Canada: Streamlining Disclosure For Venture Issuers

On May 22, 2014, the Canadian Securities Administrators (CSA) published for comment proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), National Instrument 41-101 General Prospectus Requirements (NI 41-101), National Instrument 52-110 Audit Committees (NI 52-110) and related companion policies. The proposed amendments, if adopted, would streamline and tailor disclosure for venture issuers and make the disclosure requirements for venture issuers more manageable for issuers at their stage of development.

The proposed amendments are designed to focus disclosure of venture issuers on information that reflects the expectations and needs of venture issuer investors and eliminates disclosure obligations that may be less valuable to those investors, in addition to allowing management of venture issuers to focus on the growth of their business by streamlining the disclosure requirements for venture issuers.


In July 2011 and September 2012, the CSA published for comment proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers and related rule amendments. These previous proposals were designed to streamline and tailor venture issuer disclosure while also improving requirements for corporate governance. While the previous proposals were more comprehensive than the proposed amendments, they contained many of the same key elements, including streamlined quarterly financial reporting, executive compensation disclosure and business acquisition reporting. While initial support for the previous proposals was strong, support for the September 2012 publication fell significantly as feedback from the venture issuer community indicated that the benefits from streamlining and tailoring venture issuer disclosure would be outweighed by the burden of a transition to a substantially new regime. The lack of support from the venture issuer community culminated in the CSA withdrawing the previous proposals in July 2013.

The Proposed Amendments

The proposed amendments have retained many significant elements from the previous proposals. Rather than implementing them as part of a new, stand-alone reporting regime for venture issuers, the CSA proposes to introduce them on a targeted basis by amending certain of the existing rules.

Proposed Amendments to NI 51-102

Quarterly Highlights

Currently, all issuers (venture and non-venture) are required to file quarterly interim management's discussion and analysis (MD&A) using Form 51-102F1 Management's Discussion & Analysis. The CSA proposes to permit venture issuers without significant revenue to fulfill this requirement by preparing and filing a streamlined and highly focused report, referred to as "quarterly highlights", in each of the first three quarters, which may be limited to a short discussion about the venture issuer's operations and liquidity. Venture issuers could alternatively choose to comply with the existing interim MD&A requirement.

Business Acquisition Reports

Currently, all issuers (venture and non-venture) are required to file a business acquisition report (BAR) using Form 51-102F4 Business Acquisition Report within 75 days of a significant acquisition, which must include audited financial statements for the acquired business or assets for the most recent financial year in addition to pro forma financial statements. For venture issuers, an acquisition is deemed significant if the asset or investment test specified in Part 8 of NI 51-102 is satisfied at the 40-percent level. The CSA proposes to: (i) increase this threshold from 40 percent to 100 percent, thereby reducing the circumstances in which BARs will be required for venture issuers; and (ii) eliminate the requirement that BARs filed by venture issuers include pro forma financial statements.

Executive Compensation Disclosure

Currently, all issuers (venture and non-venture) are required to file executive compensation disclosure using Form 51-102F6 Statement of Executive Compensation. The CSA proposes a new, streamlined executive compensation disclosure form for venture issuers (Proposed Form 51-102F6V) that would, among other things:

  • reduce the number of individuals for whom disclosure is required from a maximum of five to a maximum of three (the CEO, CFO, and one additional highest-paid executive officer);
  • reduce the number of years of disclosure from three to two; and
  • eliminate the requirement for venture issuers to calculate and disclose the grant date fair value of stock options and other share-based awards in the summary compensation table by allowing them instead to provide detailed information about stock options and other equity-based awards issued, held and exercised.

Alternatively, venture issuers could choose to comply with the existing Form 51-102F6.

Proposed Amendments to NI 52-110

The CSA proposes to require venture issuers to have an audit committee of at least three members, the majority of whom must be independent. This proposal should not impact TSX Venture Exchange listed issuers, as the policies of the exchange currently impose a nearly identical requirement.

Proposed Amendments to NI 41-101

Audited Financial Statements

The proposed amendments would reduce the number of years of audited financial statements required in an initial public offering (IPO) prospectus from three to two for an issuer that will become a venture issuer upon completion of its IPO.

Description of the Business and History

The proposed amendments would permit venture issuers to provide two instead of three years of disclosure of the issuer's business and history in an IPO prospectus.

Conforming to Proposed Continuous Disclosure Changes

The proposed amendments would also conform the prospectus disclosure requirements to the corresponding changes to NI 51-102 described above by:

  • allowing venture issuers to provide quarterly highlights instead of more fulsome quarterly MD&A disclosure in an IPO prospectus;
  • allowing venture issuers to satisfy executive compensation disclosure requirements in an IPO prospectus using the Proposed Form 51-102F6V; and
  • only requiring BAR disclosure in an IPO prospectus of a venture issuer where the acquisition is or will be significant at the 100-percent level.

Next Steps

The CSA's comment period closes on August 20, 2014, and Bennett Jones is able to assist venture issuers in submitting their comments on the proposed amendments.

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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Jon C. Truswell
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