Photo of Joe BrennanBy Joe BrennanAugust 13 2018
Business Law

ASC Expands Prospectus Exemptions for Distributions to Purchasers Outside Alberta

The Alberta Securities Commission (ASC) recently updated ASC Rule 72-501 Distributions to Purchasers Outside Alberta. This new rule significantly expands upon the exemptions available to an Alberta issuer where the offering materially complies with the securities laws of the foreign jurisdiction. In addition, the new rule contains a prospectus exemption to facilitate Alberta issuers using the offering memorandum prospectus exemption to more readily raise capital from investors in other jurisdictions of Canada.  The new rule is very similar, but not identical to, the new rule on this subject matter adopted earlier this year in Ontario.

Key Prospectus Exemptions for Distributions to Purchases Outside Alberta

1. Foreign Public Offering under Prospectus or Registration Statement in a Foreign Jurisdiction

The prospectus requirement will not apply to a distribution of securities to a person or company outside Canada if, at the time of the distribution, one or both of the following apply:

    • the issuer has filed a registration statement in accordance with the 1933 Act registering the securities in connection with the distribution, and that registration statement is effective; or
    • the issuer has filed an offering document that qualifies, registers, or permits the public offering of those securities in accordance with the securities laws of a specified foreign jurisdiction and, if required, a receipt or similar acknowledgement of approval or clearance has been obtained for the offering document in the specified foreign jurisdiction.

The 16 specified foreign jurisdictions are: 1. Australia, 2. France, 3. Germany, 4. Hong Kong, 5. Italy, 6. Japan, 7. Mexico, 8. The Netherlands, 9. New Zealand, 10. Singapore, 11. South Africa, 12. Spain, 13. Sweden, 14. Switzerland, 15. United Kingdom of Great Britain and Northern Ireland, and 16. any other member country of the European Union.

Securities issued under this prospectus exemption will be freely tradable in Canada (i.e., there are no resale restrictions controlling sales back into Canada).

2. Foreign Distribution with Concurrent Final Prospectus in Alberta

The prospectus requirement will not apply to a distribution of securities to a person or company outside Canada if:

    • the issuer of the securities or the selling security holder has materially complied with the disclosure requirements applicable to the distribution under the securities law of the jurisdiction outside Canada in which the investor is located, or the distribution is exempt from such requirements; and
    • concurrent with the distribution, the issuer of those securities has filed with the ASC, and a receipt has been issued for, a final prospectus in accordance with Alberta securities laws.

Securities issued under this prospectus exemption will be freely tradable in Canada (i.e., there are no resale restrictions controlling sales back into Canada).

3. Foreign Distributions by Reporting Issuers

The prospectus requirement will not apply to a distribution by an issuer of a security of its own issue to a person or company outside Canada if:

    • the issuer has materially complied with the disclosure requirements applicable to the distribution under the securities law of the jurisdiction outside Canada in which the investor is located, or the distribution is exempt from in that jurisdiction from such requirements; and
    • the issuer is a reporting issuer in a jurisdiction of Canada immediately preceding the distribution.

Securities issued under this prospectus exemption will be freely tradable in Canada (i.e., there are no resale restrictions controlling sales back into Canada).

4. Foreign Distributions by Non-Reporting Issuers

The prospectus requirement will not apply to a distribution by an issuer that is not a reporting issuer in a jurisdiction of Canada of a security of its own issue to a person or company outside Canada if, the issuer has materially complied with the disclosure requirements applicable to the distribution under the securities law of the jurisdiction outside Canada in which the investor is located, or the distribution is exempt in that jurisdiction from such requirements.

Securities sold under this exemption are not freely tradable back into Canada. A legend is required on the securities unless and until the issuer becomes a reporting issuer in Canada and four months have elapsed thereafter.

5. Distributions under the Offering Memorandum exemption

The prospectus requirement will not apply to a distribution by an issuer of a security of its own issue to a person or company outside Alberta if all of the following apply:

    • the purchaser is a resident of a jurisdiction of Canada, other than Alberta;
    • the purchaser certifies in the subscription agreement or similar document that the purchaser is not a resident of Alberta and the issuer does not believe, and has no reasonable grounds to believe, that the certification is false;
    • the issuer has materially complied with the terms of the exemption from the prospectus requirement in section 2.9 [offering memorandum] of National Instrument 45-106 Prospectus Exemptions.

Securities sold under this exemption are not freely tradable back into Canada. A legend is required on the securities unless and until (i) in the case of a reporting issuer, four months have elapsed since the distribution and (ii) in the case of a non-reporting issuer, the issuer becomes a reporting issuer in Canada and four months have elapsed thereafter.

Exchange or Market Outside Canada

For the purposes of the aforementioned four new prospectus exemptions, a distribution made on or through the facilities of an exchange or market outside Canada is a distribution to a person or company outside Canada if neither the seller nor any person acting on its behalf has reason to believe that the distribution has been pre-arranged with a buyer in Canada.

Anti-avoidance

However, note that the aforementioned prospectus exemptions are not available with respect to any transaction or series of transactions that is part of a plan or scheme to avoid the prospectus requirements in connection with a distribution to a person or company in Canada.

Report of Distribution outside Canada

An issuer that relies on any of (i) the “Foreign Distributions by Reporting Issuers Exemption”, (ii) the “Foreign Distributions by Non-Reporting Issuers Exemption” or (ii) the Distributions under the Offering Memorandum Exemption” referred to above must electronically file a report of trade with respect to the distribution as required by Form 45-106F1 Report of Exempt Distributions and its instructions.

Generally speaking, the report must be filed on or before the tenth day after the distribution date. However, an issuer that is an investment fund must file the report not later than 30 days after the end of the calendar year in which the distribution occurred.

Invitation for Discussion:

If you would like to discuss this article in greater detail, or any other 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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