Canada: MarketCaps @ Gowlings - December 16, 2011 - Volume 7, Number 8

Edited by Martine Guimond

BC extends relief relating to BC Report of Exempt Distribution

By: Cameron Wm. Ferris, Brett Kagetsu and Irene Chen

Effective October 3, 2011, the British Columbia Securities Commission (the "BCSC") adopted Form 45-106F6 British Columbia Report of Exempt Distribution (the "BC Form") to replace the existing Form 45-106F1 Report of Exempt Distribution (the "National Form") as the form of report of exempt distribution required to be filed in British Columbia by an issuer that distributes securities under certain exemptions from the prospectus requirement.

The BC Form is required to be used for exempt distributions of securities to purchasers resident in British Columbia or by issuers with a significant connection to British Columbia, unless an exemption described below is relied on. If the distribution occurs in British Columbia and one or more other Canadian jurisdictions, then the issuer will be required to file the BC Form in British Columbia and file the National Form in the other Canadian jurisdictions, unless an exemption described below is relied on.

The BC Form requires enhanced disclosure that the National Form does not require. In particular, an issuer that is not a reporting issuer in Canada is required by Item 4 of the BC Form to disclose information about each insider1 and promoter2 of the issuer, including (i) their name, municipality and country of principal residence; (ii) their positions held with the issuer, (iii) the number and type of securities of the issuer they beneficially owned, or directly or indirectly controlled, on the distribution date; and (iv) the total price they paid for the securities of the issuer they beneficially owned, or directly or indirectly controlled, on the distribution date ("Insider and Promoter Information").

Under the National Form, issuers are required to disclose information regarding the identity, contact information and investment details of investors in an exempt distribution ("Investor Information") however this information is only made available to the securities regulatory authorities and is not made available to the public unless required by freedom of information legislation. Under the BC Form, Investor Information will be made available to the public through the BCSC's website, unless the investor is an individual, in which case certain of the information will only be made available to the public at the BCSC's office. For issuers based in British Columbia or with a significant connection to British Columbia, this means that the identity and investment details of all investors in an exempt distribution (whether or not those investors are in British Columbia) will be made available to the public. For issuers based outside British Columbia, the identity and investment details of only the investors in British Columbia will be made available to the public.

Market participants have expressed their concern with respect to the requirement to file separate forms of exempt distribution and to disclose Insider and Promoter Information. In response to those concerns, effective October 3, 2011 the BCSC adopted BC Instrument 45-533 and varied that instrument on December 9, 2011, which instrument provides:

  • an exemption from the requirement to file the BC Form, for investment funds3 and non-reporting issuers (or underwriters distributing securities of non-reporting issuers) distributing securities in British Columbia to permitted clients4, provided that, among other things, the National Form is filed;
  • an exemption from disclosing Insider and Promoter Information for foreign public issuers5 and their wholly-owned subsidiaries and the wholly-owned subsidiaries of reporting issuers (or underwriters distributing securities of foreign public issuers or wholly-owned subsidiaries of either foreign public issuers or reporting issuers), subject to certain conditions; and
  • an exemption which limits the disclosure of Insider and Promoter Information in the BC Form to directors, executive officers6, control persons7 and promoters of the issuer.

While the exemptions referred to above should alleviate many of the concerns of market participants, it remains uncertain whether the requirement to disclose Insider and Promoter Information or the requirement to publicly disclose Investor Information will have a chilling effect on exempt distributions in British Columbia.


1. The definition of "insider" includes (a) a director or an officer of an issuer, (b) a director or an officer of a person that is itself an insider or a subsidiary of an issuer and (c) a person that has (i) beneficial ownership of, or control or direction over, directly or indirectly, or (ii) a combination of beneficial ownership of, and control or direction over, directly or indirectly, securities of an issuer carrying more than 10% of the voting rights attached to all the issuer's outstanding voting securities, excluding, for the purpose of the calculation of the percentage held, any securities held by the person as underwriter in the course of a distribution.

2. A "promoter" means, if used in relation to an issuer, a person who (a) acting alone or in concert with one or more other persons, directly or indirectly, takes the initiative in founding, organizing or substantially reorganizing the business of the issuer, or (b) in connection with the founding, organization or substantial reorganization of the business of the issuer, directly or indirectly receives, in consideration of services or property or both, 10% or more of a class of the issuer's own securities or 10% or more of the proceeds from the sale of a class of the issuer's own securities of a particular issue; but does not include a person who (c) receives securities or proceeds referred to in paragraph (b) solely (i) as underwriting commissions, or (ii) in consideration for property, and (d) does not otherwise take part in founding, organizing or substantially reorganizing the business.

3. An "investment fund" means a mutual fund or non-redeemable investment fund.

4. The definition of "permitted client" includes a Canadian financial institution and any subsidiary thereof; a person or company registered under the securities legislation of a jurisdiction of Canada as an adviser, investment dealer, mutual fund dealer or exempt market dealer; a Canadian-regulated pension fund; the Government of Canada or a jurisdiction of Canada, or any Crown corporation, agency or wholly-owned entity of the Government of Canada or a jurisdiction of Canada; an individual who beneficially owns financial assets (cash, securities and certain other liquid securities) having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds Cdn$5 million; and (c) a person or company, other than an individual or investment fund, that has net assets of at least Cdn$25 million as shown on its most recently prepared financial statements.

5. A "foreign public issuer" means an issuer (a) that has a class of securities registered under section 12 of the United States Securities Exchange Act of 1934 (the "1934 Act") or is required to file reports under section 15(d) of the 1934 Act, or (b) that is required to provide disclosure relating to the issuer and the trading in its securities to the public, to security holders of the issuer or to a regulatory authority and that disclosure is publicly available in Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland or the United Kingdom of Great Britain and Northern Ireland.

6. An "executive officer" means, for an issuer, an individual who is (a) a chair, vice-chair or president; (b) a vice-president in charge of a principal business unit, division or function including sales, finance or production; or (c) performing a policy-making function in respect of the issuer.

7. A "control person" means (a) a person who holds a sufficient number of the voting rights attached to all outstanding voting securities of an issuer to affect materially the control of the issuer; or (b) each person in a combination of persons, acting in concert by virtue of an agreement, arrangement, commitment or understanding, which holds in total a sufficient number of the voting rights attached to all outstanding voting securities of an issuer to affect materially the control of the issuer, and, if a person or combination of persons holds more than 20% of the voting rights attached to all outstanding voting securities of an issuer, the person or combination of persons is deemed, in the absence of evidence to the contrary, to hold a sufficient number of the voting rights to affect materially the control of the issuer.

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.

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