Amendments to TSXV Corporate Finance Policy 5.2 – Changes of Business and Reverse Takeovers
On December 15, 2016, the TSX Venture Exchange (Exchange) published amended Policy 5.2 of the TSX Venture Exchange Corporate Finance Manual (Policy 5.2), which formalized its March 2015 guidance (March 2015 Guidance) on the specific circumstances where the Exchange may waive the requirement for shareholders’ approval for changes of business (COB) or reverse takeover (RTO) transactions. The March 2015 Guidance advised issuers that the Exchange may exercise its broad discretion to waive shareholders’ approval for COB or RTO transactions when such transactions are not related party transactions, the issuer is without active operations, and the issuer is in good standing with the Exchange. The stated purpose of the policy is to enable companies listed on the Exchange or NEX to efficiently complete a COB or RTO, while protecting the interests of the affected shareholders and preserving the integrity of the market.
The substantive amendments to Policy 5.2 include the following:
- The formalization of the practice whereby as soon as a COB or RTO agreement has been reached, the issuer is obligated to notify the Exchange, and the securities of the issuer are immediately subject to a trading halt until certain disclosure and suitability conditions, as set out by the Exchange, are met;
- The formalization of exceptions for the requirement for majority shareholders’ consent, including where:
- the COB or RTO transaction is not a related party transaction;
- the Exchange has confirmed its view that the issuer is without active operations (including NEX issuers, Tier 1 and Tier 2 issuers that have failed to meet activity requirements but have not yet been transferred to NEX, and Tier 1 and Tier 2 issuers that otherwise satisfy the Exchange that they are without active operations);
- the issuer is not subject to a cease trade order;
- shareholders’ approval of the COB or RTO is not required under corporate law or securities law; and
- the issuer has disclosed in a press release that it will not obtain, and the reasons for not obtaining, shareholder approval;
- The formalization of policies related to financing that an issuer may obtain after it has entered into a COB or RTO agreement but prior to such closing, for funds needed to pay for expenses related to completing the transaction (Bridge Financing), and the formalization of policies related to financing that an issuer may obtain after it has entered into a COB or RTO agreement and concurrently with the closing of such transaction, for funds needed to satisfy listing requirements related to Working Capital and Financial Resources (as defined in the Corporate Finance Manual) (Concurrent Financing).
Bridge Financing is only permitted where, among other factors, (i) the issuer lacks sufficient resources to complete the COB or RTO transaction, (ii) the financing is completed independently of the completion of the transaction, (iii) the money raised is used for specific purposes related to the completion of the transaction, (iv) it is offered at a discount to the Concurrent Financing that is no greater than what is permitted under the definition of Discounted Market Price, and (v) in certain cases, at least 75% of the Bridge Financing offering must be subscribed by parties who are arm’s-length persons to the COB or RTO transaction.
Notwithstanding the pricing rules related to Bridge Financing, if the terms of the Concurrent Financing are not known at the time of the Bridge Financing, the terms of the Bridge Financing can be made independently of the Concurrent Financing;
- Advances to a target company in the form of non-refundable deposits and unsecured loans made by the issuer to the target in an aggregate maximum amount of $25,000, are now permitted without approval from the Exchange. Advances of amounts greater than $25,000, including Bridge Financing, may be made with prior approval from the Exchange, if such advances are secured and meet certain criteria as set out in Policy 5.2; and
- Changes to the document filing requirements for a COB and RTO transactions, to minimize inconsistencies in relation to document filing requirements with respect to initial listings and capital pool companies.
While the Exchange is expected to abolish the requirement for sponsorship of COB and RTO transactions, that policy has not yet been implemented. The Exchange has provided guidance that it will be receptive to applications to waive the sponsorship requirement, in situations where it is appropriate to do so.