Canada: Continuous Disclosure Obligations - Amendments To National Instrument 51-102 (NI 51-102)

Last Updated: June 4 2008
Article by Peter Villani

Originally published January 2008

The New Year brings us further amendments to the Securities legislation and regulations. This article will review certain amendments to NI 51-102 as it pertains to forward-looking information and the use of future-oriented financial information in the continuous disclosure documents of reporting issuers. It will also discuss other changes to the continuous disclosure obligation regime.

Forward-looking information

The amendments to NI 51-102 came into effect on December 31, 2007 and deals with the use of forward-looking information and future-oriented financial information ("FOFI") in continuous disclosure documentation. Issuers often use forward-looking information in order to make certain analyses about their businesses and operations. Frequently, this information is found in an issuer's management discussion and analysis ("MD&A") or in other documents such as the annual information form ("AIF") or in a news release.

The amendments define "financial outlook" as meaning forward-looking information about the prospective results of operations, financial position or cash flows that are based on assumptions about future economic conditions and courses of actions, and that is not presented in a format of a historical balance sheet, income statement or cash flow statement and define FOFI as forward-looking information that is presented in the format of a historical balance sheet, income statement, or cash flow statement.

The amendments seek to regulate the manner in which such information is presented and how changes to such forward-looking information are to be presented.

The amendments apply to forward-looking information that is disclosed by the reporting issuer other than forward-looking information contained in oral statements and prescribe the manner in which such information is to be disclosed:

  • The issuer must have a reasonable basis for the forward-looking information;
  • The issuer is to identify forward-looking information as such;
  • Cautionary language must be used when disclosing forward-looking information stating that actual results may vary from the forward-looking information;
  • The issuer is to identify material risk factors that could cause actual results to differ materially from the forward-looking information;
  • Disclosure regarding the material factors or assumptions used to develop forward-looking information; and
  • The issuer is to describe its policy for updating forward-looking information if such policy includes procedures in addition to those set forth in Section 5.8(2) of the NI 51-102 and relating to the updating of the MD&A.

With respect to FOFI and financial outlook, the National Instrument provides that an issuer must not report FOFI or financial outlooks unless such are based on assumptions that are reasonable in the circumstances and must be limited to a period for which the information can be reasonably estimated and must use the accounting policies the reporting issuer expects to use to prepare its historical financial statements covered by the FOFI or financial outlook. To the extent that such FOFI or financial outlook is used, the issuer must also include disclosure which states the date the management approved the FOFI or financial outlook and explain the purpose of the FOFI or the financial outlook and must also caution readers that the information may not be appropriate for other purposes.

The National Instrument also deals with the manner in which the disclosure relating to previously disclosed material forward-looking information is updated. These measures include discussion in its MD&A or MD&A supplement of events and circumstances that occurred during the period to which the MD&A relates that are reasonably likely to cause actual results to differ materially from material forward-looking information for a period that is not yet complete and that the reporting issuer previously disclosed to the public, as well as such expected differences. However, issuers are also able to comply with this requirement by issuing a press release before the filing of the MD&A and stating which events and circumstances that occurred during the period that are reasonably likely to cause actual results to differ materially from material forward-looking information, and then, subsequently include disclosure in the MD&A that identifies the news release, states the date of the news release and states that the news release is available on SEDAR.

In addition, a reporting issuer must disclosure and discuss in its MD&A material differences between actual results for the annual interim period to which the MD&A relates and any FOFI or financial outlook for the period to which the MD&A relates and that the reporting issuer previously disclosed. To the extent that a reporting issuer decides to withdraw previously disclosed material forward-looking information, then the reporting issuer must, in its MD&A, disclose the decision and discuss the events and circumstances that led the reporting issuer to such a decision, including a discussion of the assumptions underlying the forward-looking information that are no longer valid. However, the reporting issuer may also comply with this requirement if it chooses to release a press release prior to the issuance of the MD&A relating to such decision and then making reference to the news release in the next MD&A.

Other disclosure amendments

The amendments also deal with the inclusion of disclosure in proxy materials and in the AIF of cease-trade orders or orders that deny access to any exemption under securities legislation while a director or executive officer of the issuer was a director, chief executive officer or chief financial officer of the company that was subject to such orders. The issuer must now disclose whether a director or executive officer acted in such capacity for any other company that itself was subject to a bankruptcy order within the last ten (10) years and whether the individual himself was subject to a bankruptcy or insolvency order.

Finally, the amendments also deal with information and disclosure requirements for issuers and companies that are not required to send management information circulars (in the form prescribed by NI 51-102) to its security holders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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