On April 16, 2015, the Canadian Securities Administrators announced that the securities regulatory authorities in British Columbia, Saskatchewan and New Brunswick are each publishing for comment a proposed prospectus exemption (the "Proposed Exemption") that could provide issuers with the ability to raise capital from retail investors without investing the time and cost required by currently available exemptions.
Under currently available prospectus exemptions, issuers cannot easily distribute securities to retail investors who do not qualify as “accredited investors” or who do not meet the conditions under the new existing securityholder exemptions. Retail investors have limited opportunities to invest directly in issuers and to benefit from the more favourable terms generally offered through private placements.
The Proposed Exemption would provide issuers with greater access to retail investors without the need for the significant financial and time investments currently required, while providing retail investors with greater investment opportunities and an appropriate level of protection.
The key conditions to the Proposed Exemption are as follows:
- the issuer must be a reporting issuer in at least one jurisdiction in Canada and must have at least one class of equity security listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc.;
- the issuer must have filed all timely and periodic disclosure documents as required under continuous disclosure requirements;
- the offering can consist only of a listed security, a unit consisting of a listed security and a warrant to acquire a listed security, or another security convertible into a listed security at the security holder’s sole discretion;
- the issuer must issue and file a news release that (a) discloses, in reasonable detail, the distribution, the use of proceeds and any material fact that has not yet been generally disclosed and (b) includes a statement that there is no material fact or material change about the issuer that has not been generally disclosed;
- the investor must obtain advice regarding the suitability of the investment from a registered investment dealer;
- the investor must be provided with a contractual right of action in the event of a misrepresentation in the issuer’s continuous disclosure record, regardless of whether the investor relied on the misrepresentation; and
- although an offering document is not required, if an issuer voluntarily provides one, an investor will have certain rights of action in the event such offering document contains a misrepresentation.
Securities sold under the Proposed Exemption would be subject to a four-month hold period and issuers will be required to file a report of exempt distribution within ten days of each distribution.
The Proposed Exemption contains a “sunset clause”, providing that the exemption would cease to be available three years after its implementation. The Canadian Securities Administrators have indicated that, before making it a permanent rule, they intend to monitor the use of the Proposed Exemption to assess its usefulness for issuers, whether retail investors use it in preference to acquiring securities on the secondary market, and whether it provides sufficient protections to investors.
The Canadian Securities Administrators are inviting comments on the Proposed Exemption until June 15, 2015.