Increased Reporting Requirements for Exempt Market Distributions
Effective June 30, 2016, issuers will be subject to increased reporting requirements for exempt market distributions with the introduction of a new version of Form 45-106F1, which will apply to exempt market distributions in all provinces and territories of Canada, including British Columbia. Previously, the form of report for exempt distributions in British Columbia was Form 45-106F6, rather than Form 45-106F1.
The new version of Form 45-106F1 will require increased disclosure with respect to both the issuer and investors:
- Issuers will be required to disclose the particular basis for an investor qualifying as an accredited investor and whether the purchaser is an insider or a registrant. Although this information is generally obtained in subscription agreements provided to investors, regulators have not previously required disclosure of this level of information. Consequently, the provision of this information will require issuers to implement systems to aggregate and maintain this data pertaining to the nature of the exemption relied upon by subscribers beyond mere document retention.
- Issuers will be required to provide disclosure about their operations and corporate status. This information will include, among other things, the date of incorporation, the number of employees of the issuer, the size of the issuer's assets and the issuer's industry classification.
- An officer or director of the issuer or dealer will be required to certify the report of exempt market distribution and assume personal responsibility for the accuracy of the report. Traditionally, responsibility for filing a report of exempt market distribution has been delegated to an agent of the issuer, such as a law firm. Given that Form 45-106F1 does not qualify the certification given by the director or officer by reference to the director or officer's reasonable examinations or due diligence, this new requirement may create undue difficulties for distributions conducted through a broker or dealer, as the director or officer certifying the report may not have direct knowledge of the information that he or she is asked to certify. As such, it is not clear to what extent such director or officer may rely on information compiled and provided by a third party.
- Investment funds will be required to provide disclosure about their date of formation, net asset value, the type of fund and the nature of their investments. The Canadian Securities Administrators are providing a transition period to allow investment funds that file reports annually, rather than within ten days after the distribution, to file either the old version or new version of Form 45-106F1 for distributions that occur before January 1, 2017.
Although it is anticipated that issuers will already possess much of the information required in the new Form 45-106F1, the expanded form requirements may create increased administrative requirements for issuers and provide securities regulators with broader information regarding exempt market activity by specific issuers and in the industry as a whole, which could provide the basis for more targeted enforcement efforts.
In addition to the expanded form requirements, most issuers, except certain foreign issuers and issuers in British Columbia and Ontario, will be required to file the new version of Form 45-106F1 electronically on SEDAR and the materials, other than personal information pertaining to subscribers, filed pursuant to Form 45-106F1 will be made public on SEDAR. Issuers filing in British Columbia and Ontario will be required to file the report by completing an electronic form on the British Columbia Securities Commission’s eServices and the Ontario Securities Commission’s Electronic Filing Portal, respectively. A subsequent business law bulletin is forthcoming, which will evaluate the implications of mandatory SEDAR filing for private issuers and private capital markets in Alberta.
Invitation for Discussion:
If you would like to discuss this blog in greater detail, or any other securities law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Shea Nerland LLP.
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.