by Radio Sept-Îles inc. for authorization to change its effective control under section 11(4)(a) of the Regulations by transferring the shares held by Mr. Richard Bourgoing in the parent company of Radio Sept-Îles inc., Médias Nord-Côtiers inc., to Mr. Langis St-Gelais.

48. The Commission also approves the application by Radio Sept-Îles for authorization under section 11(4)(a) of the Regulations to transfer to Mr. Yvan Beaulieu the day-to-day responsibilities related to the operations, management and employees of Radio Sept-Îles according to the terms of a local management agreement.

49. Finally, the Commission approves the application by Radio Sept-Îles for authorization to change its effective control under paragraph 11(4)(a) of the Regulations by transferring the shares held by Mr. St-Gelais in Médias Nord-Côtiers, the parent company of Radio Sept-Îles, to Mr. Jean Laverdière, Mr. Luc Hovington, Mr. Alban Plourde and Mr. Yvan Beaulieu through their holding corporations. The effective control will be exercised by their respective boards of directors.

50. The Commission reminds the licensee that the Commission will discuss the licensee’s compliance with the Regulations and its conditions of licence at CKCN-FM’s licence renewal.

Secretary General

Related documents

*This decision is to be appended to the licence.

Footnote

[1] This broadcasting licence was administratively renewed on 13 June 2008 in Broadcasting Public Notice 2008-77.

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