Issuers who are contemplating raising capital in Québec, whether through a prospectus offering or an offering exempt from the prospectus requirement, generally question what French translation requirements, if any, are triggered by such an offering. Below, we answer some frequently asked questions in this regard, and in the process hope to dispel certain common misconceptions.
The Securities Act (Québec) (the "QSA") contains specific provisions requiring the translation into French of certain offering documents. In addition, the Québec Charter of the French Language (the "Charter") contains certain general provisions that may apply to documents used in connection with an offering of securities in Québec. Note that the mere distribution of securities in Québec will not, by itself, constitute "doing business" in Québec; issuers should be aware, however, that doing business in Québec would trigger additional French language requirements under the Charter which are not discussed below.
What documents need to be translated in connection with an
exempt offering?
- The distribution of securities in Québec on an exempt
basis will generally be carried out as a private placement pursuant
to the "accredited investor" or "$150,000 minimum
amount investment" prospectus exemptions found in
Regulation 45-106 respecting prospectus and
registration exemptions ("Regulation 45-106"). In
such a case, investors will often be delivered an offering document
(even though not legally required) describing the issuer and the
securities being offered, and they will typically also be asked to
execute a subscription agreement.
- Under the QSA, there is no legal requirement to translate into
French any offering document used in such a private placement
since, with respect to exempt offerings, the QSA requires the
translation of an offering document only where the
specific prospectus exemption being relied on actually requires
that an offering document be prepared and delivered to investors:
two such exemptions are the "offering memorandum"
exemption and the "rights offering" exemption under
Regulation 45-106, both of which require that an offering document
in prescribed form be delivered to investors.
- Under the Charter, contracts pre-determined by one party and contracts containing printed standard clauses, and related documents, must be drawn up in French, though they may be drawn up in English at the express wish of the parties. Accordingly, in the context of private placements, it is prudent to add a clause in the subscription agreement confirming the investor's wish that it (together with related documents) be in English, if the issuer wishes to avoid having to translate into French such documents.
Are there any translation requirements applicable following
the closing of a private placement?
- Note that an issuer does not become a "reporting issuer" under the QSA solely by virtue of completing a private placement in Québec. Consequently, non-reporting issuers that complete private placements in Québec will have no on-going requirement under Regulation 51-102 respecting continuous disclosure obligations ("Regulation 51-102") to file "continuous disclosure" documents in Québec and therefore, except as noted below in connection with a prospectus offering in Québec, no on-going French translation requirements.
What documents need to be translated in connection with a
prospectus offering?
- The QSA provides that every prospectus of any type, and any
document required to be incorporated by reference therein, shall be
drawn up in French only or in French and English. The French
version of the prospectus must be filed with the
Autorité des marchés financiers (AMF) and
delivered to Québec investors.
- For an issuer filing a short form prospectus, base shelf
prospectus or supplement to a base shelf prospectus, the documents
incorporated by reference therein (including the issuer's
current AIF, information circular, recent material change reports,
annual and interim financial statements and related MD&A) will
also have to be translated and filed in the French version with the
AMF (subject to certain exemptions discussed below):
- In the case of a short form prospectus (in preliminary or final
form, as applicable), no later than the time of filing of the
prospectus and, thereafter, during the course of a distribution of
securities under the prospectus until termination thereof,
simultaneously with the filing with the AMF of the English version
of the relevant document incorporated by reference in the
prospectus;
- In the case of a base shelf prospectus (in preliminary or final
form, as applicable), no later than the time of filing of the
prospectus and in the case of a shelf prospectus supplement, no
later than the date of its delivery to investors or filing with the
AMF. This implies that issuers wishing to have the ability to file
shelf prospectus supplements from time to time without any delay
associated with French translation should consider continuously
translating their continuous disclosure documents incorporated by
reference into the base shelf prospectus.
- Under the Charter, the forms of order and confirmation used in connection with a prospectus offering for Québec investors will also have to be translated in the French language.
Are there any exemptions available from translation
requirements?
- The AMF has granted in the past, in certain circumstances,
exemptions from certain French translation requirements in
connection with prospectus offerings. The main categories of
exemptions are as follows:
- temporary exemptions granting relief from translating into
French certain documents incorporated by reference into a
preliminary short form prospectus or preliminary base shelf
prospectus, provided these documents are translated and filed
within a certain delay (typically as soon as possible and in any
event no later than the date of filing of the final
prospectus);
- temporary exemptions granting relief from translating into
French certain lengthy documents of SEC issuers incorporated by
reference into a base shelf prospectus (such as Forms 10-K and
20-F) provided these documents are translated within a certain
delay (typically up to 35 days after filing with the SEC);
and
- permanent exemptions granting relief from translating into
French the documents (or a portion of such documents) incorporated
by reference into a short form prospectus or base shelf prospectus
which would not be required under the QSA to be incorporated by
reference into the prospectus, for example certain schedules to a
Form 10-K.
- The AMF will generally not grant any exemption from the French
translation requirement of the prospectus itself. However, certain
issuers have filed the French version of a preliminary prospectus
in Québec after the filing of the English version thereof
elsewhere in Canada. In such context, no solicitation and/or
distribution of securities of the issuer may occur in Québec
until a receipt is issued by the AMF for the French version of the
preliminary prospectus filed in Québec.
- Issuers are being cautioned that Staff of the AMF may exercise its discretion when granting translation exemptions, depending on the relevant facts and circumstances of each file. Staff may also impose certain conditions to the grant of these exemptions (such as adding a mention in the prospectus to the effect that the French version of the referenced document will be available on SEDAR no later than on the specific date indicated in the AMF exemption decision). Issuers are cautioned to consult Québec legal advisors as early as possible in connection with a planned offering of securities in Québec to avoid any translation issues.
After becoming a reporting issuer in Québec by
completing a prospectus offering, will I have to translate my
continuous disclosure documents?
- The QSA provides that an issuer that completes a prospectus
offering in Québec becomes a "reporting issuer" in
Québec and, therefore, subject to the continuous disclosure
obligations under Regulation 51-102.
- The continuous disclosure documents required under Regulation
51-102 may be filed in either French or English, so there is no
legal requirement per se to translate these documents into French.
However, as indicated above under What documents need to be
translated in connection with a prospectus offering?, any such
document will have to be translated into French once it becomes
incorporated by reference into a prospectus (subject to the
temporary or permanent exemptions discussed above).
- Issuers often ask whether or not they must translate into French an information circular prepared for a special meeting of shareholders in connection with a merger transaction. As indicated above, a continuous disclosure document such as an information circular does not have to be translated into French unless and until it becomes incorporated by reference into a prospectus. However, in the context of a take-over or merger transaction structured as an arrangement or amalgamation, Staff of the AMF issued a notice in 2001 stating that it would like issuers to consider, in particular, the number of beneficial holders of the offeree company in Québec and its degree of attachment to Québec, in making a decision whether to prepare the information circular in French or in French and English.
Is it possible to carry out a prospectus offering elsewhere
in Canada with a concurrent private placement in Québec, to
avoid the French translation requirement?
- Issuers proceeding with a prospectus offering in Canada sometimes contemplate not filing the prospectus in Québec, but instead selling securities to certain Québec investors on a private placement basis concurrently with the prospectus offering, in order to avoid the costs and delay of having to translate the prospectus (and any documents incorporated by reference therein) into French. Issuers should be aware, however, that in a notice issued in 1989, Staff of the AMF indicated that it considered any attempt to distribute securities in such circumstances to Québec investors without the benefit of a prospectus would be an abuse of the private placement exemption and, in such circumstances, Staff of the AMF would not hesitate to intervene by denying the availability of the private placement exemption or by issuing a cease trade of the issuer's securities, in order to protect Québec investors and the integrity of the capital markets.
Conclusion
For most private placements involving Québec investors,
issuers are reminded that there are no French translation
requirements that apply in connection with, and subsequent to, the
offering solely as a result of the private placement.
However, under the current regime, issuers wishing to access the
Québec capital markets by way of a prospectus offering will
need to comply with French translation requirements in connection
with the offering and should plan in their timetables certain
translation delays, except if exemptions are available as noted
above. If well planned, these requirements and related costs and
delays should hopefully be minimal compared to the advantages of
accessing additional capital from Québec institutional and
retail investors. Most importantly, issuers are reminded that there
are no ongoing French translation requirements subsequent to a
prospectus offering in Québec solely as a result of the
completion of the offering.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
