Canada: Being Upfront On Backdoor Listings

The Toronto Stock Exchange (the "TSX") is proposing to clarify the rules on backdoor listings involving TSX-listed issuers and on the adoption of securities based compensation plans of companies that are acquired by TSX-listed issuers.


A backdoor listing, otherwise known as a reverse takeover or reverse merger, is dealt with in Section 626 of the TSX Company Manual (the "Manual") and involves a transaction where an unlisted entity acquires effective control over a TSX-listed entity – this is often completed by the TSX-listed entity acquiring the outstanding securities of the unlisted entity in exchange for securities of the TSX-listed entity resulting in greater than 100% dilution. Pursuant to the Manual, where an entity undergoes a backdoor listing it must meet the TSX's original listing requirements in order to maintain its listing on the TSX. The TSX believes this rule protects investors and maintains the integrity of the TSX as a stock exchange.

Under the current rules, a transaction is only a backdoor listing where: i) the transaction materially affects the control of the TSX-listed issuer; and ii) the existing securityholders of the TSX-listed issuer will hold less than 50% of the voting power in the resulting entity (including taking into consideration any concurrent private placement financing).

The TSX has noted that there have been a number of recent transactions where it was not entirely clear whether or not the backdoor listing rules should apply. In some of those cases, the TSX is concerned that a transaction resulted in a new listing without the resulting entity having met the original listing requirements, thwarting the purpose of the backdoor listing rules.

The TSX is looking to amend its current rules on backdoor listings in a number of ways, including:

  1. Modify the definition of backdoor listing to be much more open and generic, along the lines of the following:

    A "backdoor listing" occurs when a transaction results in the acquisition of a listed issuer by an entity not currently listed on TSX. The transaction may be a series of transactions and may take one of a number of forms, including an issuance of securities for assets or an amalgamation or a merger;
  2. Provide a detailed list of factors that will be considered in determining whether the transaction is a backdoor listing, including: i) the business of the unlisted entity, the TSX-listed entity and the proposed business of the resulting issuer; ii) the relative sizes of the unlisted entity and the TSX-listed entity; iii) any proposed changes to management or the board of directors of the TSX-listed entity; and iv) changes in voting power, security ownership and capital structure of the TSX-listed entity;
  3. Grant the TSX complete discretion in determining whether or not a transaction should in fact be considered a backdoor listing, including the ability to exempt a transaction from being a backdoor listing notwithstanding that the transaction may otherwise on its face meet the definition, and to determine a transaction to be a backdoor listing even though it would not on its face meet the definition; and
  4. Include all concurrent financings in the calculation of the number of securities issued in connection with the relevant transaction, including private placements as well as public offerings.

Although the purpose of these proposals is to provide clarification, it appears that these changes could lead to more ambiguity on what constitutes a backdoor listing, particularly given the broad discretion of the TSX. Given the potentially severe negative result (that an issuer could be delisted for not meeting the original listing requirements following a transaction), rules with respect to the backdoor listing should be clear to avoid uncertainty. As proposed, a generic definition and guidance on what would generally be considered a backdoor listing are provided. However, we are not certain that the TSX has met its goal of improving clarity and transparency with respect to backdoor listings. Parties to proposed transactions often require certainty, speed and absolute confidentiality, all of which can be harmed if protracted discussions with TSX staff are required.


The Manual currently requires that all security based compensation arrangements, such as option plans, of a listed issuer be approved by the securityholders of the listed issuer, other than in two cases:

  1. An issuer can utilize an arrangement as an inducement for employment of an officer, provided that the number of securities issuable does not exceed 2% of the issued and outstanding securities over a 12-month period; and
  2. An issuer can assume the security based compensation arrangement of a target issuer in the context of an acquisition, and the TSX will review the number of securities issuable under that arrangement to determine whether the approval of the TSX-listed entity's securityholders will be required.

In the second situation, existing securities issued under the security based compensation arrangement will continue under that arrangement, but no new securities may be issued. The TSX had received a number of requests from issuers to permit them to create a new security based compensation arrangement for the employees of the target entity in connection with the acquisition transaction, and had granted approval for a number of these requests on a discretionary basis.

The TSX has proposed codifying the exemption such that an issuer would be able to create a new security based compensation arrangement for employees of the target issuer provided that the total number of securities issuable under that arrangement does not exceed 2% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of closing of the acquisition, and such employees are not insiders or employees of the listed issuer prior to the acquisition.

It is important to note that the number of securities issuable pursuant to this new arrangement would need to be factored in when calculating whether securityholder approval for the entire transaction is required. Currently, the TSX requires securityholder approval for a transaction where greater than 25% of the listed issuer's outstanding securities are to be issued in connection with a transaction. Accordingly, a transaction where 24% of the listed issuer's outstanding securities would be issued in connection with the transaction would not require securityholder approval on its own; but if a new arrangement was implemented with respect to the target entity's employees that was for 2% of the listed issuer's outstanding securities, the entire transaction would be subject to securityholder approval.


The TSX proposals are only in draft form, and the TSX is seeking comment from interested parties. The comment period is open until January 13, 2014. In their notice, the TSX has also posed a number of specific questions they would appreciate being addressed. A copy of the TSX notice is available here.

We would be pleased to assist you in formulating and providing your comments to the TSX on the proposed amendments.

About BLG

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Blake, Cassels & Graydon LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Blake, Cassels & Graydon LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions