Photo of Joe BrennanBy Joe BrennanNovember 15 2012
Business Law

Insider Reporting Requirements

This blog provides a quick summary of certain of the most common insider reporting requirements applicable to “reporting insiders” of Canadian public companies (i.e. reporting issuers) under Canadian securities law including a summary of the applicable filing deadlines and the potential penalties for late filings or failures to file.  Please note that it is a summary only and is not intended to be exhaustive.

Summary:
Primary Insider Reporting Requirements:

Initial Report:                       File within 10 days of becoming a reporting insider.

Subsequent Report:            File within 5 days of any change to the reporting insider’s security holdings.

Exemption for Automatic Securities Purchase Plans (i.e. dividend reinvestment plans):

Securities Disposed:           File within 5 days of the disposition or transfer.               

Securities Not Disposed:    File by March 31 of the next calendar year.

Exemption for Certain Issuer Grants (i.e. grants of options, etc):            

Securities Disposed:            File within 5 days of the disposition or transfer.*               

Securities Not Disposed:      File by March 31 of the next calendar year.*

*Provided issuer has filed an “issuer grant report”; otherwise the Primary Insider Reporting Requirements apply.

Reporting Insider:

See the exhaustive definition of “reporting insider” in the main body of this blog but it includes the following persons:

(a)     the CEO, CFO and COO of the reporting issuer;

(b)     each director of the reporting issuer;

(c)     each person or company responsible for a principal business unit, division or function of the reporting issuer; and

(d)     each 10+% shareholder based on post-conversion beneficial ownership of the reporting issuer’s securities.

Penalties:

Generally:             At the discretion of the securities commissions and the courts.

Ontario:                 Automatic late fee of $50 per calendar day per insider per issuer (subject to a maximum of $1,000 per issuer within any one year beginning on April 1st and ending on March 31st.)

BC:                          Automatic late fee of $50 per late report. 

The Law:

Filing Requirements and Deadlines  

Primary Insider Reporting Requirements

Initial report – A reporting insider must file an insider report in respect of a reporting issuer within 10 days of becoming a reporting insider disclosing the reporting insider’s beneficial ownership of, or control or direction over, whether direct or indirect, securities of the reporting issuer.

Subsequent report – A reporting insider must within five days of any change file an insider report in respect of a reporting issuer disclosing a change in the reporting insider’s beneficial ownership of, or control or direction over, whether direct or indirect, securities of the reporting issuer.

Exemption for Automatic Securities Purchase Plan

Reporting exemption – A director or officer is exempt from the Primary Insider Reporting Requirements referred to above if the insider files an insider report within the time period referred to below disclosing, on a transaction-by-transaction basis or in acceptable summary form, each acquisition and each specified disposition of a security under an automatic securities purchase plan that has not previously been disclosed by or on behalf of the director or officer.

In this case, the deadline for filing the insider report is:

(a)     in the case of any securities acquired under the automatic securities purchase plan that have been disposed of or transferred, within five days of the disposition or transfer; and

(b)     in the case of any securities acquired under the automatic securities purchase plan during a calendar year that have not been disposed of or transferred, on or before March 31 of the next calendar year.

Exemption for Certain Issuers Grant

Reporting exemption – The insider reporting requirement does not apply to a director or officer for the acquisition of a security of the reporting issuer under a compensation arrangement established by the reporting issuer if:

(a)     the reporting issuer has previously disclosed the existence and material terms of the compensation arrangement in an information circular or other public document filed on SEDAR;

(b)     in the case of an acquisition of securities, the reporting issuer has previously filed in respect of the acquisition an issuer grant report on SEDI; and

(c)      the director or officer complies with the alternative reporting requirement described below.

Issuer grant report – An issuer grant report filed must include:

(a)     the date the option or other security was issued or granted;

(b)     the number of options or other securities issued or granted to each director or officer;

(c)     the price at which the option or other security was issued or granted and the exercise price;

(d)     the number and type of securities issuable on the exercise of the option or other security; and 

(e)     any other material terms that have not been previously disclosed or filed in a public filing on SEDAR.

Alternative reporting requirement – A director or officer is exempt from the Primary Insider Reporting Requirements if the insider files an insider report within the time period referred to below disclosing, on a transaction-by-transaction basis or in acceptable summary form, each acquisition and each specified disposition of a security under a compensation arrangement that has not previously been disclosed by or on behalf of the director or officer.

The deadline for filing the insider report is:

(a)     in the case of any security acquired under the compensation arrangement that has been disposed of or transferred, within five days of the disposition or transfer; and

(b)     in the case of any security acquired under the compensation arrangement during a calendar year that has not been disposed of or transferred, on or before March 31 of the next calendar year.

Reporting Exemption (Nil Report)

The Primary Insider Reporting Requirement does not apply to a reporting insider if the reporting insider:

(a)     does not have any beneficial ownership of, or control or direction over, whether direct or indirect, a security of the issuer;

(b)     does not have any interest in, or right or obligation associated with, a related financial instrument involving a security of the issuer;

(c)     has not entered into any agreement, arrangement or understanding regarding the securities of the reporting issuer; and

(d)      is not a significant shareholder based on post-conversion beneficial ownership.

Definitions and Interpretation

“acceptable summary form” means an insider report that discloses as a single transaction, with December 31 of the relevant year as the date of the transaction, using an average unit price of the securities the total number of securities of the same type acquired under an automatic securities purchase plan or compensation arrangement, or under all such plans or arrangements, for the calendar year.

“automatic securities purchase plan” means a dividend or interest reinvestment plan, a stock dividend plan, or any other plan established by an issuer or by a subsidiary of an issuer to facilitate the acquisition of securities of the issuer if the timing of acquisitions of securities, the number of securities which may be acquired under the plan by a director or officer of the issuer or of the subsidiary of the issuer, and the price payable for the securities are established in advance by written formula or criteria set out in a plan document and not subject to a subsequent exercise of discretion.

“compensation arrangement” includes, but is not limited to, an arrangement, whether or not set out in any formal document and whether or not applicable to only one individual, under which cash, securities or related financial instruments, including, for greater certainty, options, stock appreciation rights, phantom shares, restricted shares or restricted share units, deferred share units, performance units or performance shares, stock, stock dividends, warrants, convertible securities, or similar instruments, may be received or purchased as compensation for services rendered, or otherwise in connection with holding an office or employment with a reporting issuer or a subsidiary of a reporting issuer.

“convertible security” means a security of an issuer that is convertible into, or carries the right of the holder to purchase or otherwise acquire, or of the issuer to cause the purchase or acquisition of, a security of the same issuer.

“reporting insider” means an insider of a reporting issuer if the insider is:

(a)     the CEO, CFO or COO of the reporting issuer, of a significant shareholder of the reporting issuer or of a major subsidiary of the reporting issuer;

(b)     a director of the reporting issuer, of a significant shareholder of the reporting issuer or of a major subsidiary of the reporting issuer;

(c)     a person or company responsible for a principal business unit, division or function of the reporting issuer;

(d)     a significant shareholder of the reporting issuer;

(e)     a significant shareholder based on post-conversion beneficial ownership of the reporting issuer’s securities and the CEO, CFO, COO and every director of the significant shareholder based on post-conversion beneficial ownership;

(f)      a management company that provides significant management or administrative services to the reporting issuer or a major subsidiary of the reporting issuer, every director of the management company, every CEO, CFO and COO of the management company, and every significant shareholder of the management company;

(g)     an individual performing functions similar to the functions performed by any of the insiders described in paragraphs (a) to (f);

(h)     the reporting issuer itself, if it has purchased, redeemed or otherwise acquired a security of its own issue, for so long as it continues to hold that security; or

(i)       any other insider that:

(i)                   in the ordinary course receives or has access to information as to material facts or material changes concerning the reporting issuer before the material facts or material changes are generally disclosed; and

(ii)                 directly or indirectly, exercises, or has the ability to exercise, significant power or influence over the business, operations, capital or development of the reporting issuer.

“significant shareholder” means a person or company that has beneficial ownership of, or control or direction over, whether direct or indirect, or a combination of beneficial ownership of, and control or direction over, whether direct or indirect, securities of an issuer carrying more than 10 per cent of the voting rights attached to all the issuer’s outstanding voting securities.

Post-conversion beneficial ownership – A person or company is considered to have, as of a given date, post-conversion beneficial ownership of a security, including an unissued security, if the person or company is the beneficial owner of a security convertible into the security within 60 days following that date or has a right or obligation permitting or requiring the person or company, whether or not on conditions, to acquire beneficial ownership of the security within 60 days, by a single transaction or a series of linked transactions.

Significant shareholder based on post-conversion beneficial ownership – A person or company is a significant shareholder based on post-conversion beneficial ownership if the person or company is not a significant shareholder but the person or company has beneficial ownership of, post-conversion beneficial ownership of, control or direction over, whether direct or indirect, or any combination of beneficial ownership of, post-conversion beneficial ownership of, or control or direction over, whether direct or indirect, securities of an issuer carrying more than 10 per cent of the voting rights attached to all the issuer’s outstanding voting securities.  For the purposes of this calculation, an issuer’s outstanding voting securities include securities in respect of which a person or company has post-conversion beneficial ownership.

Penalties

The securities commissions have various remedies and penalties available to them to enforce compliance with their securities laws, including the filing of insider reports, such as: cease trade orders; compliance orders; summary conviction proceedings (resulting in fines of up to $5,000,000 or jail terms of up to 5 years or both); administrative penalties of up to $1,000,000 per compliance failure; disgorgement of amounts obtained as a result of the non-compliance; etc.

In Ontario, the OSC automatically charges late filers $50 per calendar day per insider per issuer (subject to a maximum of $1,000 per issuer within any one year beginning on April 1st and ending on March 31st.) The late fee does not apply to an insider if (a) the head office of the issuer is located outside Ontario, and (b) the insider is required to pay a late fee for the filing in a jurisdiction in Canada other than Ontario.

In BC, the BCSC automatically charges late filers $50 per late report.

In most other jurisdictions in Canada, the penalty for late filings, if any, is at the discretion of the local securities commission.

Invitation for Discussion:

If you would like to discuss any aspect of your insider reporting obligations, or any other securities law related 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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