Canada: Exemptions From Canadian Continuous Disclosure Obligations

Last Updated: March 11 2004

For Non-Canadian Issuers

Canadian securities regulators have adopted a new uniform continuous disclosure regime. This regime is described in our client memo no. 2004-9T, Continuous Disclosure Obligations Revamped: Earlier Filing Deadlines, CEO/CFO Certification and Enhanced Disclosure, dated February 18, 2004. National Instrument 71-102, Continuous Disclosure and Other Exemptions Relating to Foreign Issuers will exempt many non-Canadian issuers from various obligations if certain conditions are met.

Two categories of non-Canadian issuers are eligible for relief: "SEC foreign issuers"1—including both U.S. domestic issuers and foreign private issuers subject to the rules of the U.S. Securities and Exchange Commission—and "designated foreign issuers"—those that are subject not to SEC rules but to the securities laws of Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland or the United Kingdom.

Non-Canadian issuers that operate under a specific exemption order previously granted to them by a Canadian securities regulator should seek advice to determine whether the exemption order will have to be updated or whether it will cease to be necessary in light of the new exemptions in NI71-102.

Exemptions from Canadian Continuous Disclosure Requirements

The exemptions discussed below are contingent on the issuer’s compliance with the securities regulatory requirements in its home jurisdiction and the rules of the stock exchange(s) on which its securities are listed. The documents filed with the SEC or foreign securities regulators must also be filed in Canada, and any documents that the home country requires to be sent to security holders must be sent to security holders resident in Canada at the same time as (or as soon as practicable thereafter) and in the same manner as they are sent to non-Canadian security holders. Documents filed in Canada must be written in either English or French and must be accompanied by a certificate of translation if the document was filed in the foreign jurisdiction in a language other than English or French.

Designated foreign issuers must disclose at least annually in a document that is sent to security holders that it is a designated foreign issuer and subject to foreign regulatory requirements. The name of the foreign securities regulator must also be disclosed.

SEC foreign issuers and designated foreign issuers are exempt from the Canadian requirements relating to (a) the disclosure of material changes; (b) the preparation, approval, delivery and filing of interim financial statements, annual financial statements and auditor’s report, MD&A and annual information forms (other than an AIF prepared to make an issuer eligible to file a short form or shelf prospectus); (c) the preparation and filing of business acquisition reports; (d) the disclosure of voting results; (e) the filing of news releases disclosing information regarding its results of operations or financial condition; (f) the filing of documents affecting the rights of security holders and material contracts entered into other than in the ordinary course of business (this exemption applies even if there is no requirement that these documents be filed with the home country regulator); (g) a change in year-end;2 (h) a change of auditor;3 and (i) the disclosure about, and minority approval of, restricted securities.

Insiders of SEC foreign issuers and designated foreign issuers are exempt from filing insider reports, unless the issuer has taken steps to permit the electronic filing of insider reports under Canada’s System for Electronic Data on Insiders (SEDI). Paper copies of the insider reports filed in the United States or in a designated foreign jurisdiction are not required to be filed in Canada.

The Multijurisdictional Disclosure System (MJDS) continues to apply. The MJDS permits certain U.S. issuers to satisfy specified Canadian continuous disclosure requirements by using disclosure prepared in accordance with SEC requirements. Where the exemptions in the MJDS differ from those in NI71-102, issuers may rely on either exemption. For example, an insider of an SEC foreign issuer that is a SEDI issuer is not entitled to an exemption from the insider reporting obligations under NI71-102. However, insiders of U.S. issuers (as defined under the MJDS rule) will be exempt from filing insider reports. In addition, an SEC foreign issuer may rely on any exemption that is available to SEC issuers under National Instrument 51-102, Continuous Disclosure Obligations.

Early Warning

Generally, Canadian early warning rules require that a news release be issued and that an early warning report be filed when a person acquires more than 10% of a reporting issuer’s securities. The rule exempts from these early warning requirements the acquisition of securities of an SEC foreign issuer that has a class of shares registered under section 12 of the U.S. Securities Exchange Act of 1934 (1934 Act) or a designated foreign issuer if (a) the comparable requirements of the SEC or the designated foreign jurisdiction are complied with; and (b) copies of the reports that are filed with the SEC or foreign securities regulators are also filed in Canada.

Proxy Solicitation and Shareholder Communications

SEC foreign issuers and designated foreign issuers will satisfy their obligations under Canadian securities laws with respect to proxy circulars, proxies and proxy solicitation by complying with the comparable requirements of the SEC or the securities regulatory authority in the relevant designated foreign jurisdiction. Third parties who solicit proxies from security holders of SEC foreign issuers and designated foreign issuers are also exempt from the Canadian requirements provided that the comparable SEC or foreign requirements are met.

SEC foreign issuers and designated foreign issuers are also exempt from the Canadian requirements to communicate with, deliver security holder materials to, and confer voting rights on the non-registered security holders. The exemption is available only if the issuer complies with the comparable requirements of the SEC or designated foreign jurisdiction and pays any required fees to Canadian depositories or intermediaries under National Instrument 54-101, Communication with Beneficial Owners of Securities of a Reporting Issuer. (NI54-101 is the rule that requires Canadian public companies to follow specified procedures to ensure that non-registered, beneficial owners of securities receive proxy and other meeting materials and are able to vote the securities they own.)

Exemption from Business Combinations and Related Party Transaction Rules

SEC foreign issuers and designated foreign issuers are exempt from the Canadian securities law requirements for business combinations and related party transactions (including the Ontario and Quebec requirements for a valuation and minority approval). In the case of SEC foreign issuers, the exemption applies only if less than 20% of their equity securities are held in Canada.

Accounting Principles and Auditing Standards

All foreign issuers will be permitted to prepare their annual, interim and pro forma financial statements using GAAP other than Canadian GAAP. Non-Canadian GAAP financial statements may be used to satisfy continuous disclosure obligations, be included in prospectuses filed with the Canadian securities regulatory authorities or otherwise filed in Canada. All foreign issuers may use International Financial Reporting Standards, without reconciliation to Canadian GAAP, or any foreign accounting principles that cover substantially the same core subject matter as Canadian GAAP, but a reconciliation to Canadian GAAP would then be required.

In addition, SEC foreign issuers will be permitted to file financial statements prepared under U.S. GAAP, with no reconciliation to Canadian GAAP. Issuers that are "foreign private issuers" under SEC rules, and that have less than 10% of their equity securities held by Canadian residents, may file financial statements prepared in accordance with the accounting principles that meet the SEC’s requirements for foreign private issuers (including any reconciliation to U.S. GAAP that is required by SEC rules). Designated foreign issuers can file statements prepared using the accounting principles of their home jurisdiction, without reconciliation to Canadian GAAP.

Financial statements may be audited in accordance with U.S. GAAS or International Standards on Auditing. If international standards are used, the auditor’s report must be accompanied by a statement that describes any material differences in the form and content of the auditor’s report from an auditor’s report prepared in accordance with Canadian GAAS. Designated foreign issuers may also have their financial statements audited under home country auditing standards.

Sunset on Exemptions for "Foreign Transition Issuers" (formerly, Category E Reporting Issuers)

Foreign transition issuers (i.e., "Category E reporting issuers" under the Ontario Securities Commission’s Policy Statement No. 7.1) are permitted to prepare and file annual financial statements and auditor’s reports and interim financial statements in compliance with the laws of their home country. These financial statements must be filed by the earlier of 140 days after the end of the financial year (or 60 days after the end of the interim period) and the date they are filed in the home country. These issuers are also exempt from Canadian requirements to prepare and file MD&A, AIFs and business acquisition reports. These exemptions will end automatically on January 1, 2005.

* * * * * * * *

A copy of NI71-102, Continuous Disclosure and Other Exemptions Relating to Foreign Issuers and the companion policy can be obtained on the OSC’s website at

A copy of NI52-107, Acceptable Accounting Principles, Auditing Standards and Reporting Currency and the companion policy can be obtained on the OSC’s website at


Selected Definitions

"Designated foreign issuer" is a foreign reporting issuer:

(a) that does not have a class of securities registered under section 12 of the U.S. Securities Exchange Act of 1934 (1934 Act) and is not required to file reports under section 15(d) of the 1934 Act;

(b) that is subject to disclosure requirements of a securities commission, exchange or other securities market regulatory authority in Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland or the United Kingdom; and

(c) for which the total number of equity securities owned,* directly or indirectly, by residents of Canada does not exceed 10%, on a fully diluted basis, of the total number of equity securities of the issuer.

"Foreign reporting issuer" is a reporting issuer, other than an investment fund, that is incorporated or organized under the laws of a foreign jurisdiction, unless

(a) outstanding voting securities carrying more than 50% of the votes for the election of directors are owned,* directly or indirectly, by residents of Canada; and

(b) any one or more of the following is true:

(i) the majority of the executive officers or directors of the issuer are residents of Canada;

(ii) more than 50% of the consolidated assets of the issuer are located in Canada; or

(iii) the business of the issuer is administered principally in Canada.

"Foreign Transition Issuer" is an issuer:

(a) that is not incorporated or organized under the laws of Canada or a jurisdiction of Canada;

(b) that is not an SEC foreign issuer or a designated foreign issuer;

(c) that became a reporting issuer solely by listing securities on the TSX before March 30, 2004;

(d) of which the total number of securities of the class listed on the TSX registered in the names of residents of Canada does not exceed 5% of the total number of issued and outstanding securities of the class; and

(e) of which the total number of holders of securities of the class listed on the TSX registered in the names of residents of Canada does not exceed 300.

"SEC foreign issuer" is a foreign reporting issuer that:

(a) has a class of securities registered under section 12 of the 1934 Act or is required to file reports under section 15(d) of the 1934 Act; and

(b) is not registered or required to be registered as an investment company under the U.S. Investment Company Act of 1940.

* Reasonable efforts must be made to determine the beneficial ownership of the securities held through intermediaries.


1See the definitions of "designated foreign issuer", "foreign reporting issuer", "foreign transition issuer" and "SEC foreign issuer" in the appendix to this client memo.

2 The exemption for SEC foreign issuers is contained in NI51-102, Continuous Disclosure Obligations.

3Although there is an exemption for SEC issuers in NI51-102, there is a broader exemption for SEC foreign issuers in NI71-102.

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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