Timely Disclosure

Timely Disclosure

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

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buildings-1194224_1920On March 22, 2017, Ontario’s Bulk Sales Act (BSA) was repealed by way of Schedule 3 of Ontario’s Burden Reduction Act.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Now that the BSA is repealed, vendors and purchasers involved in asset transactions in Ontario will not have to incur the costs and administrative burden associated with compliance of bulk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.

Website Disclosure by TSX Issuers – Revised Proposal


In late May 2016, the TSX proposed amendments to the TSX Company Manual (Initial Proposal), most notably in Part IV, which contains the requirements for maintaining a listing. In our earlier post, we provided an overview of the Initial Proposal, which was to introduce a requirement for certain corporate documents to be disclosed, and publicly accessible, on a listed issuer’s website. In the Initial Proposal, the TSX pointed out that while many relevant corporate documents are already publicly available (typically on SEDAR), they are often difficult to find and categorize.

At the conclusion of the initial comment period, the TSX identified concerns from market participants regarding the potential increased regulatory burden and the general uncertainty surrounding the types of documents that fall within the scope of the Initial Proposal. As a result, the proposed amendments were revised (Revised Proposal) and the TSX has issued a further request for comments, to be completed by May 8, 2017. While the rationale of providing participants with easy centralized access to key information remains unchanged, the Revised Proposal attempts to remedy the potential regulatory burden and clarity issues of the Initial Proposal.

The Initial Proposal created ambiguity by providing for broad categories of documents, with short non-exhaustive lists as guidance, that an issuer would be required to post online. For example, an issuer was required to post “constating documents including articles, trust indentures, partnership agreements, by-laws and other similar documents” and “corporate policies that may impact meetings of security holders and voting, including advance notice and majority voting policies.” The Revised Proposal attempts to address the ambiguity by providing specific lists (for example, “articles of incorporation, amalgamation, continuation…”) and in some cases, a catch-all for documents of a similar nature.

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A Radical Shift to Say-On-Pay under OBCA’s Bill 101


Shareholder Control over Executive Compensation under Bill 101

Bill 101, An Act to Amend the Business Corporations Act (Bill 101), proposes a number of updates to the Ontario Business Corporations Act (OBCA). Introduced as a private member’s bill in early March, Bill 101 aims to shift power to shareholders through amendments in areas such as shareholder meetings, shareholder proxies, as well as the election and diversity requirements of directors. Among Bill 101’s most ambitious changes is to provide shareholders with power over executive compensation. These executive compensation amendments build on a trend in which many public companies are voluntarily providing shareholders with a “say-on-pay”. Bill 101’s proposal in this area, however, goes much further by providing shareholders with the unprecedented ability to both propose and approve executive remuneration policies. The implications of this power raises important questions regarding the respective responsibilities and duties of directors and shareholders.

Shareholders’ Current Say-On-Pay

Most Canadian business statutes, including the OBCA and the Canada Business Corporations Act, explicitly provide directors with the authority to fix compensation for directors, officers and employees, subject only to the company’s articles, by-laws and any unanimous shareholder agreement. Today in Canada there are no corporate or securities laws that provide shareholders with the ability to approve, much less propose, executive compensation.

While not legally required to do so, a trend in recent years has seen many publicly listed Canadian companies voluntarily provide shareholders with a vote on executive compensation. These say-on-pay motions are advisory only, with the results not binding the directors’ decisions. Although non-binding, the say-on-pay process is seen as providing shareholders with value by encouraging directors to consider and clearly explain compensation policies to shareholders.

While the voluntary adoption of non-binding advisory votes is steadily increasing, Canada lags behind certain other jurisdictions in both mandating say-on-pay votes and in providing teeth to the votes through binding outcomes (see a recent Timely Disclosure post). For example, the United Kingdom and Australia have mandated periodic shareholder votes on executive compensation policies.

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Government Access to Information – Part 3


Part 3: Reform To Canadian Access to Information

Co-authored by Gianrico DePasquale and Roseanna Dat.

In Part 1, we discussed access to information requests in Canada and in Part 2, we discussed freedom of information requests in the United States.

As a follow up to Part 1, we report that the Government of Canada is in the process of amending the Access to Information Act[1] and is considering potential reform which may have an impact on businesses.  In its Review of the Access to Information Act, the Standing Committee on Access to Information, Privacy and Ethics recommended, among other things, that the Act should apply to institutions that are publicly funded by the Government of Canada.[2] There are three potential options suggested to determine whether an institution would be subject to the Act under the proposed reform.

Proposed Reform

The Information Commissioner of Canada (Commissioner) has proposed the following three options to determine whether an institution that is funded by the Government of Canada should be subject to the Act under the proposed reform:

  • if the institution receives a loan, grant or contribution of $5 million or more;
  • if the source of 50% of the institution’s funding originates (directly or indirectly) from the Government of Canada, and
  • if the institution’s income from the federal government reaches a certain percentage or an absolute threshold higher than $5 million of public funding.

According to the Commissioner, the criteria in option A is proposed to include expenditures, grants and contributions equal to or in excess of $5 million which are voted on by Parliament as separate line items in the Federal budget.[3] The criteria in option B is proposed as it is the method used in both Denmark and Serbia. The criteria in option C is proposed as it is a middle ground or saving grace between options A and B.[4]

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Amendments to Canadian Trading Rules Respond to High-Frequency Trading


In their latest effort to adapt Canadian capital markets to the reality of high-frequency trading (HFT), the Canadian Securities Administrators (CSA) approved amendments to National Instrument 23-101 Trading Rules and its Companion Policy, that came into force in Ontario on April 10, 2017. Following the capping of active trading fees on Canadian exchanges to regulate rebates received by market-making liquidity providers, the latest amendments lowered fee caps for certain non-inter-listed securities while also requiring exchanges to post quarterly lists of inter-listed securities (securities listed in both Canada and the US) and adjust their fee structures accordingly. The new caps represent an attempt by the regulators to fine-tune the Canadian response to HFT activity by further harmonizing trading fees with the US.

Liquidity providers use HFT technology to increase trading volume on exchanges by posting trade orders in anticipation of demand. As an incentive to “make” markets, these liquidity providers are paid a rebate per share or unit traded by the exchange. The rebates earned by market “makers” are then passed on to the “takers” through increased exchange fees, which regulators believe have the potential to distort capital markets. To strike a balance between the benefits of market liquidity and the added cost to other market participants, US regulators set a cap at $0.0030 per unit traded for equity securities and exchange traded funds (ETFs) priced at or above $1. Recognizing the high degree of integration between US and Canadian capital markets as well as the risk of losing HFT liquidity providers due to a significant disparity in available rebates, the CSA instituted an identical cap effective July 6, 2016.

Responding to criticism that the cap was too high, the CSA have now lowered the cap for non-inter-listed equity securities and ETFs from $0.003 to $0.0017 per security traded for equity securities and ETF units with an execution price greater than or equal to $1. Adhering to the widely-held principle that the fee should reflect the underlying value of the security, the CSA assert that the lower cap for non-inter-listed securities is equivalent to the higher fee for inter-listed securities when the volume-weighted average price of each is taken into account; non-inter-listed securities are traded far less than their inter-listed counterparts. The risk of losing HFT market makers is supposedly diminished in this instance because non-inter-listed securities are shielded from the competitive pressures of the US markets.

To effect this lower cap, exchanges must now maintain and update a comprehensive list of inter-listed securities. Once a security is subtracted from the list, exchanges have 35 days to lower the trading fee as applicable. Exchanges, alternate trading systems, and other market participants should familiarize themselves with the details of these amendments. Similar regulations will likely follow as the CSA reckon with wide-reaching effects of HFT activity on modern capital markets.

Government Access to Information – Part 2


Part 2: US Government – Freedom of Information

Co-authored by Gianrico DePasquale and Roseanna Dat.

In Part 1, we discussed access to information requests in Canada.

In the United States, businesses that interact with the federal agencies as defined in the Freedom of Information Act[1] may be similarly subject to a freedom of information (FOIA) request. A FOIA request compels the federal agency to disclose records in its possession should any person make a formal request. As such, a FOIA request may be used in the United States to gain information about competitors.

Legislative Overview

The goal of the Act is to encourage accountability through transparency. Under the Act, any person, regardless of citizenship or residency, has the right to request access to federal agency records. The Act defines “agency” as any executive department, military department, Government corporation, Government controlled corporation, or other establishment in the executive branch of the Government (including the Executive Office of the President), or any independent regulatory agency. The Act defines “records” as any information that would be an agency record maintained by an agency in any format, including an electronic format; and any information maintained for an agency by an entity under Government contract, for the purposes of records management. Any record that a federal agency creates or receives in relation to a business may be subject to a FOIA request, regardless of whether the records contain sensitive, confidential, or proprietary information.

Each state has its own FOIA legislation that applies to state agencies. State agency obligations and exemptions can vary and may be more onerous than the federal Act, as such, different considerations and safeguards may apply.

Protecting Information

FOIA applies to only records that are in the possession of federal agencies, not information. Therefore, images viewed, but not copied or downloaded, are not subject to FOIA disclosure (emails are considered records subject to FOIA disclosure). An information sharing systems that does not allow for copying or downloading of information, may be used to protect information, however, any notes related thereto may be subject to disclosure.

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Canadian Securities Administrators Seek to Reduce Regulatory Red Tape for Reporting Issuers and Commence Public Consultation Process

On April 6,2017, the Canadian Securities Administrators (CSA) released CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers (Consultation Paper 51-404). The purpose of Consultation Paper 51-404 is to consider certain legal requirements where the CSA believes there may be ways to reduce the costs and burdens of regulatory requirements applicable to ongoing reporting and capital raising transactions for reporting issuers in the public markets (other than investment funds). In particular, the CSA is seeking public input to pinpoint legal requirements where undue regulatory burden can be eliminated without diminishing investor protection. The CSA will be accepting feedback from the public until July 7, 2017.


Some of the options being evaluated are:

  • expanding the application of streamlined rules for smaller reporting issuers, including expanding the scope of the rules that currently apply only to issuers that are listed on certain “junior” stock exchanges;
  • reducing the regulatory burden associated with prospectus rules and the offering process, including eliminating certain prospectus form requirements and historical financial statement requirements, as well as changing the rules applicable to At-The-Market (ATM) distributions;
  • reducing certain ongoing continuous disclosure requirements, including potentially moving to semi-annual financial reporting from quarterly reporting;
  • eliminating overlap in potentially duplicative regulatory requirements; and
  • enhancing the ability to deliver documents electronically.

If you would like more information regarding the initiatives that the CSA are considering, or if you are contemplating submitting a letter in response to the CSA’s consultation process, please feel free to contact John Sabetti, a partner in Fasken Martineau’s Securities and Mergers & Acquisitions practice group, at 416-865-4455 or jsabetti@fasken.com.

Government Access to Information – Part 1

Part 1: Canadian Government – Access to Information

Co-authored by Gianrico DePasquale and Roseanna Dat.

This is the first part of our series reporting on the potential for companies to seek access to information about business competitors held by governments in Canada and the United States.

In Canada, businesses that interact with Government Institutions as defined in the Access to Information Act[1] may be subject to an access to information (ATIA) request. An ATIA request requires Government Institutions to disclose the records submitted to or created by the Government Institutions, even if held only temporarily. As such, an ATIA request may be used in Canada to gain information about competitors.

Legislative Overview

Pursuant to the Act, any person who is a Canadian citizen or a permanent resident of Canada has a right to, and shall, on request, be given access to any record under the control of a Government Institution. The Act defines “Government Institution” as any department or ministry of the Government of Canada or any parent Crown corporation or its wholly owned subsidiaries, as listed in Schedule 1 to the Act. The Act defines “records” as any documentary material, regardless of the medium or form.  The term record captures any machine readable record (such as email and text messages) and any physical medium that can be written or etched upon.

Each province has its own ATIA legislation that applies to provincial institutions. Provincial institution obligations and exemptions can vary and may be more onerous than the federal Act; as such, different considerations and safeguards may apply.

Protecting Information

The Act applies to only records that are in the possession of Government Institutions, not information. Therefore, images viewed, but not copied or downloaded are not subject to ATIA disclosure (as noted above, emails are considered records subject to ATIA disclosure). An information sharing system that does not allow for copying or downloading of information, may be used to protect information, however, any notes related thereto may be subject to disclosure.

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Court of Appeal Exonerates Daniel Pharand by Revoking a Voluntary Settlement Agreement Made With the AMF


On March 27, 2017, for the first time in Canadian history, an appellate Court revoked a voluntary settlement made between an individual and a securities regulator. Agreeing with the grounds for appeal raised in Mr. Daniel Pharand’s notice of appeal and in view of the Court of Appeal’s decision to grant leave to appeal to Mr. Pharand, the Autorité des marchés des financiers (“AMF”) acquiesced to the entirety of the conclusions sought by Mr. Pharand in appeal, including the dismissal of the proceedings instituted by the AMF against Mr. Pharand.

In the matter of Daniel Pharand v. Autorité des marches financiers et al.[1], Mr. Daniel Pharand, a former director of Arura Pharma Inc. (“Arura”), had entered into a settlement agreement with the Autorité des marches des financiers (the “AMF”) in which he was asked to make a number of admissions of fact and law. In particular, Mr. Pharand was required to admit that he had sold shares of Arura while in possession of privileged information (or material non-public information) thus breaching section 187 of the Québec Securities Act, the prohibition against insider trading.

Mr. Pharand entered into the settlement to avoid engaging in an expensive seven day trial, the cost of which would have greatly exceeded the $8,700 fine being sought against him (and the $5,000 fine he ultimately agreed to pay in the settlement). The AMF also entered into a settlement with Mr. Jacques Gagnon, but Mr. Gagnon did not appeal the decision sanctioning the settlement agreement.

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IIROC Proposes Additional Changes to the Dealer Member Plain Language Rule Book

books-1655783_1280On March 9, 2017, the Investment Industry Regulatory Organization of Canada (IIROC) published IIROC Notice 17-0054 – Re-Publication of Proposed IIROC Dealer Member Plain Language Rule Book (the Notice), which republished for comment, the proposed Dealer Member Plain Language Rule Book (the proposed DMPL Rule Book).

The beginnings of the proposed DMPL Rule Book originate in 2008 following a project by the predecessor of IIROC to form a single set of rules to govern all of the individuals and entities now regulated by IIROC. Each section of the proposed DMPL Rule Book was initially published for comment in a number of discrete tranches and subsequently republished for comment in a compiled form in March 2016 (the previous publication).

The proposed DMPL Rule Book being published pursuant to the Notice reflects the changes made to the previous publication as a result of the comments received from the public and the Canadian Securities Administrators, as well as from IIROC’s own review. The principle substantive changes to the previous publication identified by IIROC include the following:

  • Changes to certain proficiency requirements, and shortening of the continuing education cycle from three years to two years, while adjusting the total required hours to 30 over the two-year cycle.
  • Changes to some of the introducing broker/carrying broker requirements.
  • Changes to certain responsibilities assigned to certain dealer member executives.
  • New IIROC approval for dual registration of approved persons.
  • New requirements to assess the appropriateness of accounts and products before opening accounts or recommending products.
  • Application of account opening procedures for retail clients to institutional clients.
  • Inclusion of “know-your-client” and account portfolio information to the managed account agreement.
  • New prohibition against transactions between a client’s management account and the account of a responsible person (akin to Section 13.5(2)(b) of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations).
  • New retail client suitability rules.
  • Modifications to the Investor Application Form, Investor Notification Form and updated guidance.

Additionally, the proposed DMPL Rule Book includes the Consolidated Enforcement, Examination and Approval Rules which became effective on September 1, 2016. These rules are not being published for comment except to the extent that changes were made to the formatting and definitions to conform to the proposed DMPL Rule Book.

A clean version of the proposed DMPL rule Book and a blackline version of the changes made from the previous publication have been made available by IIROC.

With the exception of the Consolidated Enforcement, Examination and Approval Rules, to the extent discussed above, IIROC is soliciting comments on the entirety of the proposed DMPL Rule Book by May 12, 2017.