On May 22, 2014 the Canadian Securities Administrators (CSA) published, for a 90 day comment period, proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), National Instrument 41-101 General Prospectus Requirements (NI 41-101) and National Instrument 52-110 Audit Committees (NI 52-110) (collectively, the Proposed Amendments). In July 2011 and September 2012, the CSA had proposed new rules and rule amendments designed to streamline and tailor venture issuer disclosure while improving corporate governance (the Previous Proposals). These proposals provided for a separate continuous disclosure and corporate governance regime for venture issuers. The Previous Proposals contained many of the same elements as the Proposed Amendments, including streamlined quarterly reporting, executive compensation disclosure and business acquisition reporting. Although support for the Previous Proposals was initially strong, support for them fell as venture issuers felt that the benefits from streamlining and tailoring disclosure were outweighed by the burden of transitioning to a new regime (especially at a time when venture issuers faced significant economic challenges).
Below is a summary of the Proposed Amendments.
- Quarterly Highlights: The Proposed Amendments would permit venture issuers without significant revenue tofulfill the requirement to file quarterly interim Management’s Discussion & Analysis (MD&A) by preparing and filing a streamlined “quarterly highlights” disclosure document, in each of their first three quarters. The “quarterly highlights” consist primarily of a short discussion about the venture issuer’s operations and liquidity. Venture issuers could still choose to file the existing MD&A as an alternative.
- Business Acquisition Reports. The Proposed Amendments would increase the asset, investment and profit or loss thresholds for “significant acquisitions” for venture issuers from 40% to 100%, which would reduce the instances in which a Business Acquisition Report would be required for a venture issuer. The Proposed Amendments would also eliminate the requirement to include pro forma financial statements in Business Acquisition Reports filed by venture issuers.
- Executive Compensation Disclosure. The Proposed Amendments provide for a new executive compensation disclosure form for venture issuers (Proposed Form 51-102F6V) that would tailor disclosure specifically for venture issuers and that would:
- reduce the number of individuals for whom disclosure is required from a maximum of five to a maximum of three (i.e., the CEO, CFO and one additional highest-paid executive officer);
- reduce the number of years of disclosure from three to two; and
- eliminate the requirement for venture issuers to calculate and disclose the grant date fair value of stock options and other share-based awards in the summary compensation table.
Venture issuers would still be able to choose whether to comply with Form 51-102F6 or the Proposed Form 51-102F6V.
- Amendments to NI 51-110. The Proposed Amendments would require venture issuers to have an audit committee of at least three members, the majority of whom could not be executive officers, employees or control persons of the issuer. This requirement mirrors the requirement under the TSX Venture Exchange’s policies.
- Amendments to NI 41-101.
- Audited Financial Statements. The Proposed Amendments would reduce the number of years of audited financial statements required in an initial public offering prospectus for a company that will become a venture issuer on completion of the initial public offering from three to two years.
- A description of the business and history of the venture issuer would only be required for two years, rather than three years.
- The Proposed Amendments would also conform the interim MD&A, executive compensation and business acquisition disclosure in an initial public offering prospectus with the continuous disclosure amendments summarized above.
In addition to the Proposed Amendments described above, the CSA is proposing to make the following amendments to NI 51-102 for all issuers:
- Mining Issuer Disclosure. The Proposed Amendments include revisions to Form 51-102F2 Annual Information Form, to conform to changes made to National Instrument 43-101 Standards of Disclosure for Mineral Projects in 2011.
- Filing Requirements for Form 51-102F6 and Proposed Form 51-102F6V. The Proposed Amendments would require:
- non-venture issuers that are required to file an information circular to file a Form 51-102F6 not later than 140 days after their most recently completed financial year;
- venture issuers that are required to file an information circular to file a Form 51-102F6 or Proposed Form 51-102F6V not later than either 140 days or 180 days (to be determined by the CSA following the comment period) after their most recently completed financial year; and
- the executive compensation requirements in section 11.6 of NI 51-102 will apply only to issuers that do not have a requirement to send an information circular and do not send an information circular.
As a result, for issuers whose corporate law or organizing documents permit them to hold an annual general meeting of shareholders at a later date, an earlier deadline could result in an issuer having to file its executive compensation disclosure twice (i.e., once as a stand-alone form to meet the new deadline and a second time with its information circular). Although the Proposed Amendments in most cases assist venture issuers in streamlining their disclosure and saving costs, this requirement would become burdensome on both venture and non-venture issuers.
As with the Previous Proposals, it will be interesting to see whether the Proposed Amendments will be supported.