On April 9, 2015, the Canadian Securities Administrators published amendments to National Instrument 51-102 Continuous Disclosure Obligations, National Instrument 41-101 General Prospectus Requirements and National Instrument 52-110 Audit Committees intended to streamline the continuous disclosure requirements for venture issuers (i.e., a reporting issuer that does not have any of its securities listed or quoted on any of the Toronto Stock Exchange, a U.S. marketplace or a marketplace outside of Canada and the United States) by improving the quality of the information and reducing the burden of preparation. In addition, the amendments also provide changes to certain of the governance requirements. The changes are expected to come into force on June 30, 2015, and the key amendments are outlined below.
Venture issuers will now have the option of providing “quarterly highlights” instead of preparing a full interim MD&A. The quarterly highlights would include a short discussion of all material information regarding a company’s operations, liquidity and capital resources, and contain an analysis of the company’s financial condition and performance, trends, major milestones and expected or unexpected events, commitments or uncertainties. In addition, disclosure would identify and discuss any significant changes from prior disclosure regarding the use of proceeds from any financing as well as a discussion of any significant transactions between related parties. The option to provide quarterly highlights disclosure will apply in respect of financial years beginning on or after July 1, 2015.
Executive Compensation Disclosure
The deadline to file executive compensation disclosure has been extended, in the case of a venture issuer, to 180 days after the company’s most recently completed financial year-end (140 days in the case of a non-venture issuer). A venture issuer will now have the option of completing a new form – Form 51-102F6V Statement of Executive Compensation – Venture Issuers. The principal changes from Form 51-102F6 include the provision of executive compensation information for a maximum of three named executive officers (as opposed to five), for the two most recently completed financial years (as opposed to three). A venture issuer will have to provide enhanced disclosure regarding stock options and other compensation securities. The new form also introduces staggered thresholds for perquisite disclosure.
Business Acquisition Report Threshold Increased
A business acquisition report (BAR) is required to be filed where a venture issuer has entered into a significant acquisition. Previously, an acquisition was considered to be significant if either the asset test or investment test exceeded the 40% level. The threshold at which a BAR is required for venture issuers has now been increased from 40% to 100%, thereby reducing the number of circumstances in which a venture issuer will be required to file a BAR. A BAR filed by a venture issuer will also not be required to include pro forma financial statements.
Venture issuers must now have an audit committee consisting of at least three members, the majority of whom cannot be executive officers, employees or control persons of the issuer or its affiliates. The TSX Venture already had an equivalent requirement, so the new rule will not constitute a departure for venture issuers listed on that exchange. A number of exemptions have been introduced that allow, in certain circumstances, an executive officer or control person to serve on the audit committee until the later of the next annual meeting or six months after the date on which the circumstance arose. A similar exemption is also provided in the case of a vacancy that results from the death, incapacity or resignation of an audit committee member. The audit committee composition requirements will apply in respect of financial years beginning on or after July 1, 2016.
The general prospectus requirements have been amended to provide further reduced disclosure obligations for venture issuers. Specifically, a venture issuer must now only include audited financial statements for the two most recently completed financial years (as opposed to three years for non-venture issuers). Similarly, the description of the business and operating history has also been reduced to capture only the last two completed financial years.