The author wishes to thank Jean-Michel Lapierre, Jean-Pierre Chamberland and Gilles Leclerc for their advice and contributions.

Everything has changed. Not so long ago, we were continuing the longest winning streak in market history -11 years of bull market. Now, things normally taken for granted are no longer possible: planes no longer fly, cars no longer circulate, supply chains no longer manufacture goods, and entire cities are shut down around the world.

Every day, the public is overwhelmed with information regarding COVID-19. Companies are actively monitoring the situation and are constantly assessing the impact of the pandemic on their businesses. With business conditions, epidemiological forecasts, and rules of conduct in near-perpetual flux, the need for frequent and transparent communication with investors and shareholders—now mostly digital—has only intensified in the last weeks.

On March 20, 2020, Fasken published an article relating to disclosure considerations in Annual Information Forms, Management’s Discussion & Analysis, and other public documents. In light of the rapidly evolving circumstances, we would like to provide an update regarding recent developments concerning the disclosure of risk factors.

Review of Recent Canadian Filings

National Instrument 51-102 – Continuous Disclosure Obligations requires public issuers to disclose, inter alia, important trends and risks that have affected or may affect the issuer’s financial statements or performance in the future.

Since our previous article dated March 20, 2020, there have been more than 350 filings of Management’s Discussion & Analysis and Annual Information Forms that mention the words “coronavirus” or “COVID-19”. The majority of issuers that filed in the second half of March included common risk factors such as supply chain disruption, interruption of operations, and effects on consumer demand.

However, certain issuers disclosed new risk factors related to COVID-19, providing more specifics around the impact of the pandemic on their operations and businesses:

Loan and Credit Losses. In response to government-imposed measures, many non-essential businesses around the country have ceased or substantially reduced their operations for an indeterminate period. With more than one million Canadian now unemployed, issuers in the banking industry indicated that potential mortgage or credit card defaults and decreasing household income may negatively influence the credit quality and values of their loan portfolios and lead to increased loan losses. Other impacts of the COVID-19 cited include potential constraints on liquidity and capital, reduced demand for financial products and services and business interruptions and reputational harm caused by challenges posed to remote-working and disruption to key suppliers.

Industry Concentration. To date, certain industries—hospitality, entertainment, retail, energy and transportation—have been more impacted by the coronavirus than others. Other industries have been impacted by supply chain disruptions and the lack of freight as more airlines limit their services or are unable to import goods from foreign countries. As a result, issuers specialized in investing and managing securities portfolios should assess their exposure to these industries and sectors, and determine whether they face a material risk with respect to their business, financial condition or liquidity.

Capital and Liquidity. The COVID-caused market volatility and the prolonged period of economic stress will affect the capital and liquidity of numerous issuers. Regulators in Europe encouraged financial institutions and public issuers to cut or suspend their dividends in order to support the economy in an environment of heightened uncertainty. Several issuers in the United States, and some Canadian issuers, have already announced dividend cuts or suspensions and the suspension of their securities buyback programs. Other measures announced by some issuers include draw downs on available credit facilities, the postponement of non-essential capital expenditures, the temporary shutdown of certain activities and a reduction in compensation for management and throughout the organization.

Real Estate Market. Our research revealed that certain issuers specializing in real estate or property management have identified COVID-19 as a risk factor. For instance, certain issuers indicated that the Canadian commercial and real estate market may be seriously affected by all-time low-interest rates, the reduction of house visits because of the government-imposed bans on travel, the increase in vacancies at commercial places such as shopping malls, and the decreasing property values, which, inter alia, may increase the risk of defaults and subsequently reduce demand for commercial and multifamily real estate.

Cybersecurity. Certain public issuers have disclosed that they may face cybersecurity risks due to employees working from home. In fact, COVID-19 has created a perfect set-up for scammers seeking to defraud panicked, isolated and, sometimes, emotionally vulnerable targets. For instance, increased levels of remote access have created numerous opportunities for cybercriminals to exploit employees via various phishing and social engineering attempts. In addition, cybercriminals may take advantage of the fact that the public is bombarded with information about the virus, and circulate emails with malware that appear to include documents providing legitimate information about the virus.

In addition, several issuers have put out press releases specifically dealing with the COVID-19 situation disclosing some of the impacts on their operations, the measures taken in response to the situation and, in a number of instances, withdrawing or suspending the financial guidance previously provided to the market.

Recent Updates in the United States

Since our previous article, the following developments took place in the United States:

  • On March 25, 2020, the U.S. Securities and Exchange Commission (“SEC”) extended the conditional relief granted on March 4, 2020, and issued CF Disclosure Guidance Topic No. 9 (the “SEC Guidance”) setting forth its views regarding disclosure and securities law obligations that reporting companies should consider in respect of COVID-19.
  • On April 8, 2020, the SEC Chairman Jay Clayton and Division of Corporation Finance Director William Hinman issued a joint statement on April 8, 2020, emphasizing the importance to investors and markets of public company disclosures in light of the pandemic (the “SEC Statement”).

In the SEC Statement, Mr. Clayton and Mr. Hinman indicated that the disclosure of public issuers should address the following: (1) where the issuer stands today, operationally and financially, (2) how the issuer’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing, and (3) how its operations and financial condition may change as all our efforts to fight COVID-19 progress.

In the SEC Guidance, reporting issuers are encouraged, inter alia, to thoroughly assess the impact of the virus on their businesses and favour fact-specific drafting and disclosure about the past and potential future impact of the virus.

Takeaways from SEC Guidance and Statement

While the CSA has not issued any guidance or statement similar to the SEC Guidance or the SEC Statement, Canadian issuers can still use them as examples of securities regulators’ expectations. For instance, as suggested in the SEC Guidance, in preparing Management’s Discussion & Analysis and other public disclosure documents, Canadian issuers should bear in mind the following questions:

  • How has the coronavirus impacted the issuer’s financial condition and results of operations? What are the issuer’s expectations regarding impact on its future operating results and near-and long-term financial condition?
  • How has the virus impacted issuer’s capital and financial resources, including overall liquidity position and outlook? Has the issuer’s cost of or access to capital and funding sources changed, or is reasonably likely to change? Is there a material uncertainty about the issuer’s ongoing ability to meet the covenants in its credit agreements? Does the issuer expect to disclose or incur any material COVID-19-related contingencies?
  • How does the issuer expect COVID-19 to affect assets on its balance sheet and its ability to timely account for those assets? For example, will there be significant changes in judgments in determining the fair value of assets measured in accordance with IFRS?
  • Does the issuer anticipate any material impairment, increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that have had or are reasonably likely to have a material impact on its financial statements?
  • Have the government-imposed measures, such as remote work arrangements, adversely affected the issuer’s ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures? Considering the uncertainty surrounding the pandemic and its duration, what challenges does the issuer anticipate in its ability to maintain these systems and controls?
  • Did the issuer experience challenges in implementing its business continuity plans or does it foresee requiring material expenditures to do so? Does the issuer face any material resource constraints in implementing these plans? Are there significant challenges to the issuer’s workforce ability to maintain levels of service or disruptions to key suppliers of goods and services that affect the level of service or output and could adversely impact the issuer’s branding and goodwill with its clients?
  • Will the virus materially affect the demand for the issuer’s products or services?
  • Does the issuer anticipate a material adverse impact of COVID-19 on its supply chain or the methods used to distribute the issuer’s products or services? What will be the impact of the virus on the relationship between costs and revenues?
  • Will the issuer’s operations be materially impacted by any constraints or other impacts on its human capital resources and productivity?
  • Will the government-imposed travel restrictions and, in certain cases, border closures have a material impact on the issuer’s ability to operate and achieve its business goals?

Considering the rapidity at which the virus spreads and impacts industries around the globe, issuers may be tempted to get information into the market quickly. However, it is important for public issuers to thoroughly review their operations in order to make reasoned and informed disclosure communications to the market, while complying with their timely and continuous disclosure requirements. For instance, the SEC Statement encourages public issuers to resist generic, boilerplate disclosures and instead make all reasonable efforts to convey information about company-specific status, operational strategies and risks.

Also, the SEC Statement urges public issuers to be as transparent as possible or, in other words, provide as much information as practicable regarding their current operating status and plans. For instance, the following information is considered helpful to investors and markets:

  • details concerning the issuer’s current liquidity positions and expected financial resource needs;
  • the issuer’s actions and policies related to efforts that protect worker health and well-being and customer safety in light of COVID-19, to the extent material; and
  • the nature, amounts and effects of any governmental assistance that have materially affected, or are reasonably likely to have a material future effect on, an issuer’s financial condition or results of operations.

Depending on the circumstances of each issuer, it may be necessary for some of them to revisit, refresh and update previous disclosures to the extent that the information has become materially inaccurate. The SEC encouraged public issuers to proactively address COVID-related reporting matters earlier than usual.

For instance, we have seen a number of issuers simply withdraw their previously disclosed financial outlook, citing unprecedented uncertainty caused by the COVID-19 situation. The harsh reality facing numerous issuers is that the repercussions of the COVID-19 situation are difficult to assess as they are dependent on developments that are rapidly changing, highly uncertain and difficult to predict, including the scope, severity and duration of the pandemic and actions taken by governmental authorities and other parties in response to the pandemic. Special care are will need to be taken in putting out financial estimates that incorporate the anticipated impact of the COVID-19 situation, including with respect to the disclosure of the assumptions used and factors that could cause the results to differ in the disclaimers relating to forward-looking information.

Finally, the SEC recognized that, in many cases, the actual financial and operational results will differ substantially from the reasonable estimates given by the issuers right now. Because of the economic and business uncertainty around the world, the authors of the SEC Statement indicated that they would not second-guess the issuer’s good-faith attempts to provide investors and other market participants with appropriately framed, forward-looking information.

If, on the other hand, the issuer’s disclosure of risk factors is not modified and remains outstanding at the time of the next MD&A, the issuer will have to explain any material differences between issuer’s expected and actual results.


Given the unprecedented impact of the pandemic on countries and the global economy, issuers must, now more than ever, ensure that the disclosure of material information is properly communicated to the market. To do so, they should thoroughly assess their operations, and carefully consider whether their disclosure—especially concerning the financial outlook—needs to be amended or withdrawn. Note, however, that exemplary disclosure does not mean disclosure beyond what is legally required. Issuers should avoid creating false expectations for investors by prematurely identifying certain events as being more significant to the company than may actually be the case.