Highlights
- changes to clarify and streamline prospectus rules and codify certain previously-granted prospectus relief
- changes to personal information forms of directors and officers and a requirement that non-Canadian directors attorn to Canadian jurisdiction
- additional disclosure regarding use of proceeds of best efforts offering
- additional disclosure requirements for investment funds
- the changes are largely the same as amendments proposed in July 2011
- the amendments will be effective on May 14, 2013
The Canadian Securities Administrators (CSA) have approved final
amendments to the prospectus requirements under Canadian securities
laws, as well as certain consequential amendments to other rules.
The amendments result from proposed amendments that were published
for comment in July 2011 (the July 2011 Proposals), and are very
similar to those proposals – see our July 2011
Blakes Bulletin: CSA Publishes Proposed Amendments to
Prospectus Requirements.
The amendments are intended to clarify certain provisions of the
current prospectus rules, address gaps in the current rules, modify
certain requirements to enhance their effectiveness, remove or
streamline certain requirements that are burdensome and of limited
utility for securityholders, and codify certain types of prospectus
relief that have been granted by the CSA in the past. The most
significant changes remain those relating to the provision of
personal information forms (PIFs) by officers and directors and a
new requirement that all non-Canadian directors of an issuer filing
a prospectus attorn to Canadian jurisdiction and appoint a Canadian
agent for service in connection with the prospectus filing. As a
result of comments received, the CSA have decided not to proceed at
this time with a requirement that had been proposed for
non-Canadian experts (such as lawyers, auditors and geologists) to
also attorn to Canadian jurisdiction and appoint a Canadian agent
for service in connection with a prospectus filing.
This bulletin summarizes the significant amendments.
Amendments Generally Applicable to
Issuers
Best Efforts Offerings With
No Minimum Offering Amount. The amendments will
require additional disclosure in a prospectus about the use of
proceeds raised in an offering where it is a best-efforts offering,
completion is not subject to the issuer raising a minimum amount
and the issuer faces significant short-term non-discretionary
expenditures or significant short-term capital or contractual
commitments, and may not have other readily accessible resources to
satisfy those expenditures or commitments.
In such circumstances, the prospectus will be required to
disclose the use of proceeds with reference to various potential
thresholds of proceeds raised. The prospectus will also have to
disclose the impact of raising each threshold amount on the
issuer's liquidity, operations, capital resources and solvency.
Examples of the type of disclosure that may be required are
contained in amendments to the Companion Policy to National
Instrument 41-101 General Prospectus Requirements (NI
41-101).
In addition, issuers will be required to disclose on the cover
page of the prospectus that they may complete the offering even if
only a small proportion of the offering amount set out in the
prospectus is raised.
Amendments to the Companion Policy to NI 41-101 state the
CSA's position that a regulator may require an issuer to
specify a minimum offering amount in a prospectus where the
regulator has concerns that a minimum amount of proceeds must be
raised in order for the issuer to achieve its stated objectives or
about an issuer's ability to continue as a going concern.
Personal Information Form Reforms. The
amendments will require issuers to deliver a PIF for each director
and executive officer, and each promoter of the issuer and each
director and executive officer of a promoter that is not an
individual, at the time a preliminary prospectus is filed (subject
to a limited exemption, described below, where PIFs have been
delivered within the preceding three years). Individuals will no
longer be able to satisfy PIF delivery requirements by relying on
PIFs that are more than three years old, and will have to complete
new PIFs at least every three years.
The amendments provide that an issuer will not be required to
deliver a PIF for an individual if the issuer, or another issuer
(or the fund manager or another investment fund manager, in the
case of an investment fund) has delivered a PIF of that individual
to the regulator within the previous three years, provided that (1)
the issuer confirms that the responses to certain key questions in
the PIF have not changed, and (2) if the PIF was delivered by
another issuer, the issuer delivers a copy of it or
"alternative information that is satisfactory to the
regulator". Amendments to the Companion Policies to the
prospectus rules indicate that satisfactory alternative
information, for a PIF delivered by another issuer, will generally
be the SEDAR project number for the related prospectus filing and
the name of the other issuer. This exemption requires that issuers
obtain confirmation of the specified responses in previously
delivered PIFs, or any changes, from the relevant individuals every
time they file a prospectus.
The form of PIF has also changed and the new form will be
required after May 14, 2013. The amendments contain transition
provisions that will allow PIFs that have been filed before May 14,
2013 in the current form to be referenced for the next three
years.
Contractual Rights of
Rescission. Canadian securities laws provide
statutory remedies to investors where a prospectus is found to have
contained a misrepresentation. If an investor wishes to exercise a
statutory right to rescind the purchase of a security under a
prospectus, typically the investor must commence an action for
rescission of the purchase within 180 days of the purchase.
As proposed in the July 2011 Proposals, the CSA have amended the
Companion Policy to NI 41-101 to clarify that, in certain
circumstances, where convertible securities are offered under a
prospectus, they will expect issuers to provide purchasers with a
contractual right to receive return of the purchase price for the
convertible security where there is a misrepresentation in the
prospectus, and the conversion, exchange or exercise of the
original security for an underlying security occurred shortly after
(generally within 180 days) the purchase of the original security
under the prospectus. The CSA are concerned that, in the absence of
such a contractual right, a conversion, exchange or exercise of a
security issued under a prospectus, within the period when the
statutory rescission remedy could be available, will deprive the
investor of the rescission rights it would otherwise have since the
investor will no longer hold the original purchased security.
The amendments indicate that the CSA would not normally have
this concern for purchase warrants that are issued under a
prospectus as part of a "unit" together with a common
share. In most cases, the CSA would view such warrants as
incidental "sweeteners", with the true investment
decision being made in relation to the common share component of
the unit.
Exemption from Incorporation by Reference of
Opinions in Proxy Circulars. As proposed in the July
2011 Proposals, the amendments provide an exemption to allow an
issuer to exclude from a short form prospectus, reports,
valuations, statements or opinions of experts, other than audit
reports, that would otherwise be incorporated by reference because
they are included in a management information circular for a
special meeting, if they were prepared for a specific transaction
that is unrelated to the prospectus financing and has been
completed or abandoned. Often, expert reports or opinions in an
information circular, such as a fairness opinion or tax opinion,
are of limited use to prospective investors in a subsequent
financing. Currently, these reports and opinions are required to be
incorporated by reference in a prospectus, although the CSA have
often granted exemptions permitting their exclusion. This amendment
codifies this type of exemption in the short form prospectus
rules.
Directors' and Others'
Submission to Jurisdiction and Agent for
Service. Under Canadian prospectus rules, all
individuals who are directors of an issuer at the time the issuer
files a prospectus are liable for misrepresentations contained in
the prospectus. Under the current rules, non-Canadian issuers and
selling securityholders, and others who sign a certificate in a
prospectus, must file a submission to the jurisdiction of Canadian
courts and tribunals and appoint an agent for service of process in
Canada, but not all non-Canadian directors of an issuer must do so.
The amendments will require all non-Canadian directors of an issuer
to submit to Canadian jurisdiction and appoint an agent for service
in Canada by filing with the regulator a non-issuer's
submission to jurisdiction and appointment of an agent for service
whenever the issuer files a prospectus.
In the July 2011 Proposals, the CSA had asked for comment about
whether to further extend the requirement to file a submission and
appointment form to all foreign experts (such as "qualified
persons" or auditors) who have consented to the disclosure in
a prospectus of information from a report, opinion or statement
made by them. This proposal received the most comment, with 27 of
28 commenters expressing opposition to it. The CSA have decided not
to impose such a requirement at this time.
Primary Business Oil and
Gas Exemption for Operating Statements. As proposed
in the July 2011 Proposals, the amendments extend the exemption
available to oil and gas issuers carrying out acquisitions that
would be considered acquisitions of a primary business or
predecessor entity to rely on operating statements (in lieu of
financial statements) when providing financial disclosure about the
acquisition. In addition, the amendments exempt an oil and gas
issuer from having to provide an audited operating statement for
the third year preceding the date of the prospectus filing if a
recent independent reserves evaluation (in specified form) has been
prepared (and included in the prospectus) with an effective date
within six months of the date of the preliminary prospectus.
Notice of Intention to
File a Short Form Prospectus – Exemption for Certain
Issuers. The amendments to the short form prospectus
rules, as proposed in the July 2011 Proposals, will exempt certain
successor issuers and issuers proposing to issue debt securities or
preferred shares guaranteed by a reporting issuer parent (credit
support issuers) from having to wait 10 business days after filing
a notice of intention to file a short form prospectus until being
able to file their preliminary prospectus. The successor issuer or
credit support issuer will still have to file a notice of intention
prior to or concurrently with its preliminary short form
prospectus, and the predecessor issuer or credit supporter (as
applicable) must have previously filed a notice of intention to
file a short form prospectus or been deemed to have done so. This
refinement of the rule will simplify access to the short form
prospectus regime for these types of issuers.
Amendments Applicable to Investment Funds
The amendments include a number of amendments to the prospectus
disclosure requirements applicable to investment funds, largely
consistent with the July 2011 Proposals, including the
following.
Leverage Disclosure for Investment
Funds. An investment fund will be required to include
in its prospectus disclosure concerning the use of leverage used as
an investment strategy by the fund. A fund will be required to
disclose:
- the maximum amount of leverage it may use as a ratio of its maximum total assets divided by its net asset value, any restrictions on the leverage and whether the fund will borrow a minimum amount, if the leverage is created through borrowing or the issuance of preferred securities; and
- the maximum amount of leverage it may use as a multiple of net
assets, any restrictions on the leverage and whether the fund will
use a minimum amount of leverage, and explain how the investment
fund defines the term "leverage" and the significance of
the maximum and minimum amounts of leverage to the fund; this
disclosure is required for funds that create leverage through the
use of specified derivatives (i.e., options, forwards and swaps) or
similar instruments.
This amendment codifies disclosure that the CSA have been
requiring for some time.
Trading Expense Ratio Disclosure. The
amendments introduce a new requirement that investment funds
disclose their "trading expense ratio" for the five years
for which annual return and management expense ratio is currently
required to be provided. Trading expense ratio is described as the
total trading commissions and portfolio transaction costs of the
investment fund as an annualized percentage of daily average net
asset value.
Organization and Management Details of the
Investment Fund. The amendments implement previously
proposed requirements for investment funds to include more detailed
information concerning certain key persons involved in the
management of the fund, including requirements for greater detail
as to previous bankruptcies or cease trade orders affecting any
issuer with which directors or executive officers of an investment
fund or its investment fund manager held a director or executive
officer position, and enhanced disclosure of ownership interests in
the fund and its manager for directors and executive officers of
the fund and its manager and members of the fund's independent
review committee.
Principal Distributor for Investment Funds. Principal distributors of investment funds will be required to sign a certificate for an investment fund in the same form as an underwriter, stating that the prospectus contains full, true and plain disclosure of all material facts "to the best of its knowledge, information and belief". This is a change from the July 2011 Proposals, which had proposed requiring principal distributors to sign a certificate in the same form as a fund manager, without the qualification "to the best of its knowledge, information and belief".
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.