On March 6, 2014, the Investment Industry Regulatory
Organization of Canada (IIROC) proposed guidance on underwriting
due diligence for public offerings in an effort to promote
consistency and enhanced standards amongst its Dealer Members in
the underwriting due diligence process. The proposed guidance is
not intended to apply to Dealer Members participating in offerings
conducted in reliance on one or more exemptions from the prospectus
and/or registration requirements (private placements).
Pursuant to the proposed guidance, IIROC has confirmed its view
that due diligence practices should reflect the gatekeeper role of
underwriters, which includes protecting investors, fostering fair
and efficient capital markets and creating and maintaining
confidence in capital markets. While IIROC acknowledges that due
diligence is, by its nature, a fluid and evolving process, and
should be customized to be relevant to the particular issuer, the
industry in which it operates and the type of security being
offered, the proposed guidance does outline certain key principles
that IIROC indicates should govern the performance of due
Each Dealer Member is expected to have written policies and
procedures in place relating to all aspects of the underwriting
process and to have effective oversight of these activities.
The Dealer Member should have a due diligence plan that
reflects the context of the offering and the level of due diligence
that will be reasonable in the circumstances.
Due diligence "Q&A" sessions should be held at
appropriate points during the offering process and are an
opportunity for all syndicate members to ask detailed questions of
the issuer's management, auditors and counsel.
The Dealer Member should perform business due diligence
sufficient to ensure that the
Dealer Member understands the business of the issuer and the
key internal and external factors affecting the issuer's
Dealer Members should clearly understand the boundary between
business due diligence and legal due diligence, to ensure that
matters that should be reviewed by the underwriters are not
delegated to underwriters' counsel.
Each syndicate member should satisfy itself that the lead
underwriter performed the kind of due diligence investigation that
the syndicate member would have performed on its own behalf as lead
A Dealer Member should document the due diligence process to
demonstrate compliance with its policies and procedures, IIROC
requirements and applicable securities laws.
IIROC has indicated that the proposed guidance is intended to
describe common practices and suggestions which may not be relevant
or appropriate in every case, and is not intended as a minimum or
maximum standard of what constitutes reasonable due diligence.
Moreover, IIROC has stipulated that the proposed guidance does not,
and is not intended to, create new legal obligations or modify
While comment is sought on all aspects of the proposed guidance,
IIROC has specifically requested responses on the following
Are there any further practices for Dealer Members conducting
underwriting due diligence that should be included in the proposed
Are there other considerations unique to specific types of
public offerings, such as "bought deals" or debt
offerings, or public offerings by issuers in specific types of
industries (e.g., mining, oil and gas, technology)?
Are there other circumstances that constitute "red
flags" indicating that heightened due diligence and/or
enhanced disclosure may be appropriate (for example, offerings by
emerging market issuers)?
When acting as a syndicate member, do Dealer Members feel there
are sufficient opportunities and adequate processes to allow them
to discharge their responsibilities?
Is the proposed guidance useful for general application to
private placements, or should there be consistent standards for all
market intermediaries, including Dealer Members and Exempt Market
Dealers, participating in private placements in order to afford
investors the same level of protection from due diligence
regardless of which type of registrant is involved?
Dealer Members and other interested parties are requested to
provide comments on any aspect of the proposed guidance. Comments
are to be submitted by June 4, 2014.
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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