The Canadian Securities Administrators (CSA) have managed to harmonize their differences for reporting prospectus-exempt distributions since their earlier proposals in February and March 2014. They have now proposed a common form that would apply across Canada for both investment funds and other types of issuers. While the new proposal drops some of the information detail requirements originally proposed in 2014, it also adds new required information.
The original proposals were discussed in our April 2014 Blakes Bulletin: Haven’t You Heard? It’s All Being Changed – New Proposals to Private Placement Regime. One of the principal concerns then was that the different provinces’ proposals could result in up to four different versions of a private placement report. This was heavily criticized and the CSA have made significant effort to achieve a single harmonized form. On the other hand, like most products with many cooks, the end result tends to be enhanced rather than boiled down.
The new common Form 45-106F1 (New Form) would apply across Canada, although it would need to be filed electronically as an e-form in Ontario, through a web portal in British Columbia and directly by PDF or paper copy in all other jurisdictions. The CSA pointed out that Ontario’s version of the e-form can be used for the filing made in other jurisdictions, so that in many cases it should not need to be prepared more than once. Other jurisdictions are considering filing through System for Electronic Document Analysis and Retrieval (SEDAR) but no proposals are yet made.
The New Form clarifies in which jurisdictions reporting is required. Before, there was some uncertainty, given the different approaches in different Canadian jurisdictions interpreting where a distribution is made. Instructions for the New Form explicitly state that a distribution is considered to be made in each jurisdiction where a purchaser is resident. In addition, in all jurisdictions of Canada except Ontario, a distribution will be considered to occur in that jurisdiction if the issuer of the securities is located in or has a significant connection to that jurisdiction. Ontario has a different view, so a distribution made from Ontario may not be a distribution in Ontario if the securities do not come to rest in Ontario. Finally, the instructions also make clear that if the issuer is located outside of Canada, the New Form is only required to include information about purchasers resident in Canada.
The New Form instructions re-affirm that the CSA require disclosure of the beneficial owner of the securities purchased. In particular, if a registered adviser has purchased securities on behalf of a fully managed account, the report must provide information about both the registered adviser and the beneficial owner of the fully managed account. The CSA said this is not a new requirement but has been a requirement of the existing form. This may be challenging if advisers enter orders and subsequently allocate investments among their managed accounts. Full contact information for all beneficial owners, including telephone numbers and email addresses, must be disclosed. The New Form would require disclosure of the specific paragraph number in the definition of accredited investor that is applicable to the purchaser. Presumably in this one case, “purchaser” would mean only the registered adviser itself.
INFORMATION REQUIREMENT CHANGES
The following items of detailed information have been added since 2014 to this version of the New Form for all issuers:
- Issuer’s website, North American Industry Classification Standard Code (type of fund for investment funds) and legal entity identifier (under the Global Legal Entity Identifier System – n/a for investment funds)
- Size of the issuer’s assets (Net Asset Value for investment funds) (in bands)
- Underwriter’s National Registration Database number
- Committee on Uniform Securities Identification Procedures (CUSIP) number and specified security codes for the security issued
- Details for each person to whom the issuer directly provides or will provide any compensation as a result of the distribution, and must now include not only cash compensation or securities, but also gifts, discounts or other compensation (an example given in the sample New Form is “basketball tickets”)
- Email addresses of the purchasers
For issuers other than an investment fund, a reporting issuer or a subsidiary of a reporting issuer, a foreign public issuer or its subsidiary, or issuers distributing eligible foreign securities only to permitted clients (collectively, exempted issuers, described in more detail below), these items are also new:
- All voting securities beneficially owned or directly or indirectly controlled by each director, executive officer, control person and promoter of the issuer, and the total amount paid for all such voting securities
- For each director and executive officer of a control person or promoter of the issuer, their full name, residential jurisdiction and relationship to the control person or promoter
- Residential addresses for each individual director, executive officer, control person and promoter of the issuer and directors and executive officers of control persons and promoters of the issuer
On the other hand, the New Form has dropped some of the information requirements that had been proposed in 2014, including:
- Age range of purchasers
- Full legal name of the parent of the issuer
- Business email of the underwriter’s CEO
- Business email for the issuer’s CEO (though dropped only for exempted issuers)
- For investment funds, details of past redemptions and service providers
A “foreign public issuer” generally means Securities and Exchange Commission (SEC) filers and public companies in designated foreign jurisdictions, which are the same as those currently exempted from certain continuous disclosure requirements pursuant to National Instrument 71-102 – Continuous Disclosure and Other Exemptions Relating to Foreign Issuers. Foreign issuers of “eligible foreign securities” means the same as in the recent wrapper exemption, namely issuers that are incorporated or created under the laws of a foreign jurisdiction, not a reporting issuer in Canada, with a head office outside of Canada and with a majority of the executive officers and of the board of directors ordinarily resident outside of Canada.
The 2014 proposal to accelerate investment fund reporting to quarterly has been dropped, but the CSA now propose to change all investment fund annual placement reporting from a fund’s financial year-end to a common calendar year basis.
The proposed changes to the New Form are open for comment until October 13, 2015.