On April 7, 2016, the Canadian Securities Administrators (“CSA”) published amendments to National Instrument 45-106 Prospectus Exemptions (“NI 45-106) in an effort to harmonize the exempt distribution report requirements across Canada for issuers and underwriters. The new harmonized reporting form will replace the current Form 45-106F1 that is used in all Canadian provinces and territories, along with replacing the separate reporting form currently used in British Columbia.
The amendments and requirement to use the new harmonized form are expected to come into force on June 30, 2016.
What is the purpose of the new form?
The stated goals of replacing the current forms with the new harmonized form are as follows:
- to reduce the compliance burden for issuers and underwriters by having a harmonized report of exempt distribution; and
- to provide securities regulators with the necessary information to facilitate more effective regulatory oversight of the exempt market and improve analysis for policy development purposes.
Who must use the new harmonized form?
The new harmonized form must be used by all issuers that distribute securities under specified prospectus exemptions that are generally used for private placements in Canada. This includes both investment fund and non-investment fund issuers.
What new information is needed?
The following is a brief summary of the new information that will have to be included in the new harmonized form:
- additional information regarding the issuer, including its size and primary business activity;
- the identities of the directors, executive officers and promoters of certain issuers;
- the identities of the control persons of certain issuers (in a confidential schedule);
- additional details about the securities distributed and, for certain jurisdictions, details about the documents provided to investors in connection with the distribution;
- specific details about the prospectus exemptions that the issuer has relied upon in completing the exempt distribution; and
- details regarding any compensation paid to registered dealers, connected persons, insiders and employees of the issuer or the investment fund manager involved in the exempt distribution.
The new form places further additional disclosure requirements on both investment and non-investment fund issuers. The additional disclosure required from investment fund issuers includes:
- the size of the investment fund;
- the type of investment fund;
- jurisdictions of Canada where the investment fund issuer is a “reporting issuer”; and
- the net proceeds to the fund for the period for which the report is filed.
The additional disclosure required from non-investment fund issuers includes:
- number of employees (within a range);
- stage of operations for mining issuers; and
- areas of primary asset holdings for issuers involved in investment activities.
While these additional disclosure obligations are onerous, issuers do not have an obligation to disclose certain information that can be gathered through publicly available sources, such as SEDAR. This information includes the issuer’s date of formation, financial year-end, jurisdictions where the issuer is a reporting issuer, the issuer’s stock exchange listings and the size of the issuer’s assets.
As stated above, some issuers will be permitted to forgo the newly required disclosure of the name, title and province, state or country of residence of their directors, executive officers, promoters and control persons. These issuers are as follows:
- investment fund issuers;
- reporting issuers and their wholly-owned subsidiaries;
- foreign public issuers and their wholly-owned subsidiaries; and
- issuers distributing eligible foreign securities only to permitted clients.
It should be noted that, notwithstanding the information that must be provided as part of these new disclosure requirements, any information related to the purchasers of an exempt distribution will not be made publicly available.
Changes to certification
The new form must be certified by either a director or officer of the issuer or of the dealer assisting with the offering. If the issuer or dealer is not a corporation, an individual who performs functions similar to that of a director or officer may certify the form. This is a shift from the current practice, which allows for law firms that represent issuers or dealers to provide the necessary certifications in connection with trade reports that are prepared for clients.
New filing systems not harmonized for BC and Ontario
Although the CSA was able to harmonize the form’s content, harmonization of the form’s filing requirements remains elusive. In all CSA jurisdictions, with the exception of Ontario and British Columbia, the new form will be required to be filed on SEDAR. In British Columbia, forms must be filed through the British Columbia Securities Commission’s eServices, while forms filed in Ontario must be filed through the Ontario Securities Commission’s Electronic Filing Portal.