Canada: Proposed Amendments To The Disclosure Requirements And Corporate Governance For Venture Issuers In National Instrument 51-102, National Instrument 41-101 And National Instrument 52-110

Last Updated: May 28 2014
Article by Rina Jaswal

On May 22, 2014, the Canadian Securities Administrators (the "CSA") published a notice and request for comment (the "Notice") on proposed amendments (the "Proposed Amendments") to the disclosure requirements and corporate governance for venture issuers in National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102"), National Instrument 41-101 General Prospectus Requirements ("NI 41-101") and National Instrument 52-110 Audit Committees ("NI 52-110").  The Proposed Amendments are intended to streamline and tailor disclosure by venture issuers with respect to continuous disclosure and corporate governance obligations and disclosure for prospectus offerings.  The goal of the Proposed Amendments is to enhance the quality of information available to investors and to reduce the preparation burden for venture issuers.

As set out in the Notice, if adopted, the Proposed Amendments would, for venture issuers:

Amendments to NI 51-102

  • If the venture issuer does not have significant revenue, allow the requirement for the management's discussion and analysis ("MD&A") for interim financial periods to be satisfied by a streamlined and highly focused report on quarterly highlights.  This report would primarily consist of a short discussion about the venture issuer's operations and liquidity.  Alternatively, venture issuers can still choose to comply with the existing interim MD&A requirement.
  • Implement a new form of executive compensation disclosure for venture issuers, which will be set out in Proposed Form 51-102F6V.  This proposed form would:
    • reduce the number of individuals from whom disclosure is required from a maximum of five to three (the chief executive officer, the chief financial officer and one additional highest paid executive officer);
    • reduce the number of years of disclosure from three to two; and
    • eliminate the requirement to calculate and disclose the grant date fair value stock options and other share-based awards in the summary compensation table and require disclosure of detailed information about stock options and other equity based awards issued, held and exercised.
     Alternatively, venture issuers can still choose to comply with the existing Form 51-106F6.
  • Reduce the circumstances in which a business acquisition report ("BAR") must be filed. A BAR must be filed within 75 days of a significant acquisition, which includes audited financial statements for the recent financial year and pro forma financial statements.  Currently, an acquisition is significant for a venture issuer if the asset test or investment test set out in Part 8 of NI 51-102 is met at the 40% level.  The Proposed Amendments would alter the threshold from 40% to 100% and eliminate the requirement for the inclusion of pro forma financial statements for a BAR filed by a venture issuer.

Amendments to NI 52-110

  • Require audit committees to consist of at least three members the majority of whom are independent members (not executive officers, employees or control persons of the venture issuer).

Amendments to NI 41-101

  • Reduce the number of years of audited financial statements from three to two for an initial public offering ("IPO") prospectus for an issuer that will become a venture issuer upon completion of its IPO.
  • Reduce the requirement to provide the venture issuer's business history from three to two years.
  • Conform the prospectus disclosure requirements to the corresponding continuous disclosure proposed changes described above by allowing the venture issuer to:
    • use quarterly highlights instead of existing interim MD&A in their prospectus;
    • comply with executive compensation disclosure pursuant to the Proposed Form 51-102F6V; and
    • only require the inclusion of BAR level disclosure in a venture issuer prospectus when the acquisition is significant at the 100% level.

Alternatively, venture issuers can still choose to provide prospectus disclosure by complying with the existing interim MD&A and Form 51-106F6.

Additionally, as set out in the Notice, the Proposed Amendments would, for all issuers:

Amendments to NI 51-102

  • Revise the annual information form disclosure for mining issuers to conform to the amendments made in 2011 to National Instrument 43-101 Standards of Disclosure for Mineral Projects.
  • Clarify the executive compensation disclosure filing deadlines, as follows:
    • for non-venture issuers that are required to file an information circular, file Form 51-102F6 not later than 140 days after their most recently completed financial year;
    • for venture issuers that are required to file an information circular, file Form 51-102F6 or Proposed Form 51-102F6V not later than either 140 days or 180 days after their most recently completed financial year; and
    • the requirements in Section 11.6 – Executive Compensation Disclosure for Certain Reporting Issuers of NI 51-102 will only apply to issuers that do not have a requirement to send an information circular and do not send an information circular.

Typically, executive compensation disclosure is contained in an information circular for an issuer's annual general meeting ("AGM"), the filing deadline for which is set out in corporate law or the issuer's organizing documents.  For venture issuer's whose corporate law or organizational documents allow for a later AGM than the proposed deadlines set out above, the venture issuer will be required to file its executive compensation disclosure twice, once as a stand alone to meet the proposed deadlines set out above and again with the information circular for its AGM.

The CSA is accepting comments on these proposals until August 20, 2014.

For more information, see CSA Notice and Request for Comment Proposed Amendments to National Instrument 51-102 Continuous Disclosure Obligations, National Instrument 41-101 General Prospectus Requirements and National Instrument 52-110 Audit Committees.

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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Rina Jaswal
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