In order to streamline the continuous disclosure obligations of venture issuers, the Canadian Securities Administrators ("CSA") are implementing amendments to the national instruments and companion policies listed below, that will come into force across Canada on June 30, 2015, subject to necessary provincial ministerial approvals.
The amendments are intended to improve the quality of information available to investors while reducing the regulatory and disclosure burden on venture issuers. The instruments that have been amended include:
- National Instrument 51-102, Continuous Disclosure Obligations ("NI 51-102"), and its Companion Policy 51-102CP ("51-102CP").
- National Instrument 41-101, General Prospectus Requirements ("NI 41-101"), and its Companion Policy 41-101CP ("41-101CP").
- National Instrument 52-110, Audit Committees ("NI 52-110") (collectively, the "Amendments").
Canadian venture issuers are issuers that are reporting issuers in a province or territory of Canada that are not listed on the Toronto Stock Exchange or certain other U.S. marketplaces or marketplaces outside Canada and the U.S. and generally include any non-listed reporting issuers or reporting issuers listed the TSX Venture Exchange ("TSXV") and the Canadian Securities Exchange.
Reduced Obligations for Continuous Disclosure
The key amendments to continuous disclosure obligations applicable to venture issuers are as follows:
- Management Discussion and Analysis ("MD&A") of interim financial statements. Venture issuers will be permitted to file an interim MD&A in a "quarterly highlight" format. This format would include a short discussion of all material information about the issuer's operations, liquidity and capital resources, including an analysis of the issuer's financial condition, and such other requirements in accordance with an amended Form 51-102F1. The option to provide quarterly highlights will apply in respect of issuers' financial years beginning on or after July 1, 2015.
The CSA indicates that quarterly highlights will likely satisfy the needs of investors in smaller venture issuers. However, venture issuers with "significant revenue" will want to consider continuing to use the full interim MD&A to assist their investors in making informed investment decisions. The "significance" threshold of a venture issuer's revenue is not defined by the new amendments, so this determination will remain open to the issuer's interpretation and issuers are encouraged to consider their investor's needs in deciding whether to provide quarterly highlights or full MD&A.
- Executive Compensation. The amendments introduce a new Form 51-102F6V for venture issuers, which will reduce the number of executives for which reporting is required and the reporting period. Under the amendments, only the compensation of the CEO, CFO and next highest paid executive officer will be required to be disclosed by venture issuers, and only for a period of two years. Form 51-102FV6 also introduces thresholds for the disclosure of perquisites received by executive officers and directors, based on their level of salary.
Under section 9.3.1 of the amended NI 51-102, filing of executive compensation disclosure by venture issuers will be required within 180 days after the issuer's financial year end, even if the venture issuer has not filed a management information circular. Non-venture issuers must file their executive compensation disclosure within 140 days after the issuer's financial year end. The new filing deadline for venture issuers will apply in respect of financial years beginning on or after July 1, 2015.
- Business Acquisition Reporting ("BARs"). Following the amendments, venture issuers will only be required to file a BAR if they acquire a business or group of related businesses in which their consolidated share, investment or advances are more than 100 per cent of the value of the consolidated assets of the venture issuer prior to the acquisition. This represents a modification of the thresholds found in the existing significant asset and investment tests, which have been increased from 40 per cent to 100 per cent by the amendments. The requirement that BARs filed by venture issuers contain pro forma financial statements will also be eliminated.
Audit Committee Composition Requirements
The audit committee composition requirements adopted with the amendments to NI 52-110, impose more stringent requirements on venture issuers. As a result of the changes, the audit committee of venture issuers will be required to have at least three members, the majority of whom are not executive officers, employees or control persons of the issuer or any affiliate of the issuer. The new audit composition requirements will apply in respect of financial years beginning on or after January 1, 2016. These amendments are consistent with the existing TSXV requirements for audit committees composition, so this change will not be as onerous for TSXV listed issuers.
There are a number of time limited exceptions to this rule to allow issuers to temporarily fill vacancies caused by events which are outside the control of a member of the committee, or vacancies which occur due to the death, disability or resignation of a member.
Reduced Obligations for IPO Prospectus Disclosure
For the purposes of an initial public offering by an issuer that will become a venture issuer, issuers will only be required to disclose audited financial statements for the previous two completed financial years instead of the existing three year requirement for all issuers. Additionally, certain disclosure mandated in prospectuses for public offerings by venture issuers will also be scaled back as a result of the above rule changes (i.e., reduced interim MD&A and executive compensation disclosure).