Photo of Joe BrennanBy Joe BrennanJuly 20 2015
Business Law

CSA Reduces Venture Issuer Disclosure Requirements

On April 9, 2015, the Canadian Securities Administrators (CSA) announced amendments to their continuous disclosure, corporate governance and prospectus offering rules that are intended to “streamline and tailor disclosure by venture issuers” so that their disclosure requirements are “more suitable and manageable for issuers at their stage of development”.  

The CSA further stated that the amended rules are “designed to focus disclosure of venture issuers on information that reflects the needs and expectations of venture issuer investors and eliminate disclosure obligations that may be less valuable to those investors” and “to allow management of those issuers to focus on the growth of their business.”

A summary of the key changes is as follows:

  • Quarterly Highlights: For interim periods in financial years beginning on or after July 1, 2015, venture issuers may choose to provide only certain required "quarterly highlights" instead of full MD&A.
  • Executive Compensation: For financial years beginning on or after July 1, 2015, venture issuers may choose to provide only the streamlined executive compensation disclosure compliant with newly created Form 51-102F6V instead of complying with the more fulsome executive compensation requirements currently in place.
  • Business Acquisition Reports: As of June 30, 2015, for venture issuers the threshold for determining whether an acquisition is significant, and thus whether a business acquisition report must be filed, has been raised from the 40% level to 100%.
  • Annual Information Forms for Mining Issuers: The disclosure to be included in the Annual Information Forms of venture issuers with mineral projects has been harmonized with the technical report disclosure rules set out in NI 43-101 Standards of Disclosure for Mineral Projects.
  • Prospectus Disclosure: The disclosure mandated in prospectuses for public offerings by venture issuers has been harmonized with the continuous disclosure rule changes described above.
  • Audit Committees: For financial years beginning on or after January 1, 2016, venture issuers must have audit committees composed of at least three members, the majority of whom cannot be executive officers, employees or control persons of that venture issuer.

For further discussion and details on these changes, please read on.  And if you would like to discuss public company reporting requirements or any other securities law or business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.

Option to use Quarterly Highlights

For interim periods in financial years beginning on or after July 1, 2015, venture issuers may choose to either:

  • provide full interim MD&A compliant with all of Form 51-102F1, as is currently required; or
  • provide only the more tailored and focused "quarterly highlights" as required by the newly created section 2.2.1 of Form 51-102F1.

If providing only the “quarterly highlights”, the venture issuer will be able to provide a short discussion of all material information about the company’s operations, liquidity and capital resources provided that the disclosure give a balanced and accurate picture of the company’s business activities during the interim period.

The “quarterly highlights” must include:

  • an analysis of the company’s financial condition, financial performance and cash flows and any significant factors that have caused period to period variations in those measures;
  • known trends, risks or demands;
  • major operating milestones;
  • commitments, expected or unexpected events, or uncertainties that have materially affected the company’s operations, liquidity and capital resources in the interim period or are reasonably likely to have a material effect going forward;
  • any significant changes from disclosure previously made about how the company was going to use proceeds from any financing and an explanation of variances; and
  • any significant transactions with related parties that occurred in the interim period.

When determining which option to select, venture issuers will want to assess not only the best allocation of their time and resources but also the needs of their investors. The use of “quarterly highlights” may satisfy the needs of investors in smaller venture issuers. However, investors in larger venture issuers, including those with significant revenue, may want full interim MD&A to assist them in making informed investment decisions.

Executive Compensation Disclosure

Required Content/Form

For financial years beginning on or after July 1, 2015, venture issuers may choose to either:

  • provide full executive compensation disclosure compliant with Form 51-102F6, as is currently required; or
  • provide only the streamlined executive compensation disclosure compliant with newly created Form 51-102F6V.

If using the streamlined Form 51-102F6V, venture issuers will still be required to disclose all compensation paid to its directors and its “named executive officers”, however:

  • less extensive compensation discussion and analysis disclosure will be required;
  • executive compensation disclosure will only be required for 3 rather than 5 executive officers, namely the CEO, CFO and next highest paid executive officer;
  • disclosure will only be required for the 2 most recently completed financial years instead of 3 as is otherwise required;
  • although detailed information about stock options and other equity-based awards issued, held and exercised will still be required, the inclusion of fair value calculations for such awards will not be required; and
  • the threshold for detailed perquisites disclosure has been significantly revised (i.e. detailed disclosure on perquisites is only required if the value of the perquisites is, in the aggregate, greater than: (i) $15,000 if the named executive officer’s or director's salary is $150,000 or less; (ii) 10% of the named executive officer’s or director's salary if the salary is greater than $150,000 but less than $500,000; or (iii) $50,000 if the named executive officer’s or director’s salary is $500,000 or greater).

Filing Deadline

In any event, the new rules further stipulate that, for financial years beginning on or after July 1, 2015, executive compensation disclosure must be filed on SEDAR with the securities commissions:

  • for venture issuers, within 180 days of the company’s financial year-end; and
  • for non-venture issuers, within 140 days of the company’s financial year end.

Executive compensation disclosure is usually contained in a company’s information circular and the filing deadline is driven by the company’s corporate law or organizing documents, and the timing of its annual general meeting.  However, if the company’s information circular, including executive compensation disclosure, is not filed on SEDAR with the securities commissions within the aforementioned deadline, the company will need to file a statement of executive compensation in accordance with either of the aforementioned form requirements within the aforementioned deadline.

Threshold for Obligation to file BARs Increased to 100%

Canadian public companies that complete acquisitions that are deemed to be “significant” under applicable securities laws are required to file “business acquisition reports” for those acquisitions within 75 days of the acquisition date. The business acquisition report must include audited financial statements on the acquired business as well as pro forma financial statements of the company giving effect to the acquisition.

As of June 30, 2015, for venture issuers the threshold for determining whether an acquisition is significant has been raised from the 40% level to 100% such that the acquisition will only be deemed to be significant, and thus the filing of a business acquisition report will only be required, if:

  • the venture issuer’s proportionate share of the consolidated assets of the acquired business or related businesses exceeds 100% of the consolidated assets of the venture issuer; or
  • the venture issuer’s consolidated investments in and advances to the acquired business or related businesses as at the acquisition date exceeds 100% of the consolidated assets of the venture issuer.

In addition, as of June 30, 2015 venture issuers will not be required to include pro forma financial statements in a business acquisition report.

The same thresholds and disclosure requirements will also apply for financial statement disclosure in prospectuses filed to finance proposed acquisitions or information circulars related to proposed acquisitions.

AIF Disclosure for Mining Issuers Harmonized with NI 43-101

The disclosure to be included in the annual information forms of venture issuers with mineral projects has been harmonized with the technical report disclosure rules set out in National Instrument 43-101 Standards of Disclosure for Mineral Projects.

Prospectus Disclosure Amendments

The disclosure mandated in prospectuses for public offerings by venture issuers has been harmonized with the continuous disclosure rule changes described above.

Further, venture issuers will only be required to include two years of company history and audited financial statements in an initial public offering prospectus, instead of the three years required for non-venture issuers.

Audit Committee Amendments

For financial years beginning on or after January 1, 2016, venture issuers must have audit committees composed of at least three members, the majority of whom cannot be executive officers, employees or control persons of that venture issuer.

Invitation for Discussion

As stated earlier, if you would like to discuss public company reporting requirements or any other securities law or business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Nerland Lindsey LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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