On March 23, 2020, the Toronto Stock Exchange (TSX) issued Staff Notice 2020-0002 granting temporary blanket relief from certain provisions of the TSX Company Manual (Manual) and the TSX Venture Exchange (TSXV) issued a “Notice to Issuers” with similar temporary blanket relief, both in response to the COVID-19 pandemic. The TSX and TSXV temporary relief is described below.

Toronto Stock Exchange

  1. Normal Course Issuer Bid Daily Limits

For TSX issuers with a normal course issuer bid (NCIB) in effect, there is a limit on the number of shares that can be acquired on any trading day, in effect, a maximum equal to 25% of the issuer’s average daily trading volume (ADTV) for the six calendar months preceding the date of acceptance of the notice of the NCIB by the TSX. Under the temporary relief, the maximum has been increased to 50% of the issuer’s ADTV. The relief is effective until June 30, 2020 and applies to any NCIB currently in effect as well as to NCIBs renewed or launched until June 30, 2020. As a result, until June 30, 2020, the maximum number of shares that can be repurchased on any trading day under an NCIB has, in effect, been doubled.

  1. Annual Meetings

Under the Manual, a TSX issuer must hold an annual meeting within six months of the end of its fiscal year. The TSX will permit listed issuers that must hold an annual meeting during 2020 to hold the meeting no later than December 31, 2020. In other words, if a TSX issuer has a December 31 year end, the date of its annual meeting can be extended by up to six months, from June 30 to December 31. However, TSX issuers should review the requirements of applicable corporate law before setting a meeting date that benefits from the TSX extension. For example, under the Canada Business Corporations Act (CBCA), the Board of Directors of a corporation must call an annual meeting of shareholders not later than 15 months after holding the last preceding annual meeting but no later than six months after the end of the corporation’s preceding financial year. TSX issuers governed by the CBCA must comply with this corporate rule or seek relief from the Director appointed under the CBCA.

  1. Shareholder Approval for Security Based Compensation Arrangements

For TSX issuers with a security based compensation arrangement (e.g., a stock option plan or other similar plan) which does not have a fixed maximum number of securities issuable, for example, a stock option plan which provides that the maximum number of shares issuable thereunder is equal to 10% of the issuer’s outstanding shares from time-to-time, the Manual requires that all unallocated options, rights or other entitlements under the plan must be approved by shareholders every three years. Under the Manual, if shareholder approval is not obtained by the three-year deadline, any stock options or other securities granted after the three-year deadline must be ratified by shareholders before they can be exercised. Consistent with the relief for annual meetings described above, under the temporary relief a TSX issuer may continue to make grants under a plan until the earlier of its 2020 annual meeting and December 31, 2020; further, stock options and other securities granted during this period may be exercised without ratification by shareholders.

For example, if a TSX issuer has a “rolling 10%” stock option plan which was last ratified by shareholders at an annual meeting held on June 15, 2017, it would normally have to obtain shareholder ratification of all unallocated stock options (i.e., options remaining to be granted) by June 15, 2020, and if shareholder ratification is not obtained by the three-year deadline, any stock options granted after the three-year deadline would have to be ratified by shareholders before being exercised. As a result of the temporary relief, the June 15, 2020 deadline in this example is extended to the later of the date of the issuer’s annual meeting held in 2020 and December 31, 2020. Further, any stock options granted after June 15, 2020 could be exercised prior to the 2020 annual meeting without shareholder ratification.

  1. Delisting Criteria – Market Value

The Manual sets out that the TSX may delist an issuer if the market value of its listed securities is less than $3 million, or if the market value of its freely-tradeable, publicly-held securities is less than $2 million, in either case over any period of 30 consecutive trading days. Under the temporary relief, the TSX will not apply either of these delisting criteria for the balance of 2020 in determining whether to initiate a delisting review. None of the other TSX delisting criteria are affected by the temporary relief, most importantly those related to the issuer’s financial condition. For example, the TSX can delist an issuer if its financial condition is such that, in the opinion of the TSX, it is questionable whether the listed issuer will be able to continue as a going concern. That rule remains in place.

  1. Annual and Interim Financial Statements

The Manual requires that a TSX issuer file TSX Form 9 – Request for Extension or Exemption for Financial Reporting/Annual Meeting if it requires an extension of the time limit for filing or mailing its annual financial statements and sets out that an extension will be granted “only under exceptional circumstances”. A similar filing must be made for an extension for filing interim financial statements. Under the temporary relief, during 2020 it will not be necessary for issuers to file TSX Form 9 in connection with a late filing of annual or interim financial statements. This is consistent with the blanket relief recently granted by the Canadian Securities Administrators (CSA), providing a 45-day extension for periodic filings due on or before June 1, 2020, including financial statements. In short, a TSX issuer which makes use of the CSA blanket relief and files its annual or interim financial statements beyond the statutory deadline will not have to file Form 9 with the TSX. The TSX notes that it expects listed issuers to comply with the applicable requirements of securities law regarding the filing of their annual and interim financial statements.

  1. Definition of “Market Price”

The concept of “market price” is used in several instances in the Manual, for example, for determining a minimum price for shares, and the exercise price of warrants, issued in a private placement (unless shareholder approval is obtained). The Manual defines “market price” as the volume weighted average trading price (or VWAP) on the TSX for the five trading days immediately preceding the relevant date (e.g., the date of filing a notice of private placement with the TSX). In light of current volatile market conditions, on a case-by-case basis the TSX will use a shorter time period for determining “market price” for the purpose of pricing private placements. The temporary relief does not set out the shorter time period or the criteria for determining when a shorter time period will be used. Presumably, a shorter time period, such as three trading days, will be used when the first two days of the usual five-day period are no longer representative of market price in light of significant fluctuations in the price of the stock.

TSX Venture Exchange

  1. Annual Meetings

Under TSXV Policy 3.2 Filing Requirements and Continuous Disclosure, every TSXV issuer must hold an annual meeting of its shareholders each year not more than 15 months after its last annual meeting (or such earlier date as required by applicable corporate or securities laws). Pursuant to the temporary relief, the TSXV will permit issuers that must hold an annual meeting during 2020 under Policy 3.2 to hold the meeting on any date up to and including December 31, 2020.

The TSXV expects listed issuers to comply with applicable legislation regarding annual meetings (e.g., the CBCA as described above).

  1. Stock Option Plans

Under TSXV Policy 4.4 Incentive Stock Options, if a listed issuer has a “rolling” stock option plan, that is, one which reserves for issuance a number of shares equal to a fixed percentage of the issuer’s outstanding shares, it must obtain shareholder approval for the “rolling” plan yearly at the issuer’s annual meeting. Similar to the TSX, under the temporary relief the TSXV will permit listed issuers to obtain yearly shareholder approval in 2020 at an annual meeting held in 2020, which can be held up to and including December 31, 2020.

The TSXV notes that it will not be necessary for issuers to apply in order to benefit from the temporary relief – in other words, the relief is automatic.

It is likely that a trend will emerge in the coming months of cancelled transactions leading to litigation as to whether the impact of the novel coronavirus (“COVID-19”) amounts to a “disaster” or a force majeure under various agreements. Standard underwriting agreements contain termination provisions, some of which may be triggered by COVID-19. As a result, we expect the bought deal market to be impacted by this trend.

Issuers may have recently received notice from underwriters of an intention not to close bought deals, or to terminate obligations arising from underwriting agreements, citing reliance on “disaster-out” or force majeure clauses. We expect these issuers may elect to pursue legal remedies for breach of contract.

A force majeure or “disaster-out” clause will typically protect parties in the event of non-performance of a contract due to circumstances beyond their control. As such, the timing of the agreement relative to the outbreak of COVID-19 may be relevant to a court’s finding on the matter. Additionally, some underwriting agreements contain a market out clause, which typically allows underwriters to terminate contracts without penalty if the market conditions have changed such that the securities could no longer be marketed profitably. In order to predict the outcome of each case, the language of the relevant provisions must be reviewed so as to determine whether they constitute a market out clause or a force majeure clause.

Precedent for Reliance on Disaster-Out Clauses to Terminate Bought Deals

In 2013, the Ontario Superior Court of Justice (the “Court”) awarded damages of just over C$16 million against Thomas Weisel Partners Canada Inc. (a predecessor to Stifel Nicolaus) (“Thomas Weisel”) in Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc., for failing to close on a bought deal private placement agreed to pursuant to a signed letter agreement with Stetson Oil & Gas Ltd. (“Stetson”). Thomas Weisel notified Stetson that it did not intend to close the offering after marketing efforts were unsuccessful due to a drop in oil prices that occurred around the relevant time. Thomas Weisel attempted to argue that its offer to purchase the securities was conditional on completion of the due diligence process. The Court disagreed and held that the letter was binding although there was a termination right in the event that Thomas Weisel had uncovered material undisclosed information in the due diligence process. Thomas Weisel further argued that because the engagement letter stipulated that termination provisions, including a “disaster out” clause, were to be included in the underwriting agreement, Thomas Weisel should be able to rely on these provisions to terminate the letter. The Court again disagreed as no attempts were made to negotiate the underwriting agreement prior to refusal to close, and at the time of giving notice of refusal to close, no indication was made that Thomas Weisel intended to rely on such clauses. The Court also held that the facts of the case would preclude Thomas Weisel from relying on a standard “disaster-out” clause even if one was available to them.[1]

Is COVID-19 a Force Majeure?

The question of whether COVID-19 constitutes a force majeure has yet to be determined by a court. In every case, it will be a factually-specific analysis that will turn on the language and context of the specific provision and transaction. While certain force majeure provisions, especially those drafted after the SARS outbreak, may specifically reference epidemics or pandemics, the majority of those clauses are more general and more ambiguous. We also would expect that where a party to a contract provides notice and attempts to terminate pursuant to a force majeure clause, that the other party may argue that a suspension or deferral is the more appropriate interpretation under the terms of the clause, rather than termination. Even in contracts where there is no force majeure clause, there is a risk that a party may seek to terminate, arguing that the contract has been frustrated, such that performance under the contract was rendered impossible or radically different from the obligations undertaken by both parties at the time they contracted. For a review of disclosure obligations and other considerations regarding force majeure provisions and frustration, there is a bulletin available here.

Fasken will follow developments in this matter and provide updates as they become available.

[1] The Court used the “disaster-out” clause from the IIAC Handbook for its analysis.

Fasken recently published two articles (on March 12 and March 13, 2020) relating to alternatives to in-person annual shareholders’ meetings in the context of the COVID-19 pandemic. In light of the rapidly evolving circumstances and the ongoing proxy season, we have detailed recent developments and trends in the area in order to provide a road-map to corporations navigating this process.

Recent Trends

In the week since our last bulletin, the following developments and trends have emerged:

  • Relaxed regulatory requirements: In response to COVID-19, on March 20, 2020, the Canadian Securities Administrators issued guidance to issuers with respect to hybrid and virtual meetings, as outlined below. Securities regulators in the United States have also announced similar permissive proxy rules. This guidance provides corporations with welcomed regulatory flexibility to make changes to the date, time, location and format of their meetings to better respond to the evolving pandemic.
  • Most popular meeting formats. Additional Canadian issuers, listed either on the TSX or TSX Venture Exchange, including Rogers Communications Inc., Canadian National Railway Company, Canadian Pacific Railway Limited, EnWave Corporation (TSX Venture Exchange), Fortis Inc. and Yamana Gold Inc., have taken the fully virtual route. Many Canadian issuers, including Teck Resources Limited, TFI International Inc., Fairfax Financial Holdings Ltd., Logistec Corporation and BluMetric Environmental Inc. (TSX Venture Exchange), have instead decided to maintain their in-person meeting with a simultaneous webcast while strongly encouraging shareholders not to physically attend the meeting and to vote in advance by proxy. We note that no Canadian issuer has yet adopted a hybrid format (which allows for both online and in-person voting) in response to the COVID-19 crisis. However, several issuers have embraced such format for the past few years. In the current context, certain issuers are considering postponing their meeting altogether to a later date while they assess available options. Osisko Gold Royalties Ltd. has adopted this approach.
  • Proxy advisory firms get onboard – the key is to provide meaningful access. As reported by Kingsdale Advisors, GlassLewis and ISS have relaxed their policies with regards to virtual-only meetings, the latter indicating that it will be “very reasonable” as it relates to virtual-only meetings while remaining strict with its previous statement that issuers “must provide full disclosure ensuring that the meeting will not limit shareholders’ rights to participate”. Glass Lewis, on the other hand, confirmed that it will be lenient with corporations motivated to switch to a virtual setting due to the COVID-19 outbreak, as clearly stated in their public disclosure.
  • Practical considerations. There are limited service providers available to conduct hybrid and virtual meetings in Canada. Corporations would be wise to act quickly if interested in pursuing this type of meeting due to potential availability constraints.

Road-Map to Taking your Meeting Virtual or Hybrid

Corporations must juggle with both corporate and securities law requirements in their decision to take their meeting virtual. The section below sets out the options available to a corporation which wishes to switch to a virtual setting, based on the timing of its upcoming annual meeting.

1- You have not yet mailed and filed proxy materials

The first step is to consult your corporate statute, articles and by-laws to assess what options are available to you.

  • From a corporate law perspective, most corporate statutes authorize virtual meetings if provided for in the by-laws of the corporation.
  • While British Columbia corporate law may require a court order to conduct a virtual meeting, corporations governed by the Canada Business Corporation Act and other provincial corporations such as Ontario allow for the possibility so long as all participants are able to participate in the meeting and communicate adequately with each other.
  • Hybrid meetings can be conducted under most corporate laws, subject to any restrictions contained in the corporation’s articles or by-laws.
  • For an in-person meeting with live webcast, if shareholders are not able to participate and communicate with each other, they will not be deemed to be present for purposes of quorum requirements. In this case, collecting sufficient votes by proxy in advance of the meeting is important. It is also advisable to hold a question period at the end of the meeting.

If your articles and by-laws allow you to hold your meeting under the desired format, details regarding the meeting must be communicated in the proxy materials and delivered to shareholders as usual, with the caveat that disclosure relating to the new format must be added with a specific indication as to how and why holding the meeting by virtual means will not limit shareholders’ rights to participate.

  • Alternatively, a court order may be sought (as detailed below). In addition, as boards often have the ability to unilaterally amend the corporation’s by-laws under most corporate statutes (other than in Québec), to the extent the by-laws impose significant restrictions on alternatives to in-person meetings, directors may amend the by-laws as needed, either permanently or on a “one-off” emergency basis, subject to ratification by shareholders at the next meeting. Nonetheless, if the amendment is not subsequently approved by the shareholders at the annual meeting or quorum is not met, such amendment would cease to be effective and the meeting would be held in breach of the corporation’s constating documents.
  • Issuers filing and mailing materials for an annual meeting may want to consider including flexible language in their proxy materials indicating that meeting plans may be adapted given rapidly evolving circumstances surrounding the COVID-19 pandemic. Corporations should clearly advise shareholders that they will be notified of any change in the meeting location or format via press release and posting on the corporation’s website.

2- You have already mailed and filed proxy materials 

If you have already distributed your proxy materials, shareholders will need to be informed as soon as practicable of the change to a new medium.

  • In the case of a change to a virtual-only meeting, corporate statutes or by-laws may impose certain formalities on corporations (such as the sending of an amended notice to shareholders), as the location of the meeting would be deemed to have changed. Therefore, opting for a hybrid meeting or webcasting may be more appealing for issuers in these circumstances. For a hybrid meeting or live webcast, no additional mailing is required, as the location, date and time of the meeting remain the same.
  • No matter the format used, securities laws impose additional requirements on public issuers. As mentioned above, regulators have taken the relaxed position that an issuer that has already mailed and filed its proxy materials can notify shareholders of a change in the date, time, or location of its annual meeting without mailing additional proxy materials if: (i) a press release announcing such change is issued, (ii) the announcement is filed as definitive additional soliciting material, as the case may be, and (iii) the issuer takes all reasonable steps necessary to inform other intermediaries in the proxy process of the change.

Seeking Court Orders

If your corporation is not permitted to hold a virtual or a hybrid meeting based on its constating documents, or if it is unclear whether your corporation is permitted to do so, for precautionary purposes, you may decide to apply for a court order to ensure your meeting is validly held. Indeed, Canadian corporate statutes generally provide that a court of competent jurisdiction may order a meeting to be called, held, and conducted in the manner that the court directs.

The court order may, for instance, vary or waive any applicable quorum requirement, allow the corporation to provide notice to shareholders within a shorter timeframe and via a different format (e.g. by press release instead of by mail or personal delivery). If the meeting is called, held and conducted in compliance with the court order, interested parties will for all purposes be prevented from challenging the validity of the meeting.

Fasken recently represented Rogers Communications Inc. before the Supreme Court of British Columbia and obtained an order permitting it to hold its next annual meeting of shareholders as a virtual-only shareholder meeting. Such order was sought based on specific provisions of the British Columbia Business Corporations Act. More particularly, the court order states that the meeting to take place is deemed to be held at Rogers’ head office and, to prevent any quorum issues, it also states that the shareholders or proxy holders entitled to participate in, and vote at, the meeting and who are participating by electronic communications medium are deemed to be present at the meeting.

In light of concerns over COVID-19, we expect chances of success to be relatively high in obtaining a court order given the health and safety measures prescribed by the authorities are extraordinary circumstances allowing courts to interfere in internal corporate affairs. For instance, on March 20, 2020, some of Canada’s biggest financial institutions and insurers, namely Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Canadian Western Bank, Laurentian Bank of Canada, Manulife Financial Corp., Great-West Lifeco Inc., Canada Life Assurance Company and Sun Life Financial Inc., obtained a joint court order to hold virtual-only annual meetings in light of the COVID-19 pandemic. This creates an additional favorable precedent.

It is, however, important to note that the evolving health and safety measures imposed in light of COVID-19 could impact corporations’ ability to obtain an order in a timely fashion. Restrictions imposed on court activities may be different from one judicial district to another. For instance, court activities may be limited to strictly urgent matters and such matters may be dealt with via telephone conferences only, rather than in-person hearing. Nonetheless, an application for a court-ordered meeting is likely to be deemed urgent in light of the ongoing proxy season. That being said and leaving the possible restrictions on court activities aside, we expect applications for court-ordered hybrid or virtual meetings to be cost and time efficient.

Recourse to courts should be reserved for necessary cases only. A virtual or hybrid meeting is generally permitted by the Canada Business Corporations Act, the Ontario Business Corporations Act and the Québec Business Corporations Act so that, in principle, a court order will not be required for a virtual or hybrid meeting for corporations governed by those statutes if their by-laws provide for such formats.

If you have any questions or if we can be of any support to you during this proxy season, please do not hesitate to contact any member of our Capital Markets team.

The authors wish to thank Jean Michel Lapierre, Neil Wiener, Neil Kravitz, Gilles Leclerc,  Tristan Lalumière-Roberge and Christophe Leduc for their contributions.

COVID-19 or coronavirus: everybody thinks about it, reads about it and talks about it, and, yet, we still ignore the full impact it will have on the world. So far, the outbreak of the virus disrupted supply chains, closed stores and resulted in quarantines across the globe. On March 11, 2020, the World Health Organization declared the coronavirus a pandemic and, for many public companies with a December 31 year-end, this announcement came only a few days before regularly scheduled dates for filing annual reports.

Usually, annual reports allow management to explain how a company performed during a particular period and what its prospects are. As part of this disclosure, management has to address trends and risks that could reasonably affect their financial statements, operations and business in general. The coronavirus is a novel virus, and a novel risk, resulting in logistical, health and financial issues never seen before.

The challenge is thus to provide investors with accurate information about the future while information about the virus is changing on a daily basis. And the cost of not getting the disclosure right is high. Issuers could face regulatory action or litigation if they were not sufficiently forthcoming about the impact of the virus on their operations, their financial ties to infected regions such as China or Italy, or if they characterize the virus as a hypothetical risk, while, in reality, the virus has affected the issuer’s operations.

In the last weeks, the U.S. Securities and Exchange Commission has issued guidance relating to the disclosure public issuers ought to make in connection with the coronavirus.[1] Reporting issuers are told, among other things, to disclose specific facts about the past and potential future impact of the virus and to avoid broad drafting of risks related to the virus.

While the Canadian Securities Administrators has not issued any guidance regarding coronavirus disclosure, numerous Canadian issuers have already incorporated such disclosure in their filings. In fact, since January 1, 2020, there have been more than 250 filings of Management’s Discussion & Analysis and Annual Information Forms that mention the words “coronavirus” or “COVID-19”. As such, the purpose of this article is to discuss the steps certain public issuers have already taken, examples of which are provided later in this document, and to discuss certain issues that virtually all public companies should be considering.

Before coronavirus was declared a pandemic and before Canada announced its border closures, almost no issuer had ever faced a phenomenon of this magnitude. Consequently, most public documents contained general disclosure related to disease outbreaks and pandemics such as negative global financial consequences, economic uncertainty; negative impacts on production or operations in countries and regions most affected by the virus; impact on the demand of products and services; and the triggering of force majeure clauses by third-party suppliers or service providers. The broad drafting approach comes as no surprise, for, until 2020, no issuer would have been able to identify precisely how a pandemic could affect its business, operations or financial condition.

Our review of public disclosure documents filed on SEDAR indicates that a majority of issuers continue to favour a broad and all-inclusive approach to drafting risks related to disease outbreaks and pandemics, while inserting, where applicable, references to COVID-19.

That being said, now that the virus was declared a pandemic and drastic measures are imposed by the federal and provincial governments, it seems prudent and reasonable for issuers to thoroughly assess their local and international operations and favour disclosure of specific facts about the past and the likely future effect of the virus instead of adopting general and broad language that presents the risk in the hypothetical.

Besides, considering how intertwined risk factors are, issuers should not limit themselves to pandemic disclosure only but should evaluate the impact of COVID-19 on their business in general. The disruption of a supply chain, for instance, impacts the end consumer and the issuer’s ability to fulfil its orders. A global economic slowdown and high market volatility could make it more difficult to obtain financing. Unstable trading conditions and shortages of cash flows could increase the risk that an issuer breaches its financial covenants. Below are examples of risk factors that could be related or caused by COVID-19:

Supply chain disruption. As a result of factory shutdowns in China (the world’s largest exporter and, at the same time, the country where the virus originated), the supply chains of numerous public issuers have and will continue to be disrupted. In a recent report, McKinsey & Company estimated that the supply chain disruptions will likely result in a decrease in the global GDP from 2.5% to 2%.[2] Even issuers that do not own or operate any foreign manufacturing facilities should consider the risk of supply chain disruption, for it is likely that a high percentage of their manufacturing purchases are from China. Ultimately, interruption of its supply chain or the supply chain of a supplier could result in an inability to fulfill customers’ orders. For instance, Volkswagen, the world’s largest carmaker, shut production lines because of disruptions to supply chains as a growing number of European countries close borders. [3]

Interruption of operations. Social distancing (avoiding public places that pose a higher risk of contamination) is one of the measures being adopted around the world. As a result, issuers that own or operate restaurants, bars, and stores are likely to attract fewer visitors or even close their doors temporarily. For instance, on March 18, 2020, the Financial Times reported that Zara, the world’s biggest fashion retailer, will temporarily close its 3,785 stores and write off nearly £300 million of inventory as sales dropped 24% because of coronavirus.[4] In Canada, Hudson’s Bay announced that it will close all its stores from March 18 to April 1[5]. Businesses like the Bay and Zara and others generally need employees to perform their jobs on site and, as such, may see more illness among their staff members.

Effect on consumer demand. Leisure travel has been another industry seriously affected by the virus. This week, British Airways, KLM, Delta Airlines, Air Canada and Air Transat, to name just a few, indicated that they will have to cut jobs, suspend routes and ground aircraft because of the coronavirus pandemic.[6] Issuers owning or operating other leisure-related businesses such as casinos, theatres and cinemas are likely to experience a decrease in visitors, while business carrying-on travel agency activities are likely to be impacted by the reduction in airline traffic. Concurrently, due to declining attendance/demand and certain government-directed shutdowns of public places, workers in the airline, entertainment and hospitality industry could lose working hours and struggle financially, which, in turn, could increase consumer credit borrowing to service their mortgages, student loans and credit card payments.

Work-related measures. Even if certain issuers will not be affected directly by COVID-19, almost all of them had, at one point during March 2020, to adopt or accommodate a work-from-home policy. Such precautions as working from home, suspending all nonessential travel or postponing sponsored events or meetings could harm the business. So far, the automobile industry was one of the most impacted by the recent confinement measures announced by governments around the world. For instance, France’s PSA, owner of Peugeot, Citroën, Vauxhall and Opel brands, closed all its European plants.[7] Volkswagen, the world’s largest carmaker, shut down production lines because as a growing number of European countries close borders. In North America, more than 100 car and engine plants in ceased production after General Motors, Ford and Fiat Chrysler Automobiles agreed co-ordinated wind downs and Honda and Toyota announced blanket closures.[8]

Market volatility, credit risk and financial performance. On Wednesday, March 18, 2020, the S&P 500 index closed down 25 per cent off its value a month ago. The Dow Jones Industrial Average was off more than 28 per cent off its value a month ago. The U.S. dollar rallied and the U.K. pound hit a low not seen since the 1980s.[9] As such, issuers operating in the financial industry have experienced and will likely continue experiencing high volatility. Facing a decrease of revenues, certain issuers may require additional financing that might not be available and, subsequently, may not meet the financial covenants in their credit agreements.

Issuers who have provided earnings guidance or other material financial outlook or future-oriented financial information (FOFI) will also need to consider their disclosure requirements in that regard, including the requirement to discuss in their next MD&A events and circumstances that occurred that are reasonably likely to cause financial results to differ materially from such guidance, outlook or FOFI and state the expected differences. When updating or providing new guidance, outlook or FOFI, issuers must use assumptions that are reasonable in the circumstances, which might prove to be difficult in such a fluid situation. If an issuer instead decides to withdraw previously disclosed guidance, outlook or FOFI, it will be required to disclose the decision in its MD&A and discuss the events and circumstances that led to that decision, including a discussion of the underlying assumptions that are no longer valid.

Issuers will also need to consider whether the impacts of the COVID-19 outbreak on their business, operations or capital result in a material change that triggers the requirement to immediately issue and file a news release disclosing the nature and substance of the change, followed by the filing of a material change report in prescribed form no later than 10 days following the change. A “material change” is defined under applicable securities legislation as a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer, or a decision to implement such a change made by the directors or by senior management of the issuer who believe that confirmation of the decision by the directors is probable.

On March 18, 2020, the Canadian Securities Administrators issued a press release indicating that it will provide a 45-day extension for periodic filings normally required to be made by issuers on or before June 1, 2020, including financial statements, MD&A and annual information forms.[10] This does not alter, however, the reporting issuers’ timely disclosure obligations in the event of a material change in their business, operations or capital.

In conclusion, in times of a pandemic, public health and safety should be the utmost priority; however, investor protection also needs to be considered. As such, issuers filing public disclosure documents will have to carefully assess their operations and determine, to the extent possible, the impact of COVID-19 both within the context of the industry they operate in, as well as within the context of their particular businesses. But, considering the speed at which the virus spreads and events unfold, this might be easier said than done.

Schedule A


Risk Factors Overview

1. Issuers in the financial industry
“Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak are unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Corporation and its operating subsidiaries in future periods.”
“A local, regional, national, or international outbreak of a contagious disease, including the COVID19 coronavirus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, BSE, avian influenza, pandemics or other material outbreaks of disease, could decrease the willingness of the general population to dine out, cause staff shortages, reduced customer traffic, supply shortages, and increased government regulation, all of which may negatively impact the business, financial condition and results of operations of the Corporation and the Fund.”

Global Economy

The ratification of the Phase 1 trade deal between Washington and Beijing was met with relief. But just as the threat of a trade war was subsiding and the global manufacturing sector was stabilizing, the prospects for business profitability were muddied by a new danger, this time in the form of a frightening disease. Estimates of the economic impacts of coronavirus (COVID-19) will remain speculative until we have a better idea of the epidemic curve and the vaccine developed, or both. The Chinese government has already ordered the largest quarantine operation in human history (affecting 60 million people) to slow down propagation of the virus. Beijing has also ordered an extension of the Lunar New Year holiday and school closures. These restrictions will put a serious strain on the global supply chain. The consequences for the global economy of a prolonged shutdown of China’s economy would be much greater today than during the SARS epidemic of 2003. In 2002, China had only just joined the World Trade Organization, and its economy represented 8% of global GDP. Today, it accounts for 20%. In 2002, the United States was the main trading partner of most countries around the world. Today, China is. Given these circumstances, we have reduced our global GDP forecast for 2020 by only one-tenth to 3.1%(1), but additional reductions could be justified if virus-related production stoppages prove to be long-lasting. Barring any new fiscal stimulus, the U.S. economy will likely slow again in 2020 to 1.9%(1), a growth rate closer to its potential. Supported by healthy household balance sheets and a vibrant labour market, consumer spending will remain the driving force of the economy. The housing sector is expected to continue benefitting from the interest rate cuts made in 2019, as evidenced by the strong rebound in recent months. Given these factors, we do not believe that further rate cuts will be required in 2020. The Chair of the U.S. Federal Reserve, Jerome Powell, has already set a high bar for further interest rate cuts, stating that only a significant revision to the U.S. Federal Reserve’s outlook could warrant a further policy easing.”

Global Economic Conditions; Market Dislocation; Business Cycles

General global economic conditions, including, without limitation, interest rates, general levels of economic activity, fluctuations in the market prices of securities, participation by other investors in the financial markets, economic uncertainty, national and international political circumstances, natural disasters, public health crises (such as the recent global outbreak of a novel coronavirus, COVID-19) and other events outside of our control, may affect the activities of the Corporation, our Funds and the businesses in which our Funds invest […] Challenging market and economic conditions, including those caused by changes in tax laws and other regulatory restrictions, may make it difficult for our Funds to find suitable investments or to secure financing for investments on attractive terms. Such conditions may also result in reduced opportunities for our Funds to exit and realize value from their investments. In addition, in the event that sources of finance are not readily available or become too costly, it may be difficult for potential purchasers to secure capital to purchase our Funds’ investments.

Natural Disasters, Terrorist Acts and Other Disruptions and Dislocations

[…] Terrorist attacks, public health crises including epidemics, pandemics or outbreaks of new infectious disease or viruses (including, most recently, the novel coronavirus (COVID-19), and related events can result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Corproation, our Funds and our PE or Debt Investments.”

While crude oil prices have rebounded from December 2018 lows, ongoing price stability remains a concern despite supply restrictions and unease arising from geopolitical tensions, as well as depressed demand from China following the spread of COVID-19. Factors supporting oil prices include the extension of existing output cuts to the end of the first calendar quarter of 2020 by the Organization of the Petroleum Exporting Countries (OPEC), significant volume reductions resulting from U.S. sanctions on Venezuela and Iran, and decelerating drilling activity in the U.S. The downside risks to crude prices are associated with the negative impact on demand from expectations of slower global growth in 2020, and the risks of further deceleration should the spread of COVID-19 disrupt activity in other countries beyond that seen in China. While steps taken to limit production supported an earlier narrowing of the spread between WCS — Canada’s heavy oil benchmark — and WTI, these differentials could remain volatile until pipeline capacity constraints have been resolved. Natural gas prices also continue to be an area of concern, as Alberta Energy Company (AECO) prices — the Canadian gas benchmark — have experienced volatility since mid-2017, mainly due to severe pipeline constraints, with the largest impact felt by Canadian dry gas producers. The Corporation’s overall commodity exposure continues to perform within our risk appetite, with losses in our oil and gas portfolio down from peak levels. Clients in our oil and gas portfolio are currently being assessed on the basis of our enhanced risk metrics, and our portfolio is being monitored in a prudent manner.

Pandemic Outbreaks

With our increasingly global world, the outbreak of certain illnesses has the potential to reach pandemic levels. In addition to the humanitarian impact, these phenomena, such as the recent COVID-19 outbreak, introduce uncertainty and pose risks to the global economy, as well as to our clients and our operations. The Corporation monitors these events and has measured.”

2. Issuers in the medical and pharmaceutical industry
“A pandemic or other global or North American-wide illness could cause interruptions to the Corporation’s operations. Depending on its severity and reach, such an event could affect Corporation’s workforce resulting in the inability to continue to operate our manufacturing facilities. Further, the Corporation’s operations would be affected if our supply partners, customers and/or transportation carriers were impacted by a pandemic. In particular, as of the date of this AIF, the full extent of the effects of the COVID-19 virus (also known as the coronavirus) is unknown. The Corporation does not operate businesses in the areas which are currently the most affected by this virus and therefore it has not as yet affected Corporation’s own operations. It’s difficult to predict how this virus may affect Corporation’s business in the future, including the effect it may have (positive or negative; long or short term) on the price of caustic soda, which is affected by the North East Asia Spot Index. It is possible the COVID-19 virus could have a material adverse effect on our business, financial condition and/or results of the operation.”

Disruption of Supply Chain

Conditions or events including, but not limited to, those listed below could disrupt the Company’s supply chains, interrupt operations at its facilities, increase operating expenses, resulting in loss of sales, delayed performance of contractual obligations or require additional expenditures to be incurred: (i) extraordinary weather conditions or natural disasters such as hurricanes, tornadoes, floods, fires, extreme heat, earthquakes, etc.; (ii) a local, regional, national or international outbreak of a contagious disease, including the COVID-19 coronavirus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu, or any other similar illness could result in a general or acute decline in economic activity (see also, “Public Health Crises, including COVID-19”); (iii) political instability, social and labour unrest, war or terrorism; or (iv) interruptions in the availability of basic commercial and social services and infrastructure including power and water shortages, and shipping and freight forwarding services including via air, sea, rail and road.

Public Health Crises, including COVID-19

A local, regional, national or international outbreak of a contagious disease, such as COVID-19, could have an adverse effect on local economies and potentially the global economy, which may adversely impact the price and demand for the Company’s products. COVID-19 could affect the Company’s ability conduct operation and may result in temporary shortages of staff, to the extent its workforce is impacted. Such an outbreak, if uncontrolled, could have a material adverse effect on our business, financial condition, results of operations and cash flows, including a potential reduction in patient visits at the Company’s Clinics and, as a result, potential lost revenue.”

“Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness. The recent outbreak in China of the Coronavirus Disease 2019, or COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19 or other public health epidemic, poses the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to spread of the disease within these groups or due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that COVID-19 could have on our business, the continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain and the manufacture or shipment of both drug substance and finished drug product for our product candidates for preclinical testing and clinical trials and adversely impact our business, financial condition or results of operations. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.”

The Company is dependent upon key personnel; Director residence requirements

[…]The Company employs a small number of employees who have many years of technical knowledge of the Company’s technology and two senior officers, the CEO and CFO. The Novel Coronavirus (“COVID-19”) imposes a high risk to all the Companies activities.    The Company has established a policy to diligently monitor developments. Because the situation is fluid, the Company will be updating its staff whenever necessary.    The Company has implemented and communicated a policy to all staff in order mitigate any potential risk.

Novel Coronavirus

The World Health Organization has declared COVID-19 a pandemic. The Company is actively assessing and responding where possible to the potential impact of the COVID-19 pandemic. The risk to the Company, the health of its employees and to those third-party vendors that support the Company and its operations is high. Any impact on the Company arising from the pandemic could have a material adverse effect on the Company’s business, results of operations and financial condition.”

“[…] difficulty in patient monitoring and data collection due to failure of patients to maintain contact after treatment; a regional disturbance where the Company or its collaborative partners are enrolling patients in the Company’s clinical trials, such as a pandemic, terrorist activities or war, or a natural disaster; or varying interpretations of data by the FDA and similar foreign regulatory agencies. For example, in December 2019, a novel strain of coronavirus, also known as COVID-19, was reported to have surfaced in Wuhan, China and has evolved into a global pandemic since then. Our business could be adversely impacted by the effects of COVID-19 or other epidemics. Some of our contract manufacturers of clinical trial materials are located outside Canada, and should they experience disruptions, such as temporary closures or suspension of services, our clinical trials could be delayed. It is likely that a health facility or physician would not prioritize a clinical trial over an emergency care, and some health facilities where the Company conducts clinical trials may direct all medical specialists to first line care in the event of an epidemic or pandemic such as COVID-19, which could delay such clinicals trials or result in their suspension or termination. In addition, health facilities affected by COVID-19 may decline to accept on their premises patients suffering from an impaired immune system, such as cancer patients, thereby delaying clinical trials relating to such patients, or resulting in the suspension or termination of such clinical trials.”
3. Issuers in the oil industry
“Through the first few months of 2020, oil prices deteriorated due to softening global demand caused by the COVID-19 (Coronavirus) impact. This situation was exacerbated in early March with no agreement to cut oil supply from OPEC+ and an announcement from Saudi Arabia that they intend to relax all quotas effective immediately. With the spread of COVID-19 and additional oil supply expected to come on-stream over the near term, oil prices and global equity markets have deteriorated significantly and are expected to remain under pressure. The extreme supply/demand imbalance is anticipated to cause a reduction in industry spending in 2020.”
4. Issuer in the mining industry

“The Corporation faces risks related to health epidemics and other outbreaks of communicable diseases, which could significantly disrupt its operations and may materially and adversely affect its business and financial conditions.

The Corporation’s business could be adversely impacted by the effects of the coronavirus or other epidemics. In December 2019, a novel strain of the coronavirus emerged in China and the virus has now spread to several other countries, including Canada and the U.S., and infections have been reported globally. The extent to which the coronavirus impacts the Corporation’s business, including its operations and the market for its securities, will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the continued spread of the coronavirus globally could materially and adversely impact the Corporation’s business including without limitation, employee health, workforce productivity, increased insurance premiums, limitations on travel, the availability of industry experts and personnel, restrictions to its drill program and/or the timing to process drill and other metallurgical testing, and other factors that will depend on future developments beyond the Corporation’s control, which may have a material and adverse effect on its business, financial condition and results of operations.

There can be no assurance that the Corporation’s personnel will not be impacted by these pandemic diseases and ultimately see its workforce productivity reduced or incur increased medical costs/insurance premiums as a result of these health risks.

In addition, a significant outbreak of coronavirus could result in a widespread global health crisis that could adversely affect global economies and financial markets resulting in an economic downturn that could have an adverse effect on the demand for precious metals and our future prospects.”

“The recent outbreak of the novel coronavirus (COVID-19) has had a negative impact on global financial conditions. The Chinese market is a significant source of global demand for commodities including gold. A sustained slowdown in China’s growth or demand, or a significant slowdown in other markets, in either case, that is not offset by reduced supply or increased demand from other regions, could have an adverse effect on the price and/or demand for gold. In  the  event  that the prevalence of the coronavirus continues to increase (or fears in respect of the coronavirus continue to increase), governments may increase regulations and restrictions regarding the flow of labour or products, and the Company’s operations, suppliers, customers and distribution channels could be severely impacted.”

Outbreak, or Threatened Outbreak, of Any Severe Communicable Disease in West Africa

[…]In particular, malaria, Coronavirus (“COVID-19”) and other diseases such as HIV/AIDS represent a serious threat to maintaining a skilled workforce in the mining industry throughout Africa and are a major healthcare challenge faced by the operationsof the Company. There can be no assurance that the Corporation will not lose members of its workforce or see its workforce man-hours reduced or incur increased medical costs as a result of these health risks, which could materially and adversely affect the business and results of operations of the Company.

Coronavirs and health crises

The current outbreak of novel COVID-19 and any future emergence and spread of similar pathogens could have an adverse impact on global economic conditions which may adversely impact the Company’s operations, and the operations of its suppliers, contractors and service providers and the ability to obtain financing. Travel bans may also adversely impact the Company’s operations and the ability of the Company to advance its projects. In particular, should any employees or consultants of the Company become infected with Coronavirus or similar pathogens, it could have a material negative impact on the Company’s operations and prospects.”

5. Issuers in the leisure and entertainment industry
“Strong demand for air travel in the loyalty programs operated by the Corporation’s investee companies creates a significant dependency on the airline industry in general. Any disruptions or other material adverse changes in the airline industry, whether domestic or international, affecting any airline related to any of the loyalty programs which the Corporation invests in could have a material adverse impact on its business. […] In late December 2019, the current coronavirus (COVID-19) was identified as having originated in the Wuhan Province of China, with cases subsequently confirmed elsewhere in China and in other countries. The risks to the Corporation of epidemics and other public health crises, such as the ongoing coronavirus, include risks to employee health and safety, and our business and investments, particularly our investments in [loyalty programs], could also be adversely impacted by the ongoing coronavirus (or by other future epidemics or global health crises) in the short term given those investments’ exposure to the airline and travel sectors. Consequently, members might forego redeeming miles for air travel and therefore might not participate in the [loyalty] programs to the extent they previously did which could adversely affect returns on investments. A reduction in member use of these loyalty programs could impact their ability to retain their current commercial partners and members and to attract new commercial partners and members. Many of the loyalty program partners of the Corporation’s investee companies operate in the travel and/or hospitality industry. Should the business of such loyalty program partners decrease, including as a result of consumer taste change or a downturn in the hospitality and/or travel industry generally, this can have an adverse impact on their ability to generate Gross Billings for the Corporation’s investments, and therefore impact the Corporation’s return on investment adversely.
“Under the Arrangement Agreement, closing of the [Transaction] remains subject to the satisfaction or waiver of certain conditions to closing that have not yet been satisfied, including the receipt of Investment Canada Act approvals, the representations and warranties of the parties remaining true and correct (subject to certain materiality qualifiers), the parties having fulfilled or complied in all material respects with each of their covenants contained in the Arrangement Agreement, and as at the date of closing of the [Transaction], the Corporation shall have no more than $725 million outstanding under its credit agreement, subject to certain exclusions (the “Debt Condition”). The impact of the COVID-19 outbreak in Canada and the rapidly evolving reaction of governments and the public to the outbreak have made business planning uncertain for the exhibition and location-based entertainment industries. In response to declining attendance and certain government directed shutdowns of places of public gatherings including theatres, the Corporation is managing its business to reduce expenses in an amount necessary to offset declining revenues so that the Corporation is supporting its business and would be in a position to satisfy the Debt Condition. The possibility of prolonged closures could impact the ability of the Corporation to mitigate the related revenue decline and satisfy the Debt Condition or other of the remaining conditions on or prior to June 30, 2020.
6. Issuers in the manufacturing industry
The continued spread of COVID-19 around the globe and the responses of governmental authorities and corporate entities, including through mandated or voluntary shutdowns, may lead to a general slow-down in the economy and have led to disruptions to our work force and facilities, our customers, our sales and operations and our supply chain. Our bad debt expense may increase, our revenues and cash resources may be negatively affected and we may need to assist potential customers with obtaining financing or government incentives to help customers fund their purchases of our products. On March 16, 2020 the [Corporation] announced the temporary suspension of production in its Brescia, Italy facility as a direct result of COVID-19. The specific duration of such suspension and whether a similar suspension may be required at any additional facilities of the [Corporation] is not currently known. Any new such required suspensions or any extended suspension of [Corporation]’s operations, or that of any of [Corporation]’s suppliers, partners or customers may have a material adverse effect on the [Corporation].”
“We face a number of business risks that could cause our actual results to differ materially from those disclosed in this MD&A. Investors and the public should carefully consider our business risks, other uncertainties and potential events as well as the inherent uncertainty of forward looking statements when making investment decisions with respect to the [Corporation]. If any of the business risks identified by the [Corporation] were to occur, our business, financial condition, results of operations, cash flows or prospects could be materially adversely affected. In such case, the trading price of our shares could decline. In particular, the outbreak of the novel coronavirus/COVID-19 could have a material adverse impact on us due to the potential impact of any resulting epidemic or pandemic on the supply of vehicles, general economic conditions and local operations at our dealerships or offices. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business and operations.”
“Natural disasters, such as earthquakes, hurricanes, tornadoes, floods, and other adverse weather and climate conditions; unforeseen public health crises such as the recent global outbreak of a novel coronavirus, COVID-19, and other pandemics and epidemics; political crises, such as terrorist attacks, war, and other political instability; or other catastrophic events, could disrupt our operations in any of our offices or the operations of one or more of our third-party providers and vendors. To the extent any of these events occur, our business and results of operations could be adversely affected. For example, the recent outbreak of COVID-19 in early 2020, particularly in Northern Italy where the [Corporation] offices are located, may adversely affect our employees and customers. While the [Corporation]’s employees, including those located in Italy, generally have the ability to work remotely, the extent to which COVID-19 may impact our business and results of operations and reputation remains uncertain.”
The COVID-19 virus has impacted many industries across many countries with the largest impact to date in China. With respect to the [Corporation], approximately 31% of the [Corporation]’s annual sales are derived from end markets in China. Of the [Corporation]’s 11 manufacturing plants, three of the larger manufacturing plants (plus the newly acquired magnet plant) are located in China. The [Corporation] operates and sells its products primarily to the automotive, aerospace, and other industrial segments. These industries and their supply chains are global and complex. It is unknown how the impact in China and other areas of the world will affect the [Corporation]’s customers and other supply chain elements.

The Company’s ability to manufacture and supply products and its sales revenue, results of operations, cashflow and liquidity may be adversely impacted by the ongoing COVID-19 (coronavirus) outbreak

As a result of the global outbreak of COVID-19 (also referred to as the “coronavirus”) and its declaration by the World Health Organization to be a “pandemic”, certain actions are being taken by governments and businesses in the United States, Canada, the UK, China and around the world to control the outbreak, including restrictions on public activities, travel and commercial operations. The Company has been managing certain supply delays. However, as the outbreak and the global response to it continue, the Company’s operations may be materially adversely affected by additional supply delays, shortages of labour and components, and/or partial or complete closure of one or more of its facilities (including to protect the health and safety of the Company’s employees), all which may continue for an extended time. Any inability to manufacture and deliver products to customers could result in a range of potential adverse consequences, including penalties or business interruption claims by customers, loss of business and reputational damage. Also, the outbreak may adversely affect operations of customers as a result of shutdowns or disruptions to their operations and decrease in demand for the Company’s products from customers due to reduced travel on buses or motor coaches. The outbreak may also impact the financial viability of suppliers and customers, and could cause them to exit certain business lines, or change the terms on which they are willing to provide or purchase products. Impacts of the outbreak may significantly reduce the Company’s cashflow, liquidity and its ability to maintain compliance with covenants in the Credit Facility. In addition, the outbreak could adversely affect the economies of many countries in general, resulting in an economic downturn that could adversely affect demand for the Company’s products. Given the ongoing and dynamic nature of the coronavirus outbreak, it is very difficult to predict the severity of the impact on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including new information which may emerge concerning the spread and severity of the coronavirus and actions taken to address its impact, among others. The repercussions of this health crisis could have a material adverse effect on the Company’s business, financial condition, liquidity and operating results.

[1] U.S. Securities and Exchange Commission, “Proposed Amendments to Modernize and Enhance Financial Disclosures; Other Ongoing Disclosure Modernization Initiatives; Impact of the Coronavirus; Environmental and Climate-Related Disclosure” (January 30, 2020), online: https://www.sec.gov/news/public-statement/clayton-mda-2020-01-30; U. S. Securities and Exchange Commission, “Statement on Continued Dialogue with Audit Firm Representatives on Audit Quality in China and Other Emerging Markets; Coronavirus — Reporting Considerations and Potential Relief” (February 19, 2020), online: https://www.sec.gov/news/public-statement/statement-audit-quality-china-2020-02-19.

[2] McKinsey & Company, “Coronavirus COVID-19: Facts and Insights” (March 9, 2020), online: https://www.mckinsey.com/~/media/mckinsey/business%20functions/risk/our%20insights/covid%2019%20implications%20for%20business/covid%2019%20march%209/covid-19-facts-and-insights-march-9-2020-v2.ashx.

[3] Financial Times, “European car plants close as industry crisis deepens” (March 16, 2020), online: https://www.ft.com/content/dd76d42a-678b-11ea-a3c9-1fe6fedcca75.

[4] Financial Times, “Zara owner to write off nearly €300m of inventory” (March 18, 2020), online: https://www.ft.com/content/a9aa4010-6901-11ea-800d-da70cff6e4d3.

[5] CNBC, “These retailers are closing stores to slow coronavirus outbreak” (March 15, 2020), online: https://www.cnbc.com/2020/03/15/these-retailers-are-closing-stores-to-slow-coronavirus-outbreak.html.

[6] British Airways (Financial Times, “British Airways boss warns that airline faces a fight for survival”, online: https://www.ft.com/content/f402d0e0-652e-11ea-a6cd-df28cc3c6a68); KLM (KLM Newsroom, “KLM suspends flights to China”, online: https://news.klm.com/klm-suspends-flights-to-china-update/); Delta Airlines (Delta News Hub, “Delta reduces U.S.-Europe flying starting Monday; suspends JFK to Mumbai”, online: https://news.delta.com/delta-reduces-us-europe-flying-starting-monday-suspends-jfk-mumbai); Air Canada (Global News, “Air Canada to suspend most U.S., international flights amid coronavirus pandemic”, online: https://globalnews.ca/news/6699594/coronavirus-air-canada-travel/); Air Transat (Transat, “Transat announces a gradual suspension of its flights”, online: https://www.transat.com/en-CA/corporate/media/news-releases/124302).

[7] Financial Times, “European car plants close as industry crisis deepens” (March 16, 2020), online: https://www.ft.com/content/dd76d42a-678b-11ea-a3c9-1fe6fedcca75.

[8] Financial Times, “Ford, General Motors and Fiat Chrysler agree widespread shutdown” (March 18, 2020), online: https://www.ft.com/content/feae3808-6949-11ea-800d-da70cff6e4d3.

[9] Financial Times, “Global stocks, oil prices and government bonds tumble” (March 18, 2020), online: https://www.ft.com/content/1b1b47d4-68bd-11ea-a3c9-1fe6fedcca75

[10] Andrea Kruyne, “Canadian Securities Regulators Will Provide Blanket Relief to Market Participants due to COVID-19” (March 19, 2020), online: https://www.timelydisclosure.com/2020/03/19/canadian-securities-regulators-will-provide-blanket-relief-to-market-participants-due-to-covid-19/.

The author wishes to thank Marie-Christine Valois, Gilles Leclerc and Jean-Michel Lapierre for their advice and contributions.

On March 18, 2020, the Canadian Securities Administrators (CSA) issued a news release to advise that they will be providing temporary relief from some regulatory filings including financial statements, management’s discussion and analysis, management reports of fund performance, annual information forms, technical reports (the Relief). The Relief will provide issuers, investment funds, registrants, certain regulated entities and designated rating organizations (Market Participants) with an exemption from the certain filings required to be made by Market Participants on or before June 1, 2020.

The CSA indicated that issuers complying with the conditions of the relief will not be noted in default and will not need to file applications for management cease trade orders if they will miss deadlines due to the COVID-19 outbreak. The conditions of the relief were not provided by the CSA at this time. This guidance replaces the initial release of the CSA issued on March 16, 2020 for issuers to apply for a MCTO if they would be unable to meet a reporting deadline.

The CSA stated that it is supportive of the social distancing measures that issuers are taking to mitigate the risk of transmission of COVID-19, including the initiative of issuers to hold virtual securityholder meetings. The CSA advised that they will publish additional guidance on making changes to annual general meetings and asked that issuers contact their principal regulator with any questions or concerns in the meantime.

The CSA advised that all CSA proposals that are currently out for comment will have their comment periods extended by 45 days. The CSA release also reminded Market Participants that staff of the CSA are having frequent dialogue with the Investment Industry Regulatory Organization of Canada (IIROC). IIROC is the entity responsible for trading surveillance on Canadian markets. IIROC has confirmed to the CSA that volatility controls are functioning as expected in temporarily pausing declines while still allowing orderly price discovery to continue.

The CSA is continuing to monitor the impact of COVID-19 on Canadian capital markets and expects to publish further details about the relief shortly. The CSA provided a staff contact list in the CSA news release.

In Canada, the prospectus review process generally begins on the filing by an issuer of its preliminary prospectus. A challenge that issuers sometimes face with this approach flows from the potential for issues to be raised in the course of a review by the securities regulators, particularly when the steps taken by the issuer to address these issues cause a delay in the timeline of the offering. During periods of market instability, any delay in the prospectus review process can have a significant, detrimental impact on an offering’s success.

Many issuers and their advisors have pushed for the availability of pre-file review to limit uncertainty surrounding prospectus offerings. In response, the Canadian Securities Administrators (“CSA”) introduced a harmonized process to review prospectuses on a confidential, pre-file basis, which is intended to address any issues prior to publicly filing the preliminary prospectus. The process is available to non-investment fund issuers across all CSA jurisdictions, except in connection with non-offering prospectuses (unless related to cross-border financings) or prospectuses filed solely to qualify the issuance of securities on conversion of convertible securities. The purpose of the process is to foster capital formation, as well as issuer flexibility and certainty regarding prospectus offerings.

The process may be applied to the pre-file of a long-form prospectus, a short-form prospectus and a base-shelf prospectus. The level of review conducted by the CSA for prospectus pre-files will be similar to that for a publicly-filed preliminary prospectus. That said, an issuer may choose to receive confidential pre-file comments only in respect of certain aspects of its prospectus, leaving the balance to be reviewed when publicly filed. Regardless of the extent to which the CSA reviews a pre-filed prospectus, the CSA may provide comments at the public-filing stage that pertain to any part of the prospectus.

The CSA has highlighted the following additional key guidelines:

  1. issuers who chose to engage the confidential pre-filing process should submit their prospectuses well in advance of filing of the public preliminary prospectus, as it may take 10 business days or more for comments to be turned by CSA staff;
  2. a pre-filed prospectus should be submitted only to the issuer’s applicable principal regulator. The principal regulator will in turn determine if the involvement of non-principal regulators may be warranted;
  3. the terms and conditions of the offering to which a pre-filed prospectus relates should be clearly determined, and the applicable underwriters need to have substantially completed their own review of the prospectus prior to pre-file; and
  4. all documents required to be publicly filed with the prospectus, as applicable, must be submitted with the pre-filed prospectus.

The CSA’s new pre-file process will be useful for issuers, especially to the extent that it will provide issuers with the flexibility to go to market with an offering when conditions are favourable; a far-reaching consideration in light of ongoing market uncertainty related to, among other things, the COVID-19 outbreak.

On March 16, 2020, the Canadian Securities Administrators (CSA) issued a news release to address how reporting issuers should handle any delays in their reporting obligations (CSA Release).

Any reporting issuer that anticipates the current COVID-19 outbreak will result in an inability to comply with their obligations under securities legislation (including filing deadlines or delivery of meeting materials) is being asked to contact their principal regulator.

In addition, the CSA has asked that reporting issuers that foresee that they will not able to file their annual or interim financial statements by their prescribed deadline consider applying for a management cease-trade order (MCTO). Although applications for an MCTO are typically filed at least two weeks before the due date for the required filings, the CSA has advised that they will work to accommodate shorter periods where necessary.

A MCTO restricts certain officers and directors from trading securities of the reporting issuer and can be issued by a reporting issuer’s principal regulator instead of a failure-to-file cease-trade order. Conditions for granting a MCTO are provided in National Policy 12-203 Management Cease Trade Orders (NP 12-203). Reporting issuers that are applying for a MCTO are required to communicate to the securities marketplace by way of a news release that complies with the default announcement provisions under NP 12-203 and file a material change report. If an MCTO is issued, the reporting issuer must comply with alternative information guidelines as provided in NP 12-203 until the required documents are filed. This includes the issuances of default status reports every two weeks in the form of a news release. MCTOs issued in these circumstances will not be considered required disclosure in future documents.

On March 4, 2020, the Securities and Exchange Commission (SEC) issued an order providing companies filing deadline relief for issuers affected by COVID-19 (SEC Order). The SEC Order provides an additional 45 days to submit certain disclosure reports with original filing deadline dates falling between March 1 and April 30, 2020.  It is important that cross-border listed companies are aware that the CSA has not provided this same relief at this time.

The CSA Release advised that the CSA is continuing to monitor the impact of COVID-19 on Canadian capital markets and may issue further guidance in due course. The CSA provided a staff contact list in the CSA Release.

As concerns increase over COVID-19 and measures have been established by governmental authorities to limit public gatherings and restrict travel, corporations are considering alternatives to in-person annual shareholders’ meetings. Holding your corporation’s shareholders’ meeting virtually, whether wholly or in part, either by audio or video, if authorized under your corporation’s laws of incorporation and general by-laws, is an effective way of ensuring shareholder participation while protecting public health. Since the first virtual shareholders’ meeting held in the United States in 2001, this type of meeting has grown in popularity in North America, although at a slower pace in Canada.

Given the context surrounding the ongoing proxy season, virtual meetings will likely become common practice among both Canadian and American issuers. Indeed, Starbucks Corporation, Amazon.com, Inc., Enbridge Inc. and Telus Corporation have recently announced that their next shareholders’ meetings will be entirely virtual for these reasons.

What are your options?

There are three main options to take your shareholders’ meeting online:

  1. In-person meeting with webcasting. Webcasting (audio or video) is a practice which has been trending in recent years to allow shareholders who are not able to physically attend the meeting to watch or listen to the meeting. However, unless a valid proxy has been given prior to the meeting, this route does not satisfy legal requirements for attendance for quorum purposes nor does it provide a mechanism for remote voting. Since most shareholders exercise their right to vote at a meeting in advance via proxy, the practical impact of the absence of a remote voting tool is somewhat mitigated.
  2. Virtual meeting. Virtual meetings held entirely by electronic means constitute an interesting option for senior issuers. Integration of electronic voting systems results in reduced margins of error for voting results, potential cost efficiencies (compared to the hybrid meeting described below by eliminating the need to pay for a venue and transportation fees) and potential for increased shareholder participation, particularly by millennials. However, these meetings require a costly specialized technology that allows active participation and remote voting, as well as extensive upstream preparation, and are a more radical technological change for shareholders. Note that if topics to be discussed at the meeting are contentious, controversial or subject to a proxy contest, an exclusively virtual meeting may not be well suited to allow shareholders to communicate effectively at the meeting while maintaining order. Indeed, certain shareholders are worried that virtual meetings will limit the ability of shareholders to effectively influence a corporation’s behavior.
  3. Hybrid meeting. While webcasting offers limited participation and transitioning to an entirely virtual meeting may alienate part of your shareholder base and add complexity, a solution has emerged as an interesting and efficient compromise, namely a hybrid meeting. On the one hand, the meeting remains physically accessible, allowing those who wish to attend in person to do so without change (as long as they do not have symptoms of COVID-19 and comply with prescribed health and safety measures). On the other hand, shareholders who prefer avoiding an in-person meeting can participate as if they were present in person, with the assistance of live webcasting and the same specialized platform for voting and messaging used in virtual meetings.

How are meetings conducted in practice?

In-person Meeting with Webcasting Virtual Meeting Hybrid Meeting
For Shareholders Shareholders may not vote or participate virtually.  Votes are cast in advance by proxy or in person at the meeting.

Shareholders who participate virtually have access to the voting platform via their smartphone, tablet or computer by entering their own unique identifier and password. The platform allows viewing of the meeting, real time voting and active participation through direct messaging with management and other shareholders.

In the case of a hybrid meeting, shareholders who are physically present are encouraged to vote via voting interfaces provided at the meeting or with their smartphones to allow instant voting results.

For observers/third parties The webcast is generally available to the public and broadcast on the corporation’s website. The corporation may determine beforehand whether the meeting will be open to non-shareholder observers. If such access is authorized, the observers’ identifiers will allow only viewing of the meeting, without allowing access to voting. The messaging function may also be granted to allow interaction, at the discretion of the corporation. Access may also be limited to shareholders only, although this adds an extra layer of complexity for both the shareholders (particularly those who are less familiar with technological devices) and the corporation.
For the corporation The process is identical to in-person meetings, except for setting up the webcast.

The service provider will help the corporation broadcast the meeting, whether management is gathered at the in-person meeting in the case of a hybrid meeting or in a conference room at its offices or elsewhere in the case of a virtual meeting.

Via electronic voting, the corporation has access to voting results in real time.

The messaging function is entirely controlled by management and may be open for a limited time or for the entire meeting. Given that electronic messaging may be conducive to greater abuses, this function also allows management to determine which messages will be made available to all shareholders and which will be kept private and answered subsequently. However, as this filtering function may be contested, best practice is to appoint a moderator to review messages and remove inappropriate comments after they have been posted (just as for in-person meetings where shareholders may be asked to leave a meeting in similar circumstances). This is especially relevant under Québec corporate law where participants must be able to communicate “directly” with each other during the meeting.

Formal rules of conduct should be adopted beforehand concerning messaging and communication with shareholders.

Who should you call to ensure a successful hybrid or virtual meeting?

  1. Legal counsel. Under the Canada Business Corporations Act and most provincial corporate laws, meetings may generally be held by any means that comply with the general by-laws of the corporation and that allow participants to communicate adequately with each other. Fasken professionals can guide you through these legal requirements.
  2. Transfer agent. As with an in-person meeting, the transfer agent will coordinate the process, namely by sending required documentation to shareholders, compiling voting instructions and proxies from shareholders wishing to vote in advance by proxy, and acting as scrutineer at the meeting.
  3. Service provider. Specialized service providers will provide you with the necessary technological tools to organize a hybrid or virtual meeting and will facilitate the proper conduct of the meeting. These firms work in collaboration with management, legal counsel and transfer agents to ensure the security of the voting process, namely with regards to confirming shareholders’ and proxyholders’ identities and protecting personal data used and stored during the meeting. As these service providers are physically present to support management during the meeting and offer technical support lines to shareholders, potential IT issues are significantly reduced.

How do you inform your shareholders of a hybrid or virtual meeting?

If you are considering a shift to a virtual meeting, it is best practice to issue a press release informing shareholders that the upcoming meeting will be held virtually, once the decision is made. You will then inform your shareholder base by explaining the procedure in detail in your management information circular. The circular will explain how to register as a virtual participant (usually by providing the issuer with an email address). Shareholders will then receive an information package from the service provider with a link and personalized access code to attend the meeting virtually.

If, however, your circular has already been mailed, a review of the corporation’s laws of incorporation and general by-laws will be required to determine the formalities required to take your shareholders’ meeting online. In such a case, switching to a fully virtual meeting, although advisable, will likely lead to a more cumbersome process (which may include the need to mail an amended notice of meeting) and therefore opting for webcasting or a hybrid meeting could be a more interesting option. In light of the multiple considerations involved, Fasken professionals can assist to ensure a smooth transition in compliance with applicable legal requirements.

No matter the means of communication ultimately used, it is important to provide full disclosure as to how shareholders can attend, vote and participate in the virtual meeting in order to ensure an orderly meeting. We note that Glass Lewis has indicated in its 2020 proxy guidelines that it will recommend voting against members of the governance committee if disclosure regarding how the issuer will safeguard shareholder participation rights is not adequate.

Whether you are a private corporation with a few shareholders or a public issuer with a broad shareholder base, hybrid and virtual meetings may constitute interesting alternatives to in-person meetings while ensuring (and potentially increasing) shareholder participation and, in the present context, helping to stop the spread of COVID-19.

For a more comprehensive legal analysis of the topic, we invite you to consult the following articles prepared by our colleagues Neil Wiener and Matthew Quadrini and posted on Timely Disclosure:

  • https://www.timelydisclosure.com/2018/01/30/bringing-your-annual-meeting-into-the-digital-age/#more-3361
  • https://www.timelydisclosure.com/2020/03/12/bringing-your-annual-meeting-into-the-digital-age-two-years-later/

The authors wish to thank Neil Wiener, Jean Michel Lapierre and Tristan Lalumière-Roberge for their contributions.

In January 2018, we posted this article on Timely Disclosure, “Bringing Your Annual Meeting into the Digital Age”. Virtual annual meetings have become highly relevant in light of the Coronavirus or COVID-19 pandemic. Shareholders may well be reluctant to attend annual meetings; numerous public companies are examining measures they can take so that COVID-19 does not spread, including eliminating public events.

In our 2018 article, we noted that the Canada Business Corporations Act (CBCA) and provincial corporate statutes provide a legal framework for a traditional shareholders’ meeting, that is, a “physical meeting” attended by shareholders, and for a “virtual meeting”, in which all shareholders participate entirely by electronic means. We noted that a traditional physical meeting is often a lost opportunity to maximize shareholder participation. On the other hand, a virtual meeting, available only online, presents technical issues, notably with respect to registration of shareholders as well as voting and speaking during the meeting, all of which entail additional costs.

In light of the COVID-19 situation, a “hybrid” annual meeting, that is, a substantially scaled-down physical meeting with a webcast of the proceedings, provides corporations with a cost-effective means of complying with their legal obligations and supporting shareholder engagement, while substantially reducing, if not eliminating, physical interaction among participants. The corporation can issue press releases encouraging shareholders to vote by proxy prior to the annual meeting and directing them (and others) to the corporation’s website or other platform, where they will be able to access the webcast of the meeting and submit questions in writing through the webcasting platform. As we identified in 2018, the only people who have to be present at the meeting are, for quorum purposes, one or more proxy holders, depending on the specific requirements of the corporation’s by-laws; the chairperson and secretary of the meeting (both of whom can be proxyholders); and a scrutineer (typically from the corporation’s transfer agent and registrar), in short, as few as three people. While registered shareholders and proxyholders have the legal right to attend a hybrid meeting in person, the corporation can encourage them by way of press release and other communications to view the meeting online, in accordance with the recommendations of Canadian public health authorities.

In the 2018 article, we discussed whether the webcast of the meeting should be made available to shareholders only, or to everyone. If one objective of an annual meeting is to raise the corporation’s profile in the investment community, our view is that the meeting should be open to all.

At a time when “self-isolation” has become a common term, we believe that hybrid or virtual annual meetings will be accepted, if not welcomed, by shareholders and the investment community. As we wrote in 2018, as technology improves, as it inevitably will, virtual annual meetings of Canadian public companies will become more prevalent and eventually the norm.  COVID-19 is accelerating that process.

For those issuers who want to better understand virtual meetings, Timely Disclosure will post an article addressing the technical issues involved in holding a virtual meeting.

On February 13, 2020, the Canadian Securities Administrators (the CSA) published revised versions of proposed National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure (Proposed Instrument), Companion Policy 52-112 Non-GAAP and Other Financial Measures Disclosure (Proposed Companion Policy) and the related proposed consequential amendments or changes to other instruments and policies that would be affected by the proposed changes (collectively, the Proposed Materials).  The original versions of the Proposed Materials (the Original Materials) were first published on September 6, 2018  The current disclosure requirements are set out in CSA Staff Notice 52-306 (Revised) Non-GAAP Financial Measures (SN 52-306).

The CSA notice and request for comments includes the following summary of the substantive changes to the Original Materials made in the Proposed Instrument:


  • The defined term “non-GAAP financial measure” was changed to be more consistent with SN 52-306 and with rules and guidance of other securities regulators, including the U.S. Securities and Exchange Commission (SEC). This revised definition reduces the scope of financial measures captured compared to the Original Materials. Ratios are specifically excluded from the defined term. The scope of what is captured as a “non-GAAP ratio” has also been substantially reduced. Only ratios where a non-GAAP financial measure is used in the numerator or the denominator, or both, are captured. This is dealt with in a separate section within the Proposed Instrument.
  • The defined term “segment measure” has been changed to “total of segments measure”, and the definition has the revised term captures only a subtotal or total of two or more reportable segments.
  • The defined term “supplementary financial measure” has been changed to reflect the changes in the defined term “non-GAAP financial measure”.
  • Transcripts of an oral statement are specifically excluded. Only oral statements were excluded in the Original Materials.

 Reduced Scope

  • In addition to excluding SEC foreign issuers, the CSA reduced the scope of application of the Proposed Instrument by:
  • only capturing disclosures by reporting issuers (for example, press releases and MD&A) and non-reporting issuers in a document that is subject to prospectus requirements, filed in connection with reliance on the offering memorandum exemption, and other similar documents submitted to a recognized exchange
  • excluding issuers that are investment funds and designated foreign issuers, and
  • excluding disclosures that are required under National Instrument 43-101 Standards of Disclosure for Mineral Projects and National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (except for voluntary disclosures using oil and gas metrics under section 5.14).
  • The CSA expanded the list of specific documents and financial measures that the Proposed Instrument does not apply to including valuations reports and pro forma financial statements.
  • The CSA also excluded financial measures disclosed in compliance with a requirement under law or by a self-regulatory organization to which the issuer is a member. This includes any system of regulation of a government or governmental authority or self-regulatory organization that is applicable to the issuer, not just limited to the laws of a jurisdiction of Canada as originally included in the Original Materials.

 Incorporating Information by Reference

  • The CSA introduced a form of cross-referencing in certain discrete documents back to an issuer’s MD&A through incorporating information by reference.

 Disclosure Requirements

  • A section on disclosure requirements for non-GAAP financial measures that are historical information, has been added to clarify that disclosure of a non-GAAP financial measure must be accompanied by the disclosure of the most comparable financial measure presented in the primary financial statements.
  • A section on disclosure requirements for non-GAAP financial measures that are historical information, has been added to clarify that disclosure of a non-GAAP financial measure must provide an explanation of the composition of the measure.
  • The section on disclosure requirements for non-GAAP financial measures that are forward-looking information has been substantially revised to reduce the disclosure requirements and enhance readability. The requirement for a quantitative reconciliation has been removed and replaced with a requirement to describe each reconciling item between the non-GAAP financial measure that is forward-looking information and the historical non-GAAP financial measure. SEC Issuers, as defined in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, may instead comply with Regulation G under the 1934 Act to comply with this disclosure requirement.
  • Disclosures of non-GAAP financial measures used in ratios has been separated, with reduced disclosure requirements from the Original Materials.
  • A section was added to allow issuers to make certain disclosures related to capital management measures within their financial statements to comply with the Proposed Instrument instead of directly within documents outside the financial statements.
  • The section on disclosure for supplementary financial measures has been revised to remove requirements to present the comparative period and explain the reason for a change, if any, from the comparative period.

 The comment period is open until May 13, 2020.

For further information, please contact:

Neil Kravitz – 514 397 7551
Andrea Kruyne – 416 865 4537
or any of our Corporate Finance team.