Under the proposed cooperative capital markets regulatory system (Cooperative System), which would create a cooperative regulator involving the federal government and the governments of British Columbia, New Brunswick, Ontario, Prince Edward Island, Saskatchewan and Yukon (Participating Jurisdictions), existing provincial securities legislation will be replaced in the Participating Jurisdictions with uniform provincial capital markets legislation. We discussed the approach to the regulation of take-over bids and issuer bids contemplated by the initial September 2014 draft of the uniform provincial and territorial Capital Markets Act(CMA) in our December 2014 Blakes Bulletin, which can be accessed here.
On August 25, 2015, a revised consultation draft of the CMA and draft initial regulations under the CMA (Initial Regulations and, together with the CMA, the Consultation Drafts) were published for comment. Given their scope, Blakes is publishing a series of bulletins regarding various aspects of the Consultation Drafts, which can be accessed here. This bulletin provides an update regarding the anticipated regulation of take-over bids and issuer bids under the Cooperative System.
BACK TO THE FUTURE
As is currently the case in the Participating Jurisdictions other than Ontario, the revised draft CMA follows a so-called “platform approach” to the regulation of take-over bids and issuer bids. That is, it includes very limited provisions relating to such regulation, instead leaving most of the requirements and exceptions to be addressed in regulations.
Such a platform approach was originally proposed in April 2006 to harmonize the regulation of take-over bids and issuer bids throughout Canada. The 2006 proposal had contemplated a single new national instrument, which would have set out a common comprehensive regime applicable in all Canadian jurisdictions. However, Ontario ultimately decided to break ranks with the other Canadian provinces and territories, which adopted Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids (MI 62-104) in 2007 and repealed sections of their respective securities legislation. In Ontario, it was decided that the same harmonization objective would be achieved by a combination of retaining and amending the take-over bid and issuer bid provisions of the OntarioSecurities Act along with implementing certain Ontario-only rules. Under the Consultation Drafts, this inconsistent approach would be eliminated through the adoption of the platform approach to regulating take-over bids and issuer bids in all Participating Jurisdictions, including Ontario.
MEET THE NEW RULES, SAME AS THE OLD RULES
As had been foreshadowed, the draft Initial Regulations propose to carry forward the current version of MI 62-104 and related companion policy and forms in substantially their current forms. This approach would minimize disruption in the transition to the new regime, help to preserve harmony with the legislation in those jurisdictions that do not opt-in to the Cooperative System and eliminate certain minor inconsistencies between Ontario’s current bid regime as compared to MI 62-104. However, notwithstanding that the two regimes would be substantively similar upon establishment of the Cooperative System, differences could occur over time if changes made under the Cooperative System were not also made in the non-participating jurisdictions, or were implemented differently (or vice versa).
We note that the commentary published with the Consultation Drafts indicates that the rule-makers are monitoring the proposed amendments to Canada’s take-over bid regulatory regime released by the Canadian Securities Administrators on March 31, 2015; amendments that are designed to rebalance the current dynamics between bidders, target boards and target securityholders, including by increasing the minimum bid period from 35 days to 120 days. For more information, see our April 2015 Blakes Bulletin: Fundamental Changes to Take-over Bid Regime One Step Closer with Release of Draft Amendments. The Participating Jurisdictions have indicated that they intend to incorporate such amendments into the Initial Regulations, if and when they are adopted.
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) contains requirements for enhanced disclosure, independent valuations and majority of minority securityholder approvals for specified types of transactions. Currently, MI 61-101 is in force only in Ontario and Quebec under the Consultation Drafts. MI 61-101 and its related companion policy are proposed to be adopted in all Participating Jurisdictions, substantially in their current form. However, since MI 61-101 is currently applicable to all issuers listed on the Toronto Stock Exchange (TSX) (as listing on the TSX causes an issuer to be a “reporting issuer” in Ontario) and MI 61-101has been incorporated into the policies of the TSX Venture Exchange, which apply to all issuers listed on that exchange, it is anticipated that this expanded application of MI 61-101 will not have a significant practical effect. That said, the same potential for future inconsistencies noted above in relation to MI 62-104 would exist for MI 61-101 if Quebec, which is currently not a Participating Jurisdiction, does not coordinate with the Participating Jurisdictions on potential future revisions to MI 61-101.
FEEDBACK AND IMPLICATIONS
Several commenters on the initial draft CMA had expressed concern regarding the platform approach. These commentators recommended that rulemaking authority be limited and that certain fundamental provisions of capital markets law, such as the 20 per cent take-over bid threshold, should be set forth in the CMA (as they currently are in the Ontario Securities Act), rather than in the regulations.
The commentary of the Participating Jurisdictions published with the revised CMA confirms that the platform approach will be maintained, as the rule-makers are of the view that it will best serve the CMA. In so doing, they pointed to a desire to promote regulatory flexibility, allowing the Capital Markets Regulatory Authority to respond to market developments in a timely manner and appropriately tailor the regulatory treatment of various entities and activities. However, it is unclear whether such increased flexibility will result in greater unpredictability.
The Consultation Drafts are open for comment until December 23, 2015. The Participating Jurisdictions have stated their intention to have the Cooperative System operational in the fall of 2016.
It remains to be seen whether the change in Canada’s federal government will impact the anticipated timing or other aspects of the proposed Cooperative System.