Institutional Investor Services (“ISS”) and Glass Lewis have released their updates to proxy voting guidelines for 2020. These guidelines shape the recommendations both bodies will give in reports concerning specific issuers which are often followed by institutional investors. For issuers with an institutional investor as a majority shareholder, these guidelines can be determinative of votes on matters put to shareholders. Key changes impacting TSX-listed companies are outlined below. Changes generally take effect for the 2020 proxy season.

Director Attendance & Committee Meeting Disclosure

ISS generally recommends withholding votes for individual directors where:

  • the company has not adopted a majority voting director resignation policy and they have attended fewer than 75% of their board and key committee meetings held within the past year; or
  • the company has adopted a majority voting director resignation policy and they have attended fewer than 75% of their board and key committee meetings held within the past year and a pattern of low attendance exists based on previous years’ attendance.

While these recommendations are not new, ISS has clarified for 2020 that there is an exception for nominees who have served for only part of the fiscal year or issuers that are newly publicly listed or have recently graduated to the TSX. In these cases, decisions will be made on a case-by-case basis.

Glass Lewis

Glass Lewis will generally recommend withhold votes for a governance committee chair when attendance records for board and committee meetings are not disclosed. Beginning in 2021, they will also recommend withholding votes for a governance committee chair when the number of audit committee meetings that took place in the most recent year are not disclosed. Beginning in 2021, Glass Lewis will also recommend withholding votes for an audit committee chair when the audit committee met fewer than four times in the most recent year.

Board Diversity

Neither ISS or Glass Lewis have updated their board diversity policies in light of the recent changes to the CBCA which expand diversity disclosure requirements.

Overboarded Directors

For the 2020 proxy season ISS has clarified its preferred methodology for directors to transition on and off of boards. ISS will generally recommend withholding votes for a non-CEO director who serves on the boards of more than five public companies, and CEOs who serve on boards of more than two public companies besides their own.

ISS now recommends directors step down at annual meetings, recognizing that this may result in a director being temporarily “overboarded.” Where it has been publicly disclosed that the director will be stepping down at the next annual meeting, that board membership will generally not be counted for the purposes of this policy. Conversely, for the purposes of this policy, ISS will count boards that directors will be joining even if the relevant meetings and elections have yet to take place.

Glass Lewis

Glass Lewis has not changed its policy regarding overboarded directors—they continue to recommend shareholders withhold votes for any directors who serve as an executive officer of any public company while serving on more than two public company boards and any other director who serves on more than five public company boards.

Company Responsiveness

Assessment of a board’s responsiveness to investor concerns relating to say-on-pay votes and the clarity of compensation disclosure remains a primary factor in ISS’s case by case assessment of say-on-pay proposals.

Glass Lewis

Absent robust disclosure on engagement activities following a low say-on-pay vote at the previous annual meeting, Glass Lewis may recommend voting against subsequent say-on-pay proposals.

Glass Lewis considers 20% or more opposition to a say-on-pay proposal to constitute “significant” opposition, which should trigger responsiveness to shareholders and their concerns. Their expectations of what will constitute sufficient responsiveness will vary depending on the magnitude and duration of the opposition, but examples can include engaging with large shareholders and, if reasonable, implementing changes to directly address their concerns.

Auditors and Audit Fees

ISS broadened the scope of other or “non-audit” fees that can be incurred by the auditors and considered separately from the standard “non-audit” fees when the latter are evaluated for excessiveness. In 2019, this list was limited to IPOs, emergence from bankruptcy and spinoffs, but going forward these will only serve as a non-exhaustive list of examples.

Glass Lewis

Glass Lewis may recommend withholding votes for all members of the audit committee in the event of a second successive year of excess non-audit fees (making an exception regarding minimum board sizes they expect to see for public companies).

Other Changes

ISS will continue its policy of recommending to withhold votes for any director serving on the audit or compensation committee who has served as the CEO of the company within the past five years. Going forward, this will also apply to those who have served as CEO of an affiliate or a company acquired within the past five years.

Similarly, ISS will continue its policy of recommending to withhold votes for any director who has served as CFO in the past three years and is a member of the audit or compensation committee. Beginning in 2020, this will also apply to those who have acted as CFO of an affiliate or a company acquired within the last three years.

Glass Lewis

Following 2019 amendments, Glass Lewis believes companies should make sufficient disclosure to ensure shareholders can meaningfully evaluate a director nominee or an entire board’s competencies. Glass Lewis’ Board Skills Appendix provides guidance on the types of skills expected for different industries and how these skills may be gained.

Glass Lewis has also stated a general concern regarding compensation arrangements that are overly favourable to the executive. For example, this includes overly generous severance payments, single-trigger change of control arrangements, or multi-year guaranteed awards.

The Investment Management Group of Fasken has provided the Canadian Securities Authorities (the “CSA”) with an extensive comment letter in response to the proposals described in Reducing Regulatory Burden for Investment Fund Issuers – Phase 2, Stage 1 (the “Proposals”) set out in the CSA Notice and Request for Comment dated September 12, 2019.

Our comments were based mainly on our experience advising clients in the investment funds industry, and took into consideration feedback we have received through consultations with a number of industry participants about the Proposals.

This blog summarizes our comments and suggestions to further reduce the regulatory burden of investment fund issuers and their managers, and further discusses two specific comments that we believe would foster such objectives in a meaningful manner.

Our comments to the CSA on each of the workstreams may be summarized as follows:

  • Workstream One: We believe that the proposed consolidation of the simplified prospectus and annual information form will not reduce regulatory burden and may, in fact, increase burden. To reduce regulatory burden, we have recommended that (i) more immaterial prescribed disclosure be removed from the prospectus, (ii) formatting and drafting style expectations for the prospectus be relaxed, and (iii) the prospectus filing system be changed to a regime similar to shelf prospectuses of public companies.
  • Workstream Two: We believe that the proposal for mandatory websites will create a significant new regulatory burden without an offsetting burden reduction in other areas. We have recommended that (i) websites not become mandatory until other regulatory changes involving the use of those websites also come into effect (for example, extending the notice-and-access approach to any regulatory disclosure requirement), and (ii) regulatory oversight of websites be limited to ensuring that information is posted to the website when required.
  • Workstream Three: We view the codification of notice-and-access relief as a housekeeping matter that does not change regulatory burden. In order to reduce regulatory burden, we have recommended a wider use of the notice-and-access approach.
  • Workstream Four: We agree with eliminating the requirement for personal information forms in certain circumstances, and have recommended that the CSA collaborate with Canadian stock exchanges to assist with removing their equivalent requirements.
  • Workstream Five: We view the codification of various conflict of interest relief as a housekeeping matter that does not change regulatory burden. To reduce regulatory burden, we have recommended that the CSA (i) eliminate or streamline conflict of interest prohibitions that will become unnecessary with the coming into force of a clear duty for registered firms to avoid material conflicts of interest when they cannot be addressed in the best interest of the clients (as part of the Client Focused Reforms) (ii) codify other relief which has not yet been widely obtained by industry participants, (iii) adopt measures to prevent such codification from becoming obsolete, and (iv) replace certain technical requirements with a principles-based approach.
  • Workstream Six: We agree that eliminating the need for CSA approval of certain fund mergers will reduce regulatory burden. We have recommended that further burden reduction occur by no longer requiring securityholder approval of the fund mergers in those same circumstances.
  • Workstream Seven: We agree that eliminating the need for CSA approval of certain changes relating to the managers of investment funds potentially reduces regulatory burden if the eliminated requirements do not resurface in the context of approval under NI 31-103. We have also recommended the repeal of OSC Staff Notice 81-710, which we believe created substantial new regulatory requirements outside the rule-making process.
  • Workstream Eight: We view the codification of various prospectus delivery relief as a housekeeping matter that does not change regulatory burden. To reduce regulatory burden, we have recommended replacing certain technical requirements in that relief with a principles-based approach.

For each of the above workstreams, we have made specific and detailed proposals aimed at increasing the reduction of the regulatory burden, and have outlined the reasons supporting them. In some cases, we examined what we understand were the initial underlying policy reasons supporting the current disclosure requirements or regulatory regime, and noted that subsequent regulatory changes and actual industry practices warranted the elimination or reduction of a variety of additional requirements, the whole without compromising investor protection or the general quality of disclosure provided to investors. For example, we have made detailed proposals to improve and shorten the preparation of the new disclosure document combining the current annual information form and short form prospectus.

Changing the prospectus filing system

We have also proposed that the current process for filing and reviewing the simplified prospectus for mutual funds be substituted by a regime similar to that applicable to base shelf prospectuses for public companies. Our view is that when compared to the prospectus review process for public companies that frequently raise capital by public offering, the level of scrutiny by CSA staff of mutual fund prospectuses, the extent of the technical comments made by CSA staff during those reviews, and the timespans for completing such filings appear unduly onerous, burdensome and inefficient. We have consequently come to the conclusion that the prospectus filing and review process applicable to mutual funds has become obsolete and should be modernized, and believe that it should be possible for mutual funds to achieve the same level of efficiency as is currently available to public companies using the shelf prospectus system.

Consequently, we have proposed that the prospectus filing process for mutual funds include the following features:

  • the simplified prospectus should be usable for at least 24 months before expiring and needing to be renewed;
  • the principal regulator should be required to provide its comments within 3 business days such that the refiling process can be completed within 10 business days;
  • a longer review period should only be required if the simplified prospectus raises novel issues;
  • the review should include a template for the mutual funds’ fund facts. However, like a prospectus supplement to a shelf prospectus for a public company, the fund facts should not be reviewed when filed during the lifespan of the simplified prospectus unless the fund facts raise a novel issue; and
  • a mutual fund should not be required to file an amendment nor obtain a receipt when the mutual fund files fund facts during the lifespan of its simplified prospectus.

We believe these changes would not compromise investor protection since it would be adopting a prospectus filing process already in place for public companies in Canada. The main impact of these changes is that they would achieve a level of efficiency comparable to public companies, which, we believe, should be made available to all public mutual funds.

New regulation and guidance

We have also noted that a significant amount of regulatory burden results from the CSA creating new requirements for the investment fund industry without using the rule-making process. This occurs by a variety of means including;

  • comments made by CSA staff in the course of reviewing prospectuses or following desk and field audits of specific issues;
  • CSA staff notices and informal publications such as the OSC Investment Funds Practitioner; and
  • positions taken during enforcement proceedings.

In order to produce better regulation which (i) takes into account issues which may not have been considered by CSA staff, (ii) is proportional to the protection provided to investors by considering relative costs and benefits, and (iii) is implemented fairly by applying to all industry participants at the same time and in the same manner, we have encouraged CSA staff to discontinue the practice of effectively creating new regulations through positions and guidance issued outside the rule-making process.

While we do not support the creation of new regulation outside the rule-making process, we endorse and encourage the dissemination of true “guidance”. In our view, a statement by CSA staff that limits the possible interpretation of a securities law requirement is effectively amending those securities laws. Similarly, guidance which states that an industry participant will be treated as non-compliant if it does not adopt the procedures described in the guidance is effectively creating new securities legislation.

In our view, “guidance” only should provide industry participants with confirmation when various practices are sufficient to meet the requirements of securities legislation. It should not preclude other possible interpretations of securities law requirements, nor trigger adverse consequences for industry participants that choose not to follow that guidance.

Our comment letter contains a number of additional proposals together with a number of suggestions; any Fasken Investment Management Group member will be pleased to further discuss any of those with you.

The latest edition of the American Bar Association’s (ABA) Canadian Private Mergers & Acquisitions Deal Points Study was released on December 19, 2019. The study focused on deals signed in 2016 and 2017. A number of members of the Fasken team were involved in the preparation of the study, including the authors of this post.

The ABA deal points studies have been cited in numerous court decisions and are a leading source in seeking to answer the dealmaker’s most basic question: what’s market?  This article highlights some of the key findings from the study and compares certain deal points to recent US studies.

Notwithstanding the importance of the study, readers should be mindful of the nature of the sample used before applying it too broadly. The agreements reviewed are sourced from the System for Electronic Documents and Analysis and Retrieval (SEDAR) maintained by Canadian securities regulatory authorities for reporting issuers. As result, the study necessarily reviews only a small portion of transactions completed during the relevant time period and is limited to Canadian private targets that are being acquired or sold by public companies. The latest study reviews just 90 agreements and is heavily skewed towards smaller deals (48% are under $50 million and 60% are under $100 million). That said, one of the biggest changes since the last Canadian study is the increase in deals over $200 million (up to 29% from 20% in the 2016 study). As a result of the how the transaction samples are developed for the study, 87% of the deals involved corporate buyers (unchanged from 2016 study) and only 6% involved private equity buyers (down from 10% in the 2016 study). 70% of deals in the study involved corporate sellers (71% in the 2016 study) and 9% involved private equity sellers (8% in the 2016 study).

Of note, the study shows that 21% of deals were in the oil & gas sector (up from 16% in the 2016 study and up from 8% in the 2014 study) and that 4% of deals were in the chemical & basic (natural) resources sector (down from 17% in each of the 2016 and 2014 studies).

Purchase Price Adjustments

The study shows a number of shifts in market practice with respect to post-closing purchase price adjustments. First, 79% of transactions include such an adjustment (up from 72%) with the vast majority of deals adjusting for working capital. Second, and somewhat puzzling, is that that the buyer prepares the first draft of the closing balance sheet in only 59% of deals (down from 76% in 2016 and 61% in 2014). That is in stark contrast to the US study, in which the buyer prepares the first draft of the closing balance sheet in 95% of deals. Some of the change might be attributable to data collection challenges, as 19 of the agreements reviewed did not specify who prepared the closing balance sheet. Finally, Canadian deals tend not to use earn-outs to bridge valuation gaps to the same degree as deals in the US (16% in Canada and 28% in the US), which is consistent with previous studies.

Continue Reading Latest Canadian ABA Private M&A Deal Points Study Released

Après près de quinze ans de règne paisible, les exigences relatives à la déclaration d’acquisition d’entreprise (« DAE ») applicables aux émetteurs non émergents sont sur le point d’être assouplies.

Aux termes des modifications proposées, un émetteur assujetti qui n’est pas un émetteur émergent devra déposer une DAE uniquement si deux des trois critères de significativité actuels sont satisfaits, comparativement à un seulement dans le cas présent, tandis que le seuil de ces critères de significativité sera rehaussé de 20 % à 30 %.

L’objectif principal est d’éliminer tout fardeau inutile imposé aux émetteurs assujettis et d’éviter les résultats anormaux obtenus par le passé sans compromettre la protection des investisseurs.

En 2015, les ACVM avaient déjà allégé le fardeau imposé aux émetteurs émergents en faisant passer le seuil des critères de significativité de 40 % à 100 % et en éliminant l’obligation selon laquelle leurs DAE devaient renfermer des états financiers pro forma.

Un juste compromis

Ce que l’on appelle la « condition à deux critères » est le résultat d’un processus de consultation (disponible uniquement en anglais) mené par les Autorités canadiennes en valeurs mobilières (les « ACVM »).

Les suggestions exposées dans les commentaires reçus par les ACVM allaient de l’élimination complète des obligations relatives à la DAE à la remise en question de certains aspects des critères de significativité, tandis que d’autres soulignaient que la DAE renferme de  l’information pertinente que l’on ne retrouve pas nécessairement ailleurs.

Le critère du résultat était particulièrement visé par les critiques parce qu’il donne souvent lieu à des résultats anormaux comparativement aux deux autres critères (le critère de l’actif et celui des  investissements).

S’appuyant sur les commentaires reçus et sur leur propre analyse des données pertinentes, les ACVM ont choisi de remplacer la « condition à un critère » par une « condition à deux critères ». En particulier, les ACVM ont jugé que la condition à deux critères permet de mieux traiter les résultats anormaux obtenus que la plupart des autres suggestions, notamment l’élimination du critère du résultat.

Règles actuelles

Actuellement, un émetteur assujetti qui n’est pas un émetteur émergent doit déposer une DAE après la réalisation d’une acquisition significative si la valeur obtenue pour l’un ou l’autre des trois critères de significativité établis dans le Règlement 51-102 sur les obligations d’information continue excède 20 %.

La DAE décrit l’opération, la contrepartie payée, la source des fonds et les projets de l’émetteur pour l’entreprise et, surtout, elle doit comprendre des états financiers historiques de l’entreprise acquise et de l’information financière pro forma.

La préparation d’une DAE entraîne des délais et des coûts non négligeables et l’information requise pour se conformer aux exigences de la DAE est parfois difficile à obtenir, ce qui nuit à la capacité de l’émetteur assujetti à accéder aux marchés des capitaux, à réaliser des acquisitions et à obtenir du financement. En particulier, les états financiers historiques de l’entreprise acquise sont rarement disponibles sous la forme exigée et leur préparation prend du temps.

Les modifications seront aussi très favorablement accueillies par les sociétés fermées en voie de s’inscrire en bourse, car celles-ci réalisent souvent plusieurs acquisitions dans les mois précédant leur premier appel public à l’épargne (PAPE), dont certaines pourraient être considérées comme significatives. Par conséquent, les exigences relatives à la DAE intégrées aux règles sur les prospectus de PAPE peuvent rendre le processus de PAPE considérablement plus long et plus coûteux.

Réduction significative des coûts

On s’attend à ce que les modifications proposées entraînent une diminution globale du nombre de dépôts de DAE.

Une analyse des DAE déposées et des dispenses accordées au cours d’une période de trois ans réalisée par la Commission des valeurs mobilières de l’Ontario (CVMO) révèle que les émetteurs pourraient réaliser des économies d’environ 15 millions de dollars sur dix ans si les modifications proposées sont adoptées.

Selon les estimations de la CVMO, les coûts engagés par un émetteur pour déposer une demande de dispense discrétionnaire liée à une DAE pourraient atteindre 18 770 $, comparativement à un montant maximal de 67 570 $ pour le dépôt d’une DAE. Ces estimations reposent sur des taux horaires moyens qui tiennent compte des différents niveaux d’ancienneté et de compétence des professionnels intervenant dans chaque activité. Toutefois, nous savons que les coûts liés au dépôt d’une DAE peuvent être significativement plus élevés, selon l’ampleur du travail nécessaire pour préparer les états financiers historiques y compris, s’il y a lieu, le rapprochement avec les mesures conformes aux PCGR canadiens, l’établissement des états financiers détachés et les frais de traduction.

Tendance internationale

Les ACVM entendent continuer de suivre l’évolution de la situation réglementaire à l’échelle internationale, et notamment aux États-Unis. La Securities and Exchange Commission des États-Unis a récemment proposé de réviser ses exigences concernant l’information contenue dans les états financiers en lien avec les acquisitions et les cessions d’entreprises significatives afin de faciliter et d’accélérer l’accès aux capitaux et de réduire la complexité et les coûts de la communication de cette information. Pour en savoir plus, veuillez consulter le document Amendments to Financial Disclosures about Acquired and Disposed Businesses (en anglais seulement).

Période de consultation

La période de consultation sur le projet de modifications concernant la DAE présenté par les ACVM prend fin le 4 décembre 2019.

Pour en savoir plus, veuillez consulter le document CSA Notice and Request for Comment Proposed Amendments to National Instrument 51-102 Continuous Disclosure Obligations and Changes to Certain Policies related to the Business Acquisition Report Requirements.

The BC government proposes sweeping changes to the Securities Act (British Columbia) (the “Act”), which will allow the British Columbia Securities Commission (“BCSC”) to better address white collar investment crime. Proposed through Bill 33 Securities Amendment Act, 2019, the amendments will provide the BCSC with some of the strongest powers in Canada to protect investors and enforce sanctions. These are the first major revisions to the legislation in almost a decade.

Government Sought Changes Two Years Ago

The changes were prompted two years ago, when Finance Minister Carol James asked the BCSC to come up with a plan to increase fine collection. Ms. James encouraged the BCSC to propose new mechanisms that would allow it to more effectively collect fines and deter future misconduct. Postmedia News reported that between 2007 and 2017, the BCSC collected less than 2% of the $510 million in fines that it ordered to be paid. During fiscal 2018/2019, the BCSC imposed sanctions of $35.4 million. During the same year, it collected  $5.2 million of which $0.3 million related to sanctions imposed in that year and $4.9 million related to sanctions imposed in prior years. It also returned $7 million to investors through a court-appointed receiver. Two years after Ms. James’ plea, the proposed amendments would give the Act stronger powers and better assist the BCSC with its enforcement mechanisms.

Changes Will Assist In Collecting Fines And Enforcing Orders

The proposed changes, many of which are unprecedented in Canada, enhance the BCSC’s power to collect fines and enforce orders. A key change would allow the BCSC to seize property that was transferred to third parties for below market value. Sanctioned individuals often transfer properties to spouses or relatives for small amounts, such as $10, which has allowed them to shield properties from regulators. Other proposed changes to the Act include:

  • Increase in maximum fines;
  • Increase in maximum jail terms;
  • New minimum sentences for repeat offenders;
  • Power to seize RRSPs; and
  • Power to direct ICBC to refuse renewal or issuance of driver’s licences or license plates.

Changes Aimed At Protecting The Integrity of Capital Markets

The BCSC welcomed the amendments and the government’s goal to contribute to a fair capital market. “We’d like to thank the B.C. government for taking action to crack down on white collar crime with these ground-breaking amendments,” said Brenda Leong, chair and CEO of the BCSC. “We now have new and better tools to go after the bad actors who break the law and cause significant harm to investors and the capital markets.” The changes will help victims of investment fraud recover funds and make it less desirable for individuals to create investment scams. The second reading of Bill 33 was on Monday, October 28, 2019 and a copy of it can be found here.

On October 30, 2019, the International Limited Partner Association (ILPA) published its model limited partnership agreement (LPA) template for private equity. The model LPA is available online by clicking here and constitutes a Delaware-law based “whole of fund” waterfall LPA that can be used to structure investments into traditional private equity buyout funds. It is expected that additional models of LPAs, including one based on a “deal-by-deal” waterfall will be published by ILPA in the future.

In publishing a publicly available standard model LPA, ILPA aims to provide an LPA that can be used as starting point for managers looking to establish a limited partner friendly limited partnership agreement or as a benchmark for ILPA recommended terms. The model LPA incorporates the positions taken in ILPA Principles 3.0, published earlier this year. For more information on ILPA Principles 3.0, please see our Bulletin dated September 6, 2019.

ILPA is a global organization dedicated to advancing the interests and maximizing the performance of limited partners in the context of private equity funds. The drafting and publication of model LPAs is part of ILPA’s broader LPA Simplification Initiative which began in early 2018.

After almost fifteen years of undisturbed reign, the Business Acquisition Report (BAR) requirements for non-venture issuers are about to be relaxed.

Proposed amendments will require that non-venture issuers file a BAR only if two of the three existing significance tests are triggered, as opposed to only one, and the triggering threshold for such significance tests will be increased from 20% to 30%.

The main objective is to eliminate any unnecessary burden on the reporting issuers and avoid the anomalous outcomes of the past, without compromising investor protection.

In 2015, the CSA had already reduced the burden on venture issuers by increasing the BAR significance test threshold from 40% to 100% and by removing requirement that BARs contain pro forma financial statements.

A Fair Compromise

The so-called “two-trigger test” is the result of a consultation process led by the Canadian Securities Administrators (CSA).

Comments received by the CSA ranged from the complete elimination of the BAR requirements to reconsidering certain aspects of the significance tests, while others indicated that the BAR contains relevant information that is not provided elsewhere.

The profit or loss test was especially criticized for often producing anomalous results when compared to the other two tests (the asset test and the investment test).

Based on the feedback received and its analysis of relevant data, the CSA chose to replace the “one-trigger test” by a “two-trigger test”. In particular, the CSA deemed the two-trigger test to be more efficient in dealing with the anomalous results than the removal of the profit and loss test or other alternatives.

Current Rules

Currently, a reporting issuer that is not a venture issuer must file a BAR after completing a significant acquisition if any one of the three significance tests set out in National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) exceeds 20%.

A BAR describes the transaction, the consideration paid, the source of funds and the issuer’s plans for the business, and most importantly, it includes historical financial statements for the acquired business and pro forma financial information.

The preparation of a BAR entails significant time and cost, and the information necessary to comply with the BAR requirements may, in some instances, be difficult to obtain, therefore limiting reporting issuers’ ability to access capital markets, complete acquisitions and raise financing. Notably, the targets’ historical financial statements are often not available in the requisite form and take time to prepare.

The amendments will also be a welcome change for private companies in the process of going public, as they often complete various acquisitions in the months leading to an IPO, some of which may be considered significant. The BAR requirements incorporated into the IPO prospectus rules can therefore add considerable time and cost to the IPO process.

Significant Cost Reduction

The proposed amendments are expected to result in fewer BARs being filed overall.

The analysis of BARs filed and relief granted over a historical three-year period conducted by the Ontario Securities Commission (OSC) revealed that issuers could save approximately $15 M over a ten year period if the amendments become law.

The OSC estimates that the costs incurred by an issuer for a BAR related exemptive relief application could be up to $18,770 while the costs incurred by an issuer for the filing of a BAR could be up to $67,570. Such estimates are based on average hourly rates taking into account different levels of seniority and skill of the professionals involved in each activity. However, we know that the costs for the filing of a BAR can be significantly higher, depending on the scope of the work required to prepare the historical financial statements, including, as applicable, reconciliation to Canadian GAAP measures, preparation of carve-out financial statements, and translation costs.

International Trend

The CSA indicates that it will continue to monitor international regulatory developments, including those in the United States. The U.S. Securities and Exchange Commission is currently proposing to revise its disclosure requirements for financial statements relating to significant business acquisitions and dispositions in order to facilitate more timely access to capital and reduce the complexity and costs associated with such disclosure. For further information, please see Amendments to Financial Disclosures about Acquired and Disposed Businesses.

Comment Period

The comment period on the CSA proposed BAR amendments will close on December 4, 2019.

For further information, please see CSA Notice and Request for Comment Proposed Amendments to National Instrument 51-102 Continuous Disclosure Obligations and Changes to Certain Policies related to the Business Acquisition Report Requirements.

On October 2, 2019, securities regulatory authorities in Alberta, Manitoba, New Brunswick, Nova Scotia, Ontario, Québec and Saskatchewan published CSA Multilateral Staff Notice 58-311 Report on Fifth Staff Review of Disclosure Regarding Women on Boards and in Executive Officer Positions. The notice summarizes a review of the disclosure made by 641 reporting issuers[1] under Form 58-101F1 Corporate Governance Disclosure, particularly as it relates to gender diversity among corporate leadership. The 2019 review is the fifth annual review on the matter. Highlights of the results from this year’s review are set out below.

General Findings on Gender Diversity

The 2019 review found issuers reported a slight improvement in gender diversity among board and executive members. In particular, the following trends were observed from this year’s review:

  • 17% of total board seats were occupied by women (up from 15% last year and 11% in 2015);
  • 73% of issuers reported having at least one women on their board (up from 66% last year and 49% in 2015);
  • 15% of issuers reported having at least three women on their board (up from 13% last year and 8% in 2015);
  • 33% of board vacancies were filled by women (up from 29% last year and 26% in 2017);
  • 64% of issuers reported having at least one women in an executive officer position (down from 66% last year resulting in part by a change in the methodology used to capture executive officer data and up from 60% in 2015); and
  • 4% of issuers reported having a women chief executive officer (CEO) (no change from last year) and 15% of issuers reported having a women chief financial officer (CFO) (up from 14% last year).

It is worth noting that securities regulatory authorities in Alberta and Québec also released province-specific data based on their review of disclosure made by 132 Alberta-based and 60 Quebec-based issuers, respectively. In general, Quebec reported more favourable results across the board, including higher female representation on boards (23% of total seats), whereas Alberta reported less favourable results across the board, including lower female representation on boards (14% of total seats).

Cap Size and Industry

The 2019 review found the number of women on boards varied by industry and the size of the issuer. In particular, the following trends were observed from this year’s review:

  • the manufacturing (93%), retail (86%), and utilities (85%) industries had the highest percentage of issuers with one or more women on their boards, while mining (62%), biotechnology (67%), and oil & gas (70%) had the lowest; and
  • issuers with a market capitalization of greater than $10 billion had 27% of board seats filled by women (up from 25% last year and 21% in 2015), compared to 13% for issuers with a market capitalization of less than $1 billion (up from 11% last year and 8% in 2015).

Targets and Policies

The 2019 review found that issuers with targets and policies regarding the representation of women on boards had higher average female board representation. In particular, the following trends were observed from this year’s review:

  • 22% of issuers adopted targets for the representation of women on their boards (up from 16% last year and 7% in 2015) and those issuers with targets had higher average female representation on their boards (24%) as compared to those without targets (15%); and
  • 50% of issuers adopted a policy relating to the identification and nomination of women directors (up from 42% last year and 15% in 2015) and issuers with such a policy had higher average female board representation (21%) as compared to those with no policy (13%).

Board Renewal

The 2019 review found that issuers continue to be reluctant to set director term limits, which could hinder the goal of gender parity. Research suggests that director term limits can promote an appropriate level of board renewal, and in doing so, provide an opportunity for qualified board candidates, including those who are women to take a seat. The following trends were observed from this year’s review:

  • 21% of issuers adopted director term limits (no change from the previous three years);
  • of those issuers with term limits, 44% set age limits (average age limit being 73 years), 25% had tenure limits (average tenure limit being 13 years), and 31% had both;
  • 36% of issuers adopted other mechanisms of board renewal, including assessments of the board and individual directors, but did not adopt term limits; and
  • 39% of issuers did not have director term limits nor had they adopted other mechanisms of board renewal.

What’s Next

The Canadian Securities Administrators (“CSA”) intends to publish the underlying data from the 2019 review by early 2020 and maintains that they will continue to monitor trends in this area. However, neither the 2019 review nor CSA’s 2019-2022 business plan indicates whether or not the CSA is actively considering imposing additional measures aimed at increasing gender diversity on boards and in executive officer positions. It is uncertain whether the recent amendments to the Canada Business Corporations Act (“CBCA”) will impact the CSA’s decision or their annual review next year as the amendments, among other things, will require publicly-listed CBCA corporations, including venture issuers, to provide greater disclosure on board and executive officer diversity policies and statistics beginning in 2020.

We will continue to monitor developments in this dynamic area of law.

[1] Note that the CSA staff review of disclosure does not include all reporting issuers. The 2019 review includes, generally, all issuers listed on the Toronto Stock Exchange (“TSX”) and other non-venture issuers with year-ends between December 31, 2018 and March 31, 2019, and which filed information circulars or annual information forms by July 31, 2019. The statistics do not include data from larger Canadian banks, who are often early adopters of diversity programs.

Effective September 30, 2019, the British Columbia Securities Commission (BCSC) adopted amendments which now require investment fund issuers to file annual reports of exempt distributions online through the BCSC eServices system, as opposed to submitting the annual reports in paper format as was previously required.

In anticipation of the next upcoming filing deadline on January 30, 2020, non-reporting investment fund issuers will need to create a profile in the BCSC eServices system prior to filing an initial annual report of exempt distribution in British Columbia.

The applicable filing fees for the reports of exempt distributions are typically paid through the BCSC eServices system at the time the filing is made, however, investment fund issuers that are submitting annual reports of exempt distributions may continue to submit the filing fees by cheque to the BCSC at the time the filing is made.

For further information in connection with the above, please see BCN2019/02 – Amendments to BC Instrument 13-502 Electronic filing of reports of exempt distribution related to filing annual reports of exempt distribution in eServices.

On September 12, 2019, the Ontario Securities Commission (the OSC) issued a news release regarding certain amendments as to who can certify a registrant’s annual fee calculation form in Ontario (a Form 13-502F4), which also applies to foreign registrants relying on an international registration exemption in Ontario (each an unregistered registrant).

Whereas a Form 13-502F4 previously had to be certified and submitted to the OSC by the registrant’s or unregistered registrant’s Chief Compliance Officer (the CCO), pursuant to the proposed amendments, a Form 13-502F4 of a registrant or an unregistered registrant can now be certified by its CCO, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, or in the case of an unregistered registrant, an individual acting in a similar capacity to one of these positions, or a director of the registrant or unregistered registrant.

These proposed amendments are expected to be in force when registrants and unregistered registrants are required to file their Form 13-502F4s later this year.

Pursuant to Ontario’s securities laws, a registered firm and an unregistered firm are required to file a Form 13-502F4 with the OC by no later than December 1st of each year disclosing the revenues they earned in Ontario and the participation fee that is payable to the OSC by no later than December 31st of that year.

For further information regarding the above, please see the Notice of Amendments to OSC Rules 13-502 and 13-503, which reflects the changes that have been made.