The securities regulatory authorities of five provinces – British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick – have adopted a prospectus exemption that will generally allow Canadian-listed issuers to distribute securities to retail investors who have obtained suitability advice from a registered investment dealer. The new exemption was announced in Multilateral CSA Notice 45-318 on January 14, 2016 and is intended to facilitate capital raising for eligible issuers and make it easier for retail investors to participate in private placements while at the same time ensuring that appropriate protections are in place.
The exemption is generally the same as it had been proposed in 2015 (see our earlier general post here and our Alberta-specific post here). The exemption applies only to distributions of (i) a listed security, (ii) a unit consisting of a listed security and a warrant, or (iii) a security convertible into a listed security at the securityholder’s sole discretion. Note that, while an offering document is not required, if one is voluntarily provided, investors will have certain rights of action in the event that it contains a misrepresentation.
There are no restrictions on the size of offerings under this exemption or on the size of an investor’s investment. However, investors must obtain suitability advice prior to purchasing securities under the exemption. Where an investor is a resident in Canada, such suitability advice must come from a registered investment dealer. The exemption is not available if the dealer is a restricted dealer or an exempt market dealer or if the dealer is exempted from providing suitability advice (such as discount brokers). The securities authorities will monitor the use of the exemption and may revisit the issue of size limits.
An issuer wishing to take advantage of the new exemption will also need to meet certain other conditions. In British Columbia, Saskatchewan, Manitoba and New Brunswick, key conditions include:
- Being a reporting issuer in at least one Canadian jurisdiction;
- Having a class of equity securities listed on the TSX, TSX-V, CSE or Aequitas Neo Exchange;
- Being current with all timely and periodic disclosure requirements;
- Issuing a news release with details about the distribution, including the use of proceeds;
- Disclosing in the offering news release any material fact about the issuer that has not yet been generally disclosed;
- Stating in the offering news release, and representing in the subscription agreement, that there is no material change or material fact about the issuer that has not been generally disclosed; and
- Ensuring that the subscription agreement gives the investor a contractual right of action for misrepresentations in the issuer’s continuous disclosure documents, regardless of whether the investor relied on such misrepresentations.
The Alberta approach is generally similar except, notably, the final condition does not apply. Rather than requiring a contractual right of action in the subscription agreement, ASC Rule 45-516 states that the secondary market civil liability provisions of Part 17.01 of the Securities Act (Alberta) apply to a security distributed under the exemption. Substantively, one of the key differences between the two approaches is that , in Alberta, investors should have a damages remedy only, rather than a damages or a rescission remedy (as exists in the four other provinces).
As with certain other prospectus exemptions, a report of exempt distribution must be filed within 10 days of the distribution and securities purchased under the exemption will be subject to a four-month hold period under Section 2.5 of National Instrument 45-102 Resale Restrictions.
The exemption is being adopted in the five jurisdictions by way of BC Instrument 45-536 (British Columbia), General Order 45-930 (Saskatchewan), Blanket Order 45-503 (Manitoba), Blanket Order 45-508 (New Brunswick) and ASC Rule 45-516 (Alberta). Alberta is also repealing ASC Rule 45-513 Exemption for Distribution to Existing Security Holders, as the “Existing Securityholder Exemption” has been consolidated into the new ASC Rule 45-516.