Do you not hate shopping in stores that will not let you return items? We have all purchased an item we were excited to acquire, but then changed our mind and returned it the following day.
Return policies in retail stores vary from no returns allowed, to bring us your battered and bruised item, without receipt, anytime in the future, for a full refund or exchange, no questions asked.
The securities law related to changing one's mind to acquire securities from an issuer in a private placement offering varies widely as well. This first article, of a two part series, discusses under what circumstances purchasers can change their mind and cancel their subscription for securities offered under the offering memorandum exemption (the offering memorandum exemption) in section 2.9 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).
NI 45-106 Offering Memoranda
Issuers conducting a private placement offering under the offering memorandum exemption must prepare an offering memorandum in the required form (NI 45-106 OM).1 Issuers are required under subsection 2.9(6) of NI 45-106 to include a two (2) day contractual right to cancel the purchase of securities in the NI 45-106 OM if the securities legislation where the purchaser resides does not provide a comparable right.
Notice of two day cancellation right
Purchasers must deliver a notice to the issuer no later than midnight on the second (2nd) business day after the purchaser signs the subscription agreement to purchase the securities offered under the offering memorandum exemption to exercise this statutory/contractual (depending on the jurisdiction) right of cancellation. Purchasers may cancel their subscriptionfor securities for any reason at all during this time. This is also disclosed in the Risk Acknowledgement Form (Form 45-106F4) which must be delivered to, and signed by, investors in connection with the offering memorandum exemption.
Below is a chart illustrating which Canadian jurisdictions provide investors with a two (2) day statutory right to cancel their purchase of securities offered under the offering memorandum exemption (the statutory cancellation right) and which ones do not. The terms of each statutory cancellation right are identical to the contractual right to cancel under the offering memorandum exemption (see subsection 2.9(6) of NI 45-106).
| Province | Statutory Cancellation Right under Applicable Canadian Securities Legislation |
| British Columbia, | Section 138.1, Securities Act, RSBC 1996, c 418. |
| Alberta | Section 209.1, Securities Act, RSA 2000, c S-4. |
| Saskatchewan | Section 80.1, Securities Act, 1988, The, SS 1988-89, c S-42.2. |
| Manitoba | Section 141.3, Securities Act, The, CCSM c S50. |
| Ontario | None. Contractual cancellation right required under offering memorandum exemption. |
| Quebec | None. Contractual cancellation right required under offering memorandum exemption. |
| New Brunswick | None. Contractual cancellation right required under offering memorandum exemption. |
| Prince Edward Island | Section 113, Securities Act, RSPEI 1988, c S-3.1. |
| Nova Scotia | None. Contractual cancellation right required under offering memorandum exemption. |
| Newfoundland and Labrador | None. Contractual cancellation right required under offering memorandum exemption. |
| North West Territories | Section 113, Securities Act, SNWT 2008, c 10. |
| Nunavut | Section 113, Securities Act, SNu 2008, c 12. |
| Yukon | Section 113, Securities Act, SY 2007, c 16. |
Holding funds in trust
Issuers under the offering memorandum exemption (subsection 2.9(16) of NI 45-106) are required to hold funds received from a purchaser in trust during this period of time that a purchaser has this statutory/contractual cancellation right.
Part II of this article discusses the cancellation rights involving the use of an offering memorandum voluntarily provided to an investor in connection with any available prospectus exemption under applicable Canadian securities law, other than the offering memorandum exemption, and additional special cancellation rights provided to investors of mutual fund securities.
Footnote
1. The offering memorandum exemption is currently unavailable in Ontario, however, the Ontario Securities Commission has recently announced in December 2013 that it is considering adopting a form of offering memorandum exemption in Ontario, along with other proposed new capital raising exemptions, such as equity crowdfunding.
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.