Timely Disclosure

Timely Disclosure

Updates and Commentary on Current Issues in Corporate Finance, Securities and Mergers and Acquisitions

Amendments to the TSX Company Manual to Reflect Trends Towards Dematerialization of Physical Evidence of Security Ownership

On May 21, 2015, the TSX announced one set of amendments and one request for comment on proposed amendments to the TSX Company Manual (Manual), both respecting physical certificate requirements for securities. The amendments should not have a noticeable impact for many listed issuers or industry participants, but they do highlight a few trends to be aware of.

The amendments and proposed amendments were promulgated in response to the trend of increasing dematerialization of physical securities the securities industry has experienced over approximately the last decade, initiated on the part of industry participants such as transfer agents, exchanges, brokers, and especially, clearing agencies and depositories, like the Canadian Depository for Securities (CDS). Legal practitioners, transfer agents, issuers and underwriters should all be familiar with the effects of the trend, noting the continual increase in electronic closings in recent years, for both financing and M&A transactions. Topically, this trend is reflected in the increasing number of electronic issuances of securities to even United States purchasers by Canadian listed issuers, which until very recently would have required physical certificates to be delivered to those purchasers, mainly for legending and transfer restriction purposes.

The dematerialization of evidence of securities ownership is itself an industry response to mitigate the costs and risks associated with the physical evidence of security ownership, including the costs of printing, storing, transferring, and physical handling of certificates, and the risk of theft and loss. CDS especially, through its rules, has been at the fore of implementing the shift for participants to embrace dematerialization to reduce such costs and risks, as CDS was often the entity with the responsibility to securely store physical certificates, and maintain facilities, staff and processes for their handling and transfer.

The published amendments to the Manual are characterized by TSX as being of a “housekeeping” nature, which characterization the Ontario Securities Commission did not disagree with. The amendments have been in force since May 21, 2015. The amendments update the language of the Manual to contemplate additional forms of evidence of security ownership other than physical certificates, such as holding securities through CDSX, the electronic deposit system of CDS, and direct registration systems, (commonly referred to as “DRS”). The amendments otherwise update the Manual to codify or clarify existing practices and dematerialization trends as they apply to transactions for TSX listed issuers, including amendments to, among other things, the listing agreement, and the rules for supplemental listings, stock splits, and consolidations. One practical change in the amendments to highlight is that the Manual now codifies that TSX listed issuers may have a transfer agent with a principal office in one or more of each of Vancouver, Calgary, Toronto, Montreal, or Halifax, whereas the Manual previously required that issuers have a transfer agent with a principal office in Toronto. Continue Reading

Relief from certain Client Relationship Model Phase 2 (CRM2) Amendments

The OSC has published decisions relating to certain relief from the CRM2 requirements that were to come into effect during 2015 and 2016.  The relief is consistent with that set out in CSA Staff Notice 31-341 – Omnibus/Blanket Orders Exempting Registrants from Certain CRM2 Provisions of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

The OSC also issued an e-mail blast to registrants advising them that the CSA plans to amend NI 31-103 in order that the relief be permanent.

The following links provide details of the relief in Ontario:

Non-SRO Firms Registered as of July 15, 2015


IIROC Member Firms Registered as of July 15, 2015


MFDA Member Firms Registered as of July 15, 2015


Please contact Garth Foster or Donna Leitch if you have any questions.



Certain Canadian Securities Regulators to Adopt Start-Up Crowdfunding Exemptions

In recent years, crowdfunding has proven an exceptionally popular and efficient means by which individuals and companies make use of the internet to attract investors for a variety of purposes. The traditional model generally involves a large number of individuals contributing small sums of money to finance specific ideas or projects. Increasingly, however, equity crowdfunding is emerging as a way for start-ups and early-stage companies that are non-reporting issuers to raise capital at an earlier stage of development through the issuance of securities. Equity crowdfunding has already proven successful in certain foreign jurisdictions, and is expected to make an impact in Canada.

Following a consultation period held early last year, the securities regulators of British Columbia, Manitoba, New Brunswick, Nova Scotia, Québec and Saskatchewan (Jurisdictions) announced on May 14, 2015 that they have implemented, or expect to implement in the near future, changes to their securities legislation to provide for registration and prospectus exemptions for start-ups and early-stage companies that wish to raise capital through crowdfunding. Businesses wishing to rely on the exemptions will be able to conduct crowdfunding distributions in the Jurisdictions.

The start-up crowdfunding exemption actually consists of two distinct exemptions. The first is a prospectus exemption for start-up companies seeking to raise capital. The second is a dealer registration exemption for persons wishing to operate a funding portal, a platform which facilitates start-up crowdfunding distributions.

The Jurisdictions plan to implement these exemptions by way of local blanket orders. The conditions associated with the two exemptions are outlined in Multilateral CSA Notice 45-316 Start-up Crowdfunding Registration and Prospectus Exemptions (CSA 45-316), and are summarized below. The start-up crowdfunding exemptions will be effective in each Jurisdiction concurrently with, or as soon as possible after, the publication of the notice of CSA 45-316. Each exemption order is available, or will be available shortly, on the websites of each Jurisdiction’s securities regulatory authority.

The start-up prospectus exemption

The start-up prospectus exemption permits non-reporting issuers to issue eligible securities, subject to a number of conditions. The key conditions are: Continue Reading

OSC Staff Notice 32-505 Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario

Firms and individuals located/residing in Ontario that trade to, with, or on behalf of, or advise U.S. resident clients may be required to be registered in Ontario, regardless of the client not residing in Ontario.

The Ontario Securities Commission (OSC) is proposing dealer and adviser registration relief for U.S. broker-dealers and U.S. advisers servicing U.S. clients from Ontario, in the form of OSC Rule 32-505 Conditional Exemption from Registration for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario (the Rule).  The Rule was delivered to the Minister of Finance on April 23, 2015 and is expected to come into force July 7, 2015.

The exemption set out in the Rule, will be available to U.S. broker-dealers and the representatives acting on their behalf (Brokers), and to U.S. adviser firms and the representatives acting on their behalf (Advisers) (collectively, Brokers and Advisers) and is subject to conditions as set out below.

Brokers and Advisers may rely on the exemption set out in the Rule if they

  • are appropriately registered in the United States to trade for U.S. residents or advise U.S. residents, or are relying on an exemption from registration under U.S. federal securities laws;
  • do not trade, directly or indirectly, for an Ontario resident or advise an Ontario resident without appropriate registration or an exemption from the applicable registration requirement under Ontario securities laws; and
  • have filed Form 32-505F1 Information Report for United States Broker-Dealers and Advisers Servicing U.S. Clients from Ontario (Form 32-505F1) with the OSC, and an updated Form 32-505F1 is filed with the OSC within 10 days of any changes to the information previously filed.

Brokers or Advisers that rely on the exemption set out in the Rule will become a market participant as defined under subsection 1(1) of the Securities Act (Ontario) (the Act) and therefore subject to Ontario securities laws with respect to record-keeping and compliance reviews, as set out in Part VII of the Act.

The Rule will align with the blanket orders issued by the other 12 Canadian jurisdictions on March 26, 2015, exempting Brokers and Advisers from the dealer/adviser registration requirement in the applicable local jurisdiction, and subject to substantially the same conditions set out above.

CSA: Room for Improvement in Mining Company Investor Presentations

NI 43-101 sets out the requirements of the Canadian Securities Administrators (CSA) for disclosure of information about mining projects, including the requirement that the disclosure of scientific and technical information about a material mineral property be approved by a qualified person and, where necessary, supported by a technical report.  Since its adoption in 2001, members of the CSA have conducted a number of reviews of disclosure by mining issuers for compliance with NI 43-101, including reviews by the British Columbia Securities Commission in 2012 and by the Ontario Securities Commission in 2013. The CSA has now turned its focus to investor presentations.

Accordingly, staff of three of the regulators (BC, Ontario and Quebec) undertook a review of some 130 investor presentations of pre-production mining companies.  They found that only 18% of the investor presentations were in “substantial compliance” with the requirements of NI 43-101. In the CSA’s somewhat understated words, there was “room for improvement” for mining issuers to comply with disclosure requirements.

Major Areas of Non Compliance

The major areas of non-compliance were:

  • Failure to identify a qualified person (QP) who has reviewed the information. (58% non-compliance)
  • Lack of required cautionary statements regarding preliminary economic assessments. (56%)
  • Not stating in respect of a preliminary economic assessment, that the economic viability of the mineral resources has not been demonstrated by the economic analysis. (50%)
  • Not stating whether mineral resources include or exclude mineral reserves. (50%)
  • Failure to express potential quantity and grade of exploration targets as a range and to include the required statements outlining the target limitations. (79%)
  • Disclosure of historical estimates which fails to include source, date, reliability, key assumptions and be accompanied by the required cautionary statements. (60%)
  • Failure to disclose a summary of the quality assurance program and quality control measures. (67%)
  • Failure to provide the name and location of the testing laboratory used. (71%).
  • No statement regarding verification of the data by the QP in the document containing the written disclosure. (64%)
  • Reporting only pre-tax financial results or providing no information about the tax and royalty rates for the mineral project. (63%)
  • No information about the assumed metal price used for determining the mineral estimates. (30%)
  • Not including drilling information on true widths of mineralized zones or providing results of significantly higher grade intervals enclosed in a lower grade intersection. (42%)

Continue Reading

Theratechnologies’ victory before the Supreme Court of Canada is a victory for all public corporations

The Supreme Court has handed down a judgment that marks a tremendous victory for Theratechnologies and public corporations in general. This important decision is a reminder of the continuous disclosure requirements of corporations and clearly defines the burden to be met by investors seeking authorization to bring a class action under the secondary market liability regime of the Securities Act (the “SA“).

This new liability regime was adopted to facilitate actions brought by shareholders trading on the secondary market who believe they have suffered damages due to a corporation’s misrepresentation or failure to disclose information. In order for shareholders to benefit from this advantageous regime, they must use the authorization mechanism under section 225.4 SA requiring proof of “a reasonable possibility that [the case] will be resolved in favour of the plaintiff.” Although this authorization mechanism has been in force in Ontario since 2002 and in Québec since 2007, this is the first time that the Supreme Court has specified its parameters:

[36] The Quebec legislature used different language in s. 225.4 [than what is used in article 1003 of the Code of Civil Procedurefor authorizations to institute a class action] to create a more meaningful screening mechanism in the securities context so that costly strike suits and unmeritorious claims would be prevented. Courts are given an important gatekeeping role, which requires them to conduct a preliminary examination of the impugned action or inaction to assess whether it could be said to have a reasonable possibility of success.

The corporation 121851 Canada Inc. (“121851“) alleged that Theratechnologies failed to disclose a material change while undergoing the Food and Drug Administration‘s (“FDA“) approval process of its flagship drug, tesamorelin, as required under section 73 of the SA. To satisfy the criterion of “a reasonable possibility” of success, 121851 needed to demonstrate, after a preliminary examination of the evidence, the existence of a material change. The Court confirmed that in order for there to be a material change within the meaning of the SA, it is important not only to determine whether the information has had a significant effect on the security’s market price, there must also have been a change in the business, operations or capital of the issuer. Continue Reading

New Take-Over Bid Rules Seek to Level the Playing Field … But Will Bidders Still Play?

On March 31, 2015, the Canadian Securities Administrators issued their highly anticipated proposal to make the most significant changes to the Canadian take-over bid regime in years, one of the stated goals of which is to “rebalance the current dynamics” between bidders, boards and shareholders. The three principal changes would (i) mandate a 50% minimum tender requirement for all formal bids, (ii) require a ten-day extension of the bid once the minimum tender requirement is satisfied and all other conditions of the bid have been satisfied or waived, and (iii) extend the minimum bid period from 35 days to 120 days, subject to the target board’s ability to shorten the period. While the desire to mitigate the potentially coercive elements of the current bid rules that inform the first two amendments appears uncontroversial, we believe that the proposal to more than triple the current minimum bid period in order to increase leverage for target boards merits further review.

As we note in our 2015 Canadian Hostile Take-Over Bid Study, which analysed all 143 unsolicited take-over bids for legal control of Canadian-listed public companies during the ten-year period ended December 31, 2014:

  • A sale of the company was by no means inevitable: while a first-mover hostile bid succeeded almost 55% of the time, 28% of the targets of first-mover bids remained independent. Since the release of our study, this finding has garnered the most attention, perhaps as it may call into question the received wisdom that informs much of the debate about levelling the playing field.
  • Our study provides evidence that the current 35-day period is insufficient to allow competition to emerge (as competition emerged an average of 41 days after the initiation of a bid and almost two-thirds of competing transactions emerged on or after the statutory minimum bid period); however, it remains to be seen whether a 120-day period strikes the balance needed to ensure sufficient time for a board to find alternatives while not dissuading bidders from coming forward in the first place.
  • The increased uncertainty inherent in a longer bid period, most notably due to the spectre of increased competition, will surely cause bidders to carefully evaluate the potentially lower odds of success and the higher premium that may be required to ultimately prevail in assessing whether to proceed with their bid at all. In that regard, our study found that competition cut a bidder’s odds of success in half and resulted in a 69% increase, on average, in the final premium offered by a hostile bidder.

Given the increased risks and potential costs to bidders if the proposed changes are enacted, we may well witness a decrease in the number of unsolicited bids, and perhaps of equal importance, a significant weakening of the very threat of a bid, which could lead to a decrease in M&A activity more generally. To the extent that the reforms seek to enhance the auction dynamic with a view to increasing shareholder choice and maximizing shareholder value, that objective can only be achieved if bidders believe they have a reasonable prospect of success, justifying the risks inherent in launching a bid.

Download a copy of our 2015 Canadian Hostile Take-Over Bid Study

Capital Markets Participation Fees – OSC Fee Rule Amendments

Final amendments to OSC Rule 13-502 Fees and Companion Policy 13-502CP (together, the Rule) were delivered to the Minister of Finance on January 27, 2015 and if approved, will be in force on April 6, 2015.

The highlights relating to capital markets participation fees are set out below.

Reference fiscal year

Previous amendments to the Rule on April 1, 2013 included the introduction of the use of reference fiscal year.  Firms have been required to provide historical information in order to provide the OSC with predictability of fees receivable.  The reference fiscal year will be eliminated for purposes of calculating the participation fee to reflect a firm’s current financial situation.  Registrants and unregistered capital market participants will provide information based on the current calendar year.

Changes for unregistered investment fund managers

  • Change to due date for filing Form 13-502F4 Capital Markets Participation Fee Calculation (F4) and paying fees

Currently, unregistered investment fund managers are required to submit a Form 13-502F4 Capital Markets Participation Fee Calculation (F4) and pay participation fees within 90 days of their fiscal year end, which varies from all other firms that are required to file the F4 on December 1 and pay participation fees by December 31.  The amendments align unregistered investment fund managers’ deadline to registrants and unregistered exempt international firms, i.e. they will be required to submit the F4 on December 1 and pay participation fees by December 31 each year.

  • No longer exempt from late filing fees

Currently, unregistered investment fund managers are exempt from late filing fees applicable to the late filing of the F4.  This exemption will be removed.

Estimated revenues and refund requests for overpayments

Firms that do not have their current calendar year’s financial information available at the time of filing their F4 will be providing an estimate of their revenues.  If your firm provides an estimate, you are required to review your audited annual financial statements within 90 days of your fiscal year end to determine if there is a change in the participation fee.  If there is a change to your firm’s participation fee, it must be reported by filing a revised F4 and Form 13-502F5 Adjustment of Fee for Registrant Firms and Unregistered Capital Markets Participants (F5) within 90 days of your firm’s fiscal year end.  If your firm has overpaid the OSC, you must request a refund within 90 days of your firm’s financial year end.  Refunds will be provided unless the filing of the revised F4, F5 and the request for a refund have not be provided within 90 days of your firm’s fiscal year end.

Modifications récentes au Règlement 45-106 : Ce que l’industrie des fonds d’investissement doit savoir

Les Autorités canadiennes en valeurs mobilières (les ACVM) ont récemment publié les modifications définitives qu’elles entendent apporter au Règlement 45-106 sur les dispenses de prospectus et d’inscription (qui sera d’ailleurs renommé le Règlement sur les dispenses de prospectus) (le Règlement 45-106). Ces modifications concernent les dispenses de prospectus fondées sur l’investissement d’une somme minimale ainsi que sur la notion d’investisseur qualifié. Sous réserve de l’obtention des approbations ministérielles requises, les modifications entreront en vigueur le 5 mai 2015.

Modifications importantes

Pour le gestionnaire de fonds d’investissement ou le courtier, les modifications importantes sont les suivantes :

  • la dispense fondée sur l’investissement d’une somme minimale ne sera plus disponible pour les personnes physiques;
  • la définition d’investisseur qualifié sera modifiée afin de :
    • permettre aux comptes gérés sous mandat discrétionnaire ontariens d’acquérir des titres de fonds d’investissement sous le régime de la dispense pour placement auprès d’investisseurs qualifiés, tel que permis dans les autres territoires membres des ACVM;
    • ajouter les fiducies créées par des investisseurs qualifiés pour les membres de leur famille à titre d’investisseur qualifié;
    • ajouter l’exigence de remettre une déclaration de reconnaissance de risque rédigée en langage clair (l’Annexe 45-106A9) aux investisseurs qualifiés qui sont des personnes physiques.

De plus, en modifiant l’Instruction générale au Règlement 45-106 sur les dispenses de prospectus et d’inscription (l’IG 45-106), les ACVM fournissent des indications additionnelles sur les pratiques servant à vérifier si les souscripteurs respectent les conditions de certaines dispenses de l’obligation de prospectus.

Dispense fondée sur l’investissement d’une somme minimale

Le seuil de 150 000 $ de la dispense de prospectus pour investissement d’une somme minimale n’est pas modifié. Par ailleurs, cette dispense ne sera plus disponible pour les personnes physiques puisque les ACVM sont d’avis que ce seuil n’est pas un bon indicateur des connaissances des investisseurs individuels ou de leur capacité à assumer les pertes financières. Continue Reading