Timely Disclosure

Timely Disclosure

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

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

Recent amendments to NI 45-106 : What the Fund Management Industry Needs to Know

The Canadian Securities Administrators (CSA) recently published final amendments to National Instrument 45-106 Prospectus and Registration Exemptions (to be renamed Prospectus Exemptions) (NI 45-106) relating to the accredited investor and minimum amount investment prospectus exemptions. Subject to Ministerial approval, the amendments will come into force on May 5, 2015.

Key Changes

From a fund manager/dealer’s perspective, the key changes are as follows:

  • The minimum amount exemption (MA Exemption) is no longer available to individuals;
  • The accredited investor exemption (AI Exemption) is amended to :
    • in Ontario, allow fully managed accounts to purchase investment fund securities as an accredited investor, as is already permitted in other Canadian jurisdictions;
    • add trusts established by accredited investors for their family members as a category of accredited investor;
    • add a requirement to obtain a new “plain language” risk acknowledgement form (Form 45‑106F9) from “individual” accredited investors;

In addition, the CSA provides additional guidance relating to practices for verifying if purchasers meet the conditions for relying on a prospectus exemption in amendments to Companion Policy 45‑106CP Prospectus and Registration Exemptions (to be renamed Prospectus Exemptions) (CP 45‑106).

MA Exemption

The $150,000 threshold of the MA Exemption has not been changed. However, the MA Exemption will no longer be available to individual investors, as the CSA does not believe the threshold to be a proxy for sophistication or the ability to withstand financial loss for individual investors. Continue Reading

Canadian Securities Administrators Implement Enhanced Oil and Gas Disclosure Requirements

On December 4, 2014, the Canadian Securities Administrators (CSA) published amendments to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) and Companion Policy 51-101 Standards of Disclosure for Oil and Gas Activities and related forms. The amendments will:

  • permit disclosure from alternative resources evaluation standards and regimes, provided that such disclosure: (i) is accompanied by the disclosure required by NI 51-101; (ii) is made in respect of a regime comparable to the Canadian Oil and Gas Evaluation Handbook (COGE Handbook); (iii) has a scientific basis and is based on reasonable assumptions; and (iv) is prepared or audited by a qualified reserves evaluator or auditor;
  • import and refine the product type definitions from the COGE Handbook for which disclosure must be made, removing the concept of product groups and focusing on the oil and gas sources and recovery processes;
  • enhance and improve disclosure requirements with respect to the disclosure of contingent resources data and prospective resources data in annual filings;
  • set out principle-based requirements to describe the standard, methodology and meaning of a publicly disclosed oil and gas metric and, if no standard is used, require an issuer to describe the parameters used in calculating the oil and gas metric and to provide a cautionary statement;
  • provide guidance on marketability in the reporting of oil and gas volumes, requiring a reporting issuer to report volumes and values at the first point of sale of the particular product type where relevant;
  • clarify what constitutes abandonment and reclamation costs and require more detailed disclosure of reserves data, both in the future net revenue disclosure and in the significant factors or uncertainties disclosure in the statement prepared in accordance with Form 51-101F1 Standards of Disclosure for Oil and Gas Activities;
  • revise the manner of presenting resources over which a reporting issuer does not have control; and
  • align NI 51-101 with the amended COGE Handbook, including the guidelines for the estimation and classification of resources other than reserves (ROTR Guidelines) which became effective July 17, 2014 and the guidelines for the estimation and classification of bitumen resources (Bitumen Guidelines) published on April 1, 2014.

Subject to Ministerial approval, the amendments will come into force on July 1, 2015. As such, issuers with a December 31 year end should note that the changes to the annual disclosure requirements will apply in respect of the year ending December 31, 2015. Reporting issuers are immediately required to follow the latest requirements of the COGE Handbook, including the ROTR Guidelines and the Bitumen Guidelines.

In connection with the amendments to NI-51-101, the CSA also published CSA Staff Notice 51-324 Revised Glossary to NI 51-101 Standards of Disclosure for Oil and Gas Activities to update the defined terms to align with the COGE Handbook and CSA Staff Notice 51-327 Revised Guidance on Oil and Gas Disclosure to provide additional disclosure guidance.

Feedback sought for the OSC’s Proposed Whistleblower Program

On February 3, 2015 the Ontario Securities Commission (OSC) published Staff Consultation Paper 15-401 Proposed Framework for an OSC Whistleblower Program (Paper). The Paper outlines the OSC’s proposal for an award-based whistleblower program (Program). The OSC is welcoming written comments on the Program until May 4, 2015.

The purpose of the Program is to encourage individuals to come forward with information regarding breaches of Ontario securities law. The Program would offer a discretionary financial award to individuals who provide information of misconduct that leads to monetary penalties or settlements of over $1,000,000.


The Paper follows OSC Staff Notice 15-704 Request for Comments on Proposed Enforcement Initiatives published for comment in October 2011. The Program would be the first of its kind amongst Canadian securities commissions. It follows the example of the U.S. Securities and Exchange Commission’s (SEC) whistleblower program established in 2011.

Objectives of the Program

The Program is part of an effort by the OSC’s Enforcement Branch to obtain information regarding securities law transgressions quickly and effectively. The Paper outlines certain specific objectives of the Program, including:

  • motivating those most likely to have information to come forward;
  • increasing the number and efficiency of securities law cases handled by the OSC;
  • increasing the quality of the information used in investigations and proceedings;
  • encouraging cooperation from the whistleblower throughout the investigation and proceedings; and
  • encouraging issuers to self-report misconduct.

In pursuing these objectives, the OSC aims to investigate more securities law cases involving sophisticated players and complex issues, with better information.

Financial Incentive

Under the Program the OSC would offer awards to individuals who provide information that lead to monetary sanctions or settlements under section 127 of the Securities Act (Ontario) of over $1,000,000.  Where penalties exceed this amount, the OSC would have the discretion to award the whistleblower up to 15% of the total sanction or settlement, excluding costs, capped at a maximum award of $1,500,000.


In order to be eligible for the award, the whistleblower must be an individual and the information must be original, provided voluntarily (i.e. not compelled or requested from the individual) and be of high quality. The Paper describes “high quality information” as information that is timely, relates to serious misconduct, is detailed, may stop further harm and is likely to save the OSC significant time and resources. In particular the OSC is looking for information regarding securities law transgressions that are extensive, abusive, create significant risks to investors and are perpetrated by individual in positions of authority. Continue Reading

CSA Releases Status Report on Proposed Changes to Methodology for Fund Risk Determination


On January 29, 2015, the Canadian Securities Administrators (CSA) published CSA Staff Notice 81-325 Status Report on Consultation under CSA Notice 81-324 and
Request for Comment on Proposed CSA Mutual Fund Risk Classification Methodology
for Use in Fund Facts
(Staff Notice).

As its names  reveals, the Staff Notice was a follow-up to previously issued CSA Staff Notice 81-324 (Previous Staff Notice).  The Previous Staff Notice proposed a new framework and methodology (Proposed Methodology) for the purpose of calculating and disclosing a fund’s volatility risk in its Fund Facts document (or other similar documents for other types of investment funds, such as ETFs) and requested feedback on the Proposed Methodology.  Currently, the manager of a mutual fund has the discretion to choose what it believes to be an appropriate risk methodology.  The CSA were therefore seeking industry feedback on the merits of introducing a standardized methodology  to determine a fund’s risk rating.

The Staff Notice set out the key themes arising from the feedback received, as well as potential next steps to be taken by the CSA.

Key Themes

Certain of the key themes discussed in the Staff Notice were as follows:

  • Use of Standard Deviation (SD) as the risk indicator – the majority of commenters agreed with the use of SD as a fund’s risk indicator.
  • 10 year history to calculate SD – many supported a 10 year history, as such a relatively lengthy measurement period would be less sensitive to sudden market changes. Such period would also provide a reasonable balance between indicator stability and availability of data.  However, concerns were raised by some that a shorter period is more appropriate given that the lifespan of the majority of mutual funds is only 5 or 6 years.
  • Fund series/class used - most commenters agreed that, in most instances, all series and classes of a Fund bear the same risk and therefore applying the Proposed Methodology to the oldest series/class of a fund (rather than all series/classes) is appropriate.
  • Use of reference index data – for funds without a 10 year history, the Proposed Methodology contemplates using the returns of an appropriate index to provide the missing performance data required to calculate SD. There were a wide range of comments, concerns and discussion points that arose from this suggestion.
  • Six Category Risk Scale - the Proposed Methodology contemplates changing the Fund Facts volatility scale from five bands to six. Most were opposed as such a change would likely lead to a large number of funds being re-labeled with an apparent higher risk classification, without any change in the fund’s volatility.
  • Monitoring and changing of risk categorizations – the Proposed Methodology sets out a monthly process that must be followed by fund managers when monitoring changes in the risk categories. Many commenters felt that monthly monitoring is excessive and burdensome and that an annual monitoring process would be more appropriate.

Next Steps

The CSA confirmed that SD continues to be the preferred risk indicator for the Proposed Methodology.  The CSA will continue also to assess the impact of moving to a six category risk scale.  Proposed rule amendments, based on the feedback received on the Proposed Methodology, are expected to be issued for comment by the CSA at some point in 2015 addressing risk classification.


Divulgation des activités professionnelles externes des personnes physiques inscrites et autorisées — Amnistie des frais de retard de la CVMO

Suite aux modifications au Règlement 33-109 sur les renseignements concernant l’inscription (Règlement 33-109) apportées le 11 janvier dernier, le Formulaire 33-109A4 inscription d’une personne physique et examen d’une personne physique autorisée (Formulaire 33-109A4) a été modifié et prévoit que les personnes inscrites et les personnes autorisées (les représentants) doivent divulguer chacune des activités professionnelles externes exercées y compris les postes de dirigeant ou d’administrateur ou tous postes équivalents, ainsi que les postes d’influence, que ces postes soient occupés contre rémunération ou non et à titre professionnel ou non.

L’Instruction générale relative au Règlement 31-103 sur les obligations et dispenses d’inscription et les obligations continues des personnes inscrites (IG 31-103) a aussi été modifiée le 11 janvier dernier et contient des lignes directrices additionnelles sur la divulgation des activités professionnelles externes.

Les amendements mentionnés ci-dessus sont venus clarifier la position bien établie des Autorités canadiennes en valeurs mobilières (ACVM) quant à la divulgation des activités professionnelles externes. Se rendant compte que certaines activités professionnelles externes n’ont pas été divulguées, la Commission des valeurs mobilières de l’Ontario (la CVMO) a mis en place une procédure permettant aux sociétés inscrites de « rattraper » leur retard dans les dépôts requis pour la divulgation des activités professionnelles externes et considérera une réduction des frais de retard de ces dépôts si les activités professionnelles externes divulguées n’ont pas de conséquence sur la capacité des représentants à être inscrits.

Afin de pouvoir bénéficier de la réduction des frais de retard, un Formulaire 33-109A5 dûment complété et mettant à jour l’item 10 du Formulaire 33-109A4 sur les activités professionnelles externes, doit être déposé par le truchement de la Banque de données nationale d’inscription au plus tard le 27 mars 2015.

Un Formulaire 13-705A1 doit être déposé auprès de la CVMO d’ici le 27 mars 2015 pour que la CVMO considère la demande de dispense pour les frais de retard habituellement imposés, c’est-à-dire, 100 $ par jour ouvrable de retard, sujet à un maximum de 5 000 $ pour tous les documents devant être déposés ou livrés par une société inscrite dans l’année.

Voir l’avis no. 13-703 du personnel de la CVMO pour plus de détails sur les critères applicables et sur la procédure à suivre afin d’obtenir une dispense de paiement de frais de retard. (Disponible en anglais uniquement)

Study of hostile take-over bids in Canada reveals that a change of control is not inevitable

Fasken Martineau’s 2015 Canadian Hostile Take-Over Bid Study sets out the results of a ten-year empirical analysis of hostile take-over bids in Canada.

Key findings include: When initiating a public contest for control, a hostile bidder was successful more than half the time; however, a change of control was by no means inevitable, with targets of these bids remaining independent almost 30% of the time.



The study contains additional findings on certain factors that impact outcomes, namely, competition, bidder tactics, shareholder rights plans and board recommendation, and should be of interest to all participants in Canada’s thriving M&A market.  Read more in our 2015 Canadian Hostile Take-Over Bid Study.