Proposed New Rule to Streamline Disclosure Obligations for Venture Issuers
The Canadian Securities Administrators (“CSA”) recently published for comment proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers that will, if adopted, introduce a new mandatory regulatory regime for venture issuers. The proposed rule is open for comment until October 27, 2011. It is not certain if and when the proposed rule will be adopted or if it will be adopted in its current form.
Hopefully the CSA will adopt the new rule in something close to its current form as it appears to meet the CSA’s objective to both (i) “streamline and tailor venture issuer disclosure to make it more suitable and manageable for issuers at this stage in their development” and (ii) “make it more useful and user-friendly for investors”. (In fact, many but not all of the proposals put forth for venture issuers would also be suitable for larger issuers as well such as the proposal for one annual report containing all business, governance, executive compensation and financial disclosure rather than multiple documents each with certain pieces of this information).
Set for below is a summary of the key components of the proposed rule:
- Introduction of an annual report requirement that combines into one document:
- Business disclosure;
- Governance disclosure;
- Executive compensation disclosure; and
- Audited annual financial statements, associated MD&A and CEO/CFO certifications.
- Streamlining of information circular disclosure requirements, including moving governance and executive compensation disclosure to the annual report.
- Make filing of three- and nine-month interim financial reports and associated MD&A voluntary.
- Introduction of a mid-year report that includes a six-month interim financial report, associated MD&A and CEO/CFO certifications.
- Replacing BARs with enhanced material change reporting, including financial statements, for acquisitions that are 100% significant calculated using the “market capitalization” of the issuer (to be calculated at the date of announcement of the acquisition with an optional test instead at the actual acquisition date).
- Introduction of substantive corporate governance requirements relating to:
- Conflicts of interest;
- Related party transactions; and
- Insider trading.
- Tailored director and executive compensation disclosure.
- Requiring the delivery of disclosure documents only on request in lieu of mandatory mailing requirements.
- Requiring only two years of historical financial statements in connection with an initial public offering prospectus offering.
- Conforming the disclosure requirements for prospectuses, and disclosure documents for certain prospectus exempt offerings, to the disclosure under the proposed new rule for venture issuers.
The proposals are not intended to have any material impact on other instruments dealing with continuous disclosure obligations including:
- NI 51-101 Standards of Disclosure for Oil and Gas Activities, and
- NI 43-101 Standards of Disclosure for Mineral Projects.
As stated above, the proposed rule is open for comment until October 27, 2011. It is not certain if and when the proposed rule will be adopted or if it will be adopted in its current form. We will continue to monitor developments in this area. If you would like to discuss the proposed rule, please do hesitate to contact one of the Corporate Finance and Securities Lawyers at SNC Law.