On September 13, 2012, the Canadian Securities Administrators (the “CSA”) published for comment the revised proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers (“NI 51-103”). NI 51-103 seeks to create a single new national instrument which will regulate most of the continuous disclosure and governance obligations for venture issuers. The revised proposed instrument was released following the CSA’s review of the comments on the original proposed NI 51-103 that was published in July 2011. For a summary of the key aspects of the original proposed NI 51-103, please see the Davis LLP bulletin Canadian Securities Regulators Propose New Regime for Venture Issuers. The comment period on the revised proposed NI 51-103 is open until December 12, 2012.

The broad purposes of the proposed instrument are to (i) assist venture issuer investors in accessing relevant information by tailoring corporate governance and continuous disclosure regulations to venture issuers; (ii) provide management of venture issuers with more time to run their businesses by streamlining and reducing the complexity of disclosure regulations; (iii) enhance investor confidence in venture issuers by introducing certain corporate governance standards; and (iv) enhance the ability of securities regulators to focus on the unique challenges of venture issuers.

As was the case with the 2011 version, the proposed instrument consolidates certain annual disclosure in a single document, the new annual report; replaces the requirement for business acquisition reports with enhanced continuous disclosure reporting; puts forward new requirements relating to conflicts of interest, related party transactions and insider trading; and replaces mandatory mailing requirements for disclosure documents with a request-based system.

Effect on Prospectus Offerings

For prospectus offerings by venture issuers, the proposed instrument would also create a new long form prospectus form (which conforms to the disclosure requirements for the new annual report document) and require only two years (instead of three years) of audited financial statements to be included in a long form prospectus. A venture issuer would also be permitted to incorporate by reference the continuous disclosure documents prepared under the proposed instrument when preparing a short form prospectus under NI 44-101 Short Form Prospectus Distributions, a qualifying issuer offering memorandum under NI 45-106 Prospectus and Registration Exemptions and the TSX-V short form offering document under NI 45-106.

Effect on NI 43-101 Standards of Disclosure for Mineral Projects

Consequential amendments to NI 43-101 are also still being proposed in the new version of NI 51-103. Currently under NI 43-101, the filing of a preliminary short-form prospectus only triggers a technical report filing if the prospectus discloses for the first time mineral resources, mineral reserves or the results of a preliminary economic assessment on a property material to the issuer, or a change to that disclosure, if that constitutes a material change for the issuer.

The CSA wanted to avoid having the new annual report requirement automatically trigger a technical report filing. Therefore, the CSA is proposing that under NI 43-101, a technical report would be triggered if:

  1. the venture issuer files a short form prospectus; or
  2. the venture issuer’s annual report contains first time disclosure of mineral resources, mineral reserves or a preliminary economic assessment, or a change to that disclosure, if that change constitutes a material change for the venture issuer.

However, the short form prospectus trigger at (i) above would only apply if the venture issuer has not, in the 12 months preceding the date of the preliminary short form prospectus, filed a technical report in respect of the relevant property or relied on the exemption in s.4.2(8) of NI 43-101 from filing a technical report

Significant Changes from the 2011 Proposal

One of the most significant changes between the original proposed NI 51-103 and the revised NI 51-103 is that the CSA is no longer proposing to eliminate the 3 and 9 month financial reporting periods for venture issuers. Instead the CSA is proposing to replace the interim MD&A requirements with a requirement to prepare quarterly highlights of the venture issuer’s operations and liquidity to accompany the 3, 6 and 9 month interim financial reports. CEO and CFO certifications for interim financial statements and quarterly highlights will still be required.

Another change from the original proposed version of the instrument is that the CSA is now proposing to require executive compensation disclosure in the venture issuer’s information circular and not in the annual report. The revised proposed NI 51-103 would also only require executive compensation disclosure for the top three (instead of top five) named executive officers.

Other changes from the original proposed version include eliminating the ability to use optional significance tests for major acquisitions, eliminating the requirement to include pro forma financial statement disclosure for major acquisitions and enhancing use of proceeds disclosure for short form prospectuses.