Under Multilateral Instrument 51-105 – Issuers Quoted in the U.S. Over-the-Counter Markets, a foreign issuer which undertakes promotional activities in Canada without being listed or quoted on a designated exchange runs the risk of being deemed a reporting issuer in Canada, and therefore subject to extensive Canadian continuous disclosure requirements, if the issuer’s equity securities trade over the counter (OTC) in the United States. As a result, some dealers undertaking private placement offerings of foreign securities in Canada have been limiting Canadian selling efforts to Ontario (which did not adopt MI 51-105), Quebec (which issued a blanket order in 2012 exempting issuers from the rule so long as promotional activities concern only “permitted clients”), and Alberta (which followed the Quebec model with a blanket order in 2014 which we discussed in a previous post).
A recent British Columbia Blanket Order follows the Alberta model to exempt issuers from becoming OTC reporting issuers under MI 51-105 so long as selling efforts and actual sales are only made to “permitted clients” on a private placement basis. As a result of the British Columbia ruling, issuers and dealers involved in this type of offering can now add British Columbia to the list of Canadian provinces where promotional activities and sales may be effected without concern for the unintended effects of MI 51-105.
The British Columbia Blanket Order also eliminates certain other Canada-specific disclosures (known as “connected issuer” and “related issuer” disclosures) that would otherwise need to be included in a “wrapper” document to supplement the foreign offering document and also does away with a related valuation requirement. These exemptions are only available for private placement offerings to “permitted clients”.
Under a previous B.C. blanket order, issuers with securities listed on certain designated exchanges, and issuers who do not have any class of securities listed on an exchange or quoted on a quotation and trade reporting system other than non-convertible debt securities, were exempt from MI 51-105 in British Columbia. These exemptions continue to be available under the British Columbia Blanket Order.
As we discussed in a previous post, Canada-wide rule changes are being considered by Canadian securities regulators, the cumulative effect of which would be to eliminate altogether the need to prepare a Canadian wrapper document for certain types of foreign offerings to sophisticated Canadian investors.