The Canadian Securities Administrators (CSA) recently released Staff Notice 45- 308 (Revised) -Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions. It provides guidance, answers to frequently asked questions and instructions for completing the new form of exempt distribution report. Recent amendments to National Instrument 45- 106 Prospectus Exemptions (NI 45-106) and its companion policy introduced a harmonized report of exempt distribution that will be required for distributions made for most issuers after June 30, 2016.
The new report will replace the current form of report for both investment fund issuers and non-investment fund issuers that distribute securities under certain prospectus exemptions. The new form requires additional disclosure about the issuer and its insiders, securities distributed, prospectus exemptions relied on and persons compensated for the distribution.
Investment fund issuers can rely on a transition period, such that they can choose to file either the current form of report, or the new report, for distributions that occur before January 1, 2017.
New information required for all issuers includes:
- A list of offering materials required to be filed or delivered to the specified regulators
- The relationship of the person compensated for the distribution to the issuer or investment fund manager
- Whether the compensated person facilitated the distribution through an internet based portal
Regarding information about purchasers, the form now requires the issuer to identify whether the purchaser is a registrant or an insider. Non-investment fund issuers will have to include information such as the number of employees of the issuer (within a range), date of formation, year end, and size of assets. Investment fund issuers will now need to disclose their date of formation, year end, net asset value (within a range) and net proceeds of the distribution by jurisdiction.
As a result of the new disclosure requirements, AUM Law would be happy to assist funds and other issuers to review their subscription agreements to help ensure that all the necessary information about the purchasers is obtained. Because we expect it will take longer to complete the private placement forms, (particularly for the first few distributions reported on the new form), the information gathering and compilation process should be started as soon as possible subsequent to a distribution (or close to the calendar year end for investment funds reporting on an annual basis).
Oh, and don’t forget that the reports must be filed electronically. In BC, issuers must utilize the eServices system set up by the British Columbia Securities Commission, while in Ontario, filings will be made through the Ontario Securities Commission’s (OSC) Electronic Filing Portal. In other jurisdictions, the report must be filed on SEDAR and will be made publicly available (other than the scheduled with the personal information relating to purchasers).
A few tips (and reminders) regarding the new report are as follows:
- The report is generally due 10 days after a distribution, however, investment fund issuers relying on certain prospectus exemptions (including the accredited investor exemption) have the option of filing the report on an annual basis. The deadline for filing such report is now within 30 days of the end of the calendar year.
- Issuers must pay the applicable fee in each jurisdiction in which the report is filed.
- All purchasers that participated in the distribution must be listed in the report.
- It is the issuer’s responsibility to ensure that a valid prospectus exemption is available for distributions. An issuer may be required to report multiple prospectus exemptions in one report, in circumstances where the distribution occurred in more than one jurisdiction and the same prospectus exemption may not available in each of those jurisdictions.
- All compensation paid in connection with the distribution must be disclosed, including cash commissions, securities-based compensation, gifts, discounts or other compensation of a similar nature.
The report must be certified by a director or officer of the issuer or underwriter, or a director or officer of the investment fund manager if authorized to do so by the fund.