Timely Disclosure

Timely Disclosure

Updates and Commentary on Current issues in M&A, Corporate Finance and Capital Markets

Securities Regulators to IIROC: Get Tougher!

The Canadian Securities Administrators (CSA) have demanded that the Investment Industry Regulatory Organization of Canada (IIROC) boost business conduct compliance activities after the CSA noted serious deficiencies in multiple consecutive oversight reviews. In an Oversight Review Report on IIROC published July 4, 2017 (Report), CSA flagged ‘Business Conduct Compliance’ as a high priority area requiring immediate action. This public censure will likely result in stricter enforcement of IIROC dealer members.

The Report comes out of an oversight review of IIROC conducted by staff of seven provincial securities regulators, covering a period from April 1, 2015 to July 31, 2016. The purpose of the review was to assess whether the selected regulatory processes of IIROC were “effective, efficient, and applied consistently and fairly, and whether IIROC complied with the terms and conditions of the [CSA members’] recognition orders.” The Report also evaluated whether recommendations in the previous Oversight Review Report published on March 3, 2016 (covering the year before the period addressed by the current Report) (Previous Report) had been dealt with satisfactorily. The Report categorized deficiencies as high, medium, or low priority. High priority items “will result in IIROC not meeting its mandate” and require IIROC to “immediately put in place an action plan,” the implementation of which is to be directly monitored by the CSA.

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The Supreme Court of Canada rules on the personal liability of corporate directors

(The full version of this bulletin was originally published on our website – “The Supreme Court of Canada rules on the personal liability of directors in the context of the oppression remedy” – July 17th, 2017.)

The Supreme Court of Canada rendered a decision in Wilson v. Alharayeri, in which it discusses situations that could lead to the personal liability of a corporate director in the context of an action for corporate oppression under section 241 of the Canada Business Corporations Act (‘‘CBCA’’).

The Court stated that there is no doubt that a director can be held personally liable under this provision, as it confers broad powers to the courts and provides an impressive number of remedies in favour of the complainant. The Court added, however, that section 241 does not identify the situations in which an order for compensation may properly lie against the corporate directors personally, as opposed to the corporation itself. This question was the focus of the Supreme Court’s decision.

In line with the decisions rendered by the Superior Court and the Quebec Court of Appeal, the Supreme Court held that the two directors were personally liable considering that (i) the oppressive conduct was properly attributable to them because of their personal involvement in the oppressive conduct and (ii) this personal liability was relevant in light of the circumstances. In doing so, the Supreme Court refused to depart from the lessons learned from the Ontario Court of Appeal’s decision in Budd v. Gentra Inc (hereafter ‘‘Budd’’).

In reaching this conclusion, the Supreme Court of Canada reiterates that the remedial purpose of the oppression remedy is one of commercial fairness. As such, the slavish respect of rigid criteria is to be avoided in favor of an analysis of the circumstances of each particular case. Having said this, the good or bad faith of the director and whether or not he obtained personal gain are factors to consider.

Continue reading to learn how this SCC decision affects the personal liability of a corporate director in the context of oppression remedy.

A Review of CSA Consultation Paper 52-403: Auditor Oversight Issues in Foreign Jurisdictions

On April 25, 2017, the Canadian Securities Administrators (CSA) published a consultation paper to obtain stakeholders’ views on introducing enhanced oversight requirements for foreign audit firms. Specifically, the paper discusses a proposal by the Canadian Public Accountability Board (CPAB) to amend National Instrument 52-108 Auditor Oversight (NI 52-108) to require foreign audit firms to register with CPAB as a Participating Audit Firm (PAF) should they be auditing a reporting issuers’ financial statements.

Foreign auditors, also referred to as “component auditors”, are often engaged when a reporting issuer’s operations are in a jurisdiction different from that of the issuer’s head office. In such instances, the issuer or its primary auditor may decide to engage a component auditor to conduct an audit on financials related to foreign operations. Continue Reading

New Themes and Direction Resulting from CSA Consultation Paper 33-404


On May 11, 2017, the Canadian Securities Administrators (CSA) published CSA Staff Notice 33-319 Status Report on CSA Consultation Paper 33-404 Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients (Notice).

The Notice provides a high level summary of the consultation process to date regarding CSA Consultation Paper 33-404 Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients (Consultation Paper), and identifies certain high level themes arising in the process and gives a sense of the direction that the CSA will take in regards to certain of the proposals from the Consultation Paper.


The Consultation Paper is part of the CSA’s effort in improving the relationship between clients and their advisers, dealers and representatives, and sought comments on proposed regulatory action aimed at enhancing same.  The Consultation Paper proposed two regulatory changes: (1) amendments to NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) that would work together to better align the interests of registrants to the interests of their clients and enhance various specific obligations that registrants owe to their clients, and (2) a regulatory best interest standard, accompanied by guidance, that would form both an over-arching standard and the governing principle against which all other client-related obligations would be interpreted.  All CSA jurisdictions are participating in the consultation process on these topics, with the exception of the British Columbia Securities Commission who is only consulting on the proposed amendments to NI 31-103. Continue Reading

CSA Proposed Amendments: Foreshadowing Future Changes to the Securities Resale Regime?

Downtown Hong Kong

CSA Proposed Amendments to Increase Canadian Investors’ Access to Exempt Market Offerings by Foreign Issuers


On June 29, 2017, the Canadian Securities Administrators (CSA) released proposed amendments to National Instrument 45-102 Resale of Securities (NI 45-102) and corresponding amendments to  Companion Policy 45-102CP to National Instrument 45-102 Resale of Securities for a 90-day comment period.  The proposed amendments relate primarily to section 2.14 of NI 45-102 which sets out a prospectus exemption permitting the resale of securities by an investor where the issuer of those securities is not a reporting issuer in any Canadian jurisdiction.

Currently, section 2.14 permits the resale of securities on a prospectus exempt basis only if the issuer was a non-reporting issuer at the time of the distribution or at the time of the resale; residents of Canada, at the distribution date, did not own more than 10% of the outstanding securities of the class or series and did not represent more than 10% of the total number of security holders (10% Ownership Ceiling); and the resale is made on an exchange or market outside of Canada or to a person or company outside of Canada.

The purpose of the existing section 2.14 exemption is to permit the resale of securities over foreign markets or to persons outside of Canada if the issuer has minimal connection to Canada and it is unlikely that a market for these securities would be developed in Canada.  The 10% Ownership Ceiling was initially intended to define when an issuer has minimal connection to Canada.  The proposed amendments to section 2.14 remove the 10% Ownership Ceiling for Canadian residents. Continue Reading

Should Securities Regulators Play a Larger Role in Canadian Capital Markets?

Investor Protection & Dual Class Share Structures

The recent initial public offerings (IPOs) of major players in the Canadian market, including Aritzia in September 2016, Freshii in January 2017 and Canada Goose in March 2017, have sparked debate about the use of dual class share structures and whether regulatory reform is necessary in order to ensure adequate investor protection.

Corporate Legislation of Dual Class Share Structures:

Pursuant to section 24(3) of the Canada Business Corporations Act (CBCA),[1] when a corporation has only one class of shares, the rights of the holders of those shares are equal in all respects and include the right to vote at any meeting of shareholders of the corporation; to receive any dividend declared by the corporation; and to receive the remaining property of the corporation on dissolution.

Section 24(4) of the CBCA allows for a corporation to have more than one class of shares (Dual Class Share Structure).  The CBCA requires that the rights, privileges, restrictions and conditions attaching to each class of shares be set out; and that the rights to vote, to receive any dividend declared, and to receive the remaining property of the corporation on dissolution be attached to at least one class of shares, but all such rights are not required to be attached to one class.

Although the use of a Dual Class Share Structure is allowed by the CBCA (as well as by provincial corporate legislation, including the Business Corporations Act (Ontario)), securities regulators have imposed some regulations regarding the use of such a structure. For example, the Toronto Stock Exchange (TSX) requires that companies issuing a class of shares with multiple votes have a coattail provision in order to ensure that all investors are treated equally in the case of a takeover[2], and the Securities Act (Ontario) mandates various initial and continuous disclosure requirements for securities issuers.[3]

Pros and Cons of Dual Class Share Structures:

Proponents of Dual Class Share Structures argue that dual classes allow the corporation’s management to focus on the long term success and profitability of the corporation. Further, dual classes may encourage entrepreneur controlled companies to access public capital markets and provide investors the opportunity to purchase shares in companies that they otherwise would not be able to purchase. Allowing this type of structure is in line with the principle of freedom of contract.[4]

Critics of Dual Class Share Structures argue that such structures allow a company to access public capital (which is generally cheaper than private capital) and to continue to control the company without taking on the associated financial risk.  Dual Class Share Structures may entrench poor performing management by insulating management from accountability to shareholders for their actions.

Best Practices & Calls for Regulation:

The Canadian Coalition for Good Governance (CCGG) has provided several best practice principles for companies that use Dual Class Share Structure such as ensuring that the holders of the multiple voting share class have a meaningful equity stake in the company, and that a ratio of voting rights between the two classes of shares should generally not be more than 4 to 1.  CCGG further suggests that all reporting issuers that use a Dual Class Share Structures, even those that are not listed on the TSX, adopt a coattail provision and recommends standardizing the form of coattail provisions to be used by these companies.

Some commentators have also suggested that securities regulators consider further regulating the law relating to the use of Dual Class Share Structures in order to ensure they are serving their stated purpose, part of which involves providing “protection to investors from unfair, improper or fraudulent practices”.[5] Some suggested areas of further regulation include requiring that companies using a dual class share structure implement sunset provisions, which terminate the superiority of the superior share class at a certain time[6], as well as mandating additional change of control procedures.[7]  So continues the duel on dual class shares.

[1] Canada Business Corporations Act, RSC 1985, c 27.

[2] Yvan Allaire, “Dual-class of shares: with the proper framework, a benefit for all”, Institute for Governance of Private and Public Organizations (27 May 2015)

[3] See, for example, National Instrument 51-102 and National Instrument 41-101.

[4] Canadian Coalition for Good Governance, “Dual Class Share Policy”, CCGG Publication (September 2013) [CCGG].

[5] Securities Act, RSO 1990, c S.5, s 1.1(a).

[6] Barry J Reiter, “Dual-Class Shares: Not the Enemy”, Mondaq (13 October 2010)

[7] Anita Anand and Tegan Valentine, “What’s Wrong with Aritzia’s IPO?”, Canadian Business Law Blog, Faculty of Law, University of Toronto (27 September 2016)

Canadian Securities Administrators Publish 2016 Enforcement Report

The Canadian Securities Administrators have published their 2016 Enforcement Report (Report) describing the securities law enforcement process and analyzing enforcement results from 2016. The Report discusses a variety of enforcement matters, including number and type of proceedings commenced and results of enforcement proceedings.

A subset of the Report’s findings include:

  • There were 109 enforcement matters concluded in 2016, compared to 145 cases concluded in 2015. A matter is concluded when a decision is issued or a settlement is reached.
  • There were 56 enforcement matters commenced in 2016 compared to 108 matters commenced in 2015.
  • The majority of the concluded and commenced matters in 2016 were related to illegal distributions of securities with the second highest frequency of matters being related to fraud. These results followed a similar pattern to 2015.
  • In 2016, 57% of concluded matters were decided by a contested hearing before a tribunal. A settlement was reached in 21% of concluded matters and a court decision was issued in 22% of concluded matters.
  • The aggregate amount of fines, penalties and other similar payments that were ordered in 2016 was approximately $62 million compared to approximately $138 million in 2015. The aggregate amount of restitution, compensation and disgorgement ordered in 2016 was approximately $350 million compared to approximately $112 million in 2015.

The Report also summarized certain cases in the areas of fraud, illegal distributions and market manipulation, among others.

New disclosure obligation: What you should know about the “Financial Information – Annual form”

Fasken Martineau’s Investment Products and Wealth Management team wishes to remind dealers and advisers registered under the Securities Act (Quebec) (the “registrants“) that as of June 19, 2017, registrants are subject to a new financial information disclosure obligation. Registrants whose main regulator is the Autorité des marchés financiers (the “AMF“) must now complete a new annual form which can be downloaded from the AMF’s website.

The new Financial Information – Annual form enables the AMF to analyze the risks associated with each registrant more effectively by centralizing financial information, and automating the process in order to reduce the number of omissions by registrants when disclosing financial information. The form does not create an obligation to provide new information to the AMF. Instead, the purpose is to gather information already subject to disclosure in one document and to remind registrants about certain obligations. The new obligation does not generate any additional costs for registrants.

Implementation period for filing the Financial Information – Annual form

The obligation to file the Financial Information – Annual form is not codified and is based on the AMF’s general power to require disclosure of any document or information believed to be useful in accomplishing its mission. Failure to comply with the obligation to file the form may result in administrative penalties.

The period and process for implementing the filing obligation will be done in steps according to the date of each registrant’s financial year-end:

  • Registrants whose financial year-end falls between December 31, 2016, and February 28, 2017, (registrants having normally already filed their audited non-consolidated annual financial statements and calculation of excess working capital) must file steps 4 to 9 in the form before October 31, 2017. Steps 4 to 9 must be filed by email at: inscription@lautorite.qc.ca, or by regular mail at the address indicated on the form;
  • Registrants whose financial year-end falls between March 31 and June 30, 2017, must complete and file the entire form no later than October 31, 2017, by email at the address indicated above or via the E-Services platform accessible on the AMF website(the “E-Services”)Note that these registrants must still file their audited non-consolidated annual financial statements and calculation of excess working capital no later than 90 days following the fiscal year-end;
  • Registrants whose financial year-end falls on July 31, 2017, or after must complete and file the entire form together with their audited non-consolidated annual financial statements and calculation of excess working capital no later than 90 days following the fiscal year-end.

Starting January 2018, every registrant must file the form together with their audited non-consolidated annual financial statements and calculation of excess working capital no later than 90 days after the end of their fiscal year.

Compliance mechanisms

Last, note that E-Services users will no longer be able to file their audited non-consolidated annual financial statements and calculation of excess working capital without completing the Financial Information – Annual form. It will also not be possible to submit the form if a field has not been filled out correctly.

Please don’t hesitate to contact our Investment Products and Wealth Management team should you have any questions about the new Financial Information – Annual form. We will be happy to help you complete the form.

The SCC Confirms No Right to a Jury Trial for Securities Law Offences

calgary-1751846_1920The Supreme Court of Canada (SCC) recently dismissed two separate appeals whereby the defendants, Ronald Aitkens and Jeremy Peers, argued for a right to trial by jury for securities law offences.

Aitkens and Peers were charged with offences under the Securities Act (Alberta). Section 194 of the Securities Act (Alberta) provides for a maximum penalty of a fine of $5 million, imprisonment for a term of not more than five years less a day, or both. Section 11(f) of the Canadian Charter of Rights of Freedoms (Charter) provides for a right to a trial by jury in cases where the maximum punishment for the offence is imprisonment of at least five years or a “more severe punishment”. Aitkens and Peers argued that the potential punishment of five years less a day, plus a $5 million fine amounted to a “more severe punishment”, thereby giving them the right to a jury trial pursuant to the Charter.

The Alberta Court of Appeal dismissed the appeal by Aitkens and Peers in December 2015 noting that the purpose of Section 11(f) was obviously to entrench the traditional right to a trial by jury for the most serious offences. In addition, the Alberta Court of Appeal noted that if the drafters of the Securities Act (Alberta) thought that a combination of imprisonment and fines should compel a jury trial, one would expect some reference to that.

On February 14, 2017, the SCC heard Aitkens and Peers’ appeals and issued a unanimous ruling, dismissing the appeals, substantially for the reasons of the majority of the Alberta Court of Appeal.

Aitkens’ trial is scheduled for April 2018. Peers pled guilty in February 2016.

This decision confirms that securities law offences will continue to be prosecuted in provincial courts in trials before a judge alone. In addition the decision confirms that adding economic sanctions to a prison term of five years less a day does not does amount to a “more severe punishment” and therefore does not trigger Section 11(f) of the Charter.

The Repeal of Ontario’s Bulk Sales Legislation

buildings-1194224_1920On March 22, 2017, Ontario’s Bulk Sales Act (BSA) was repealed by way of Schedule 3 of Ontario’s Burden Reduction Act. This repeal marks the end of bulk sales legislation in Canada as Ontario was the last Canadian jurisdiction to have such legislation.

Enacted in 1917, the BSA was intended to protect creditors from a sale of assets by a business without the creditors first getting what they are owed. Before its repeal, the parties to an asset transaction would satisfy the bulk sales legislation requirements in one of three ways: (a) by complying with the procedures of the BSA, (b) by obtaining a court order or (c) by waiving compliance with the BSA. If the bulk sales legislation was not satisfied, the consequences ranged from the transaction being set aside to the purchaser being subject to additional costs.

For a while now, bulk sales legislation has been viewed as an unnecessary burden and cost to parties involved in asset transactions. This is so because other means for protection of creditors now exist, including: obtaining a security interest under the Personal Property Security Act, the oppression remedy available under applicable corporate legislation, and general protections under the Bankruptcy and Insolvency Act and assignment and preference legislation.

Now that the BSA is repealed, vendors and purchasers involved in asset transactions in Ontario will not have to incur the costs and administrative burden associated with compliance of bulk sales legislation. However, addressing the policy concerns that bulk sales legislation was originally intended to address may require that they be extra cognizant of these other creditor protections.