Canada: British Columbia Adopts New BC-Only Report Of Exempt Distribution

The British Columbia Securities Commission has adopted a new BC-only report of exempt distribution which must be used for prospectus exempt distributions (private placements) in British Columbia on and after October 3, 2011. The new form (Form 45-106F6 British Columbia Report of Exempt Distribution) will replace Form 45-106F1 Report of Exempt Distribution in BC, although Form 45-106F1 will continue to be used to report securities distributed in the other jurisdictions of Canada. Investment funds will not be required to file the new Form 45-106F6, provided a Form 45-106F1 is filed.

The disclosure requirements under the new form vary depending on whether the issuer is a reporting issuer in Canada, a public company in certain specified foreign jurisdictions, a non-reporting issuer or an investment fund. Issuers planning to distribute securities in BC on an exempt basis should familiarize themselves with the applicable disclosure requirements to ensure that they collect all required information from investors and are in a position to provide the disclosure required by the new form.

The BCSC decided to enhance the information that is available to the public about private placement transactions that occur in BC and the insiders and promoters of the issuers that participate in those transactions. The BCSC has also explained that it may use the information provided pursuant to the new form to ensure compliance by registrants and issuers with BC securities laws.

It remains to be seen whether the more onerous disclosure obligations adopted by the BCSC will have an impact on the exempt market or whether the additional information will result in different standards of regulatory review of exempt market distributions in BC and other Canadian jurisdictions.

National Instrument 45-106 Prospectus and Registration Exemptions has been amended to reflect these changes. The updated Instrument and the new Form 45-106F6 are available here. BC Instrument 45-533 Exemption from Form 45-106F6 requirements for investment funds and foreign issuers, which provides exemptions from the new requirements for investment funds and certain foreign public issuers, is available here.

CANADIAN REPORTING ISSUERS

Issuers that are reporting issuers in Canada will be required to file the new Form 45-106F6 in connection with exempt distributions in BC. Under the new form, these issuers will be required to disclose whether purchasers or persons receiving compensation are registrants or insiders of the issuer. Canadian reporting issuers are exempt from the requirement to provide the information about their insiders and promoters otherwise required by the new form as this information is available through the System for Electronic Disclosure by Insiders (SEDI) and other public filings.

Under Form 45-106F1, purchaser information is included in a separate schedule that is filed on a confidential basis. Under the new form, information regarding non-individual purchasers (e.g., corporations, trusts, etc.) will be filed in the body of the form and will be publicly available. Information regarding individual purchasers (i.e., natural persons) will be filed under two separate schedules. Schedule I, which sets out the distribution details for individual purchasers and discloses whether individual purchasers are insiders or registrants, will be available for inspection at the offices of the BCSC. Schedule II, which sets out the residential address and telephone number of individual purchasers, will be filed separately on a confidential basis.

If the issuer is located in a jurisdiction other than BC, purchaser information will only need to be provided for purchasers resident in BC.

If the issuer has a "significant connection" to BC (for example, based on the location of the issuer or its mind and management), purchaser information will generally need to be provided for all purchasers, as each purchase will constitute a "distribution" in BC. BC-based issuers will therefore be subject to more onerous disclosure requirements under the new form relative to other issuers.

In response to privacy concerns raised by numerous commentators, the amendments to National Instrument 45-106 prohibit persons from using the information regarding individual purchasers available to the public under a Schedule I of the new form for any purpose other than research concerning the issuer for the person's own investment purpose. The BCSC recently announced relief that exempts the media from this prohibition to permit disclosure of this information for journalistic purposes. A number of commentators continue to express reservations regarding the protection of individual purchaser information filed in BC.

FOREIGN PUBLIC ISSUERS

The BCSC recently issued a blanket order relieving certain foreign public issuers from the requirement to provide the information about their insiders and promoters otherwise required by item 4 of the new Form 45-106F6. This relief was provided by BC Instrument 45-533. The effect of this relief is that public issuers in certain specified foreign jurisdictions are subject to the same requirements as Canadian reporting issuers discussed above. The rationale for this treatment is that investors have access to information regarding the insiders and promoters of foreign public issuers through their public filings in other jurisdictions.

NON-REPORTING ISSUERS

In addition to the requirements discussed above for Canadian reporting issuers, Canadian private issuers and foreign issuers that do not fall within the definition of a "foreign public issuer" will also be required to disclose specific information about each insider and promoter (generally anyone who took the initiative in founding, organizing or substantially reorganizing the issuer), including their name and municipality of residence, their positions with the issuer, and details regarding their equity holdings in the issuer. Non-reporting issuers distributing securities on an exempt basis in BC will also need to ensure that this information is collected.

INVESTMENT FUNDS

Subsequent to adopting the amendments to National Instrument 45-106, the BCSC exempted investment funds from completing the new Form 45-106F6 on the condition that they continue to file Form 45-106F1 in BC in the same way as they do today. This exemption was provided by BC Instrument 45-533.

TRANSITION

The new form must be used to report distributions in BC that occur on or after October 3, 2011.

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