Canada: Second Time’s The Charm?

Last Updated: July 22 2014
Article by Jonathan B. Poirier and Stephen P. Robertson

Most Read Contributor in Canada, September 2016

CSA Proposes Amendments To Disclosure And Governance Obligations For Venture Issuers

Having abandoned establishing a separate venture issuer disclosure and governance regime, the Canadian Securities Administrators (the CSA) have published for comment proposed amendments to current disclosure and governance obligations intended to streamline and tailor disclosure requirements and to enhance the substantive governance requirements for venture issuers. The proposed amendments for venture issuers include:

  • for venture issuers without significant revenue, allowing the requirement for management's discussion and analysis (MD&A) for interim financial periods to be satisfied by a streamlined and focused report on quarterly highlights;
  • implementing a new tailored form of executive compensation disclosure;
  • reduce the instances in which a business acquisition report (BAR) must be filed (changes to significance thresholds);
  • requiring audit committees to have a majority of independent members; and
  • amending the prospectus disclosure requirements to reduce the number of years of audited financial statements required for venture issuers becoming reporting issuers and to conform the disclosure requirements to the proposed amendments related to continuous disclosure.

The CSA indicates that the proposed amendments are designed to focus disclosure of venture issuers on information that reflects the needs and expectations of venture issuer investors, while eliminating disclosure obligations that may be less valuable.

In addition, the CSA is proposing the following amendments applicable to all issuers:

  • updating the annual information form disclosure for mining issuers to conform such disclosure to 2011 amendments made to National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101); and
  • establishing executive compensation disclosure filing deadlines.

The current proposed amendments follow from the CSA's earlier proposal in 2011/12 to implement a new regulatory regime for venture issuers, which would have included separate continuous disclosure and corporate governance obligations for venture issuers. While the CSA determined in 2013 not to pursue the implementation of a new venture issuer regime, the current proposed amendments retain some elements of the earlier proposal to be implemented by amending existing rules.


Quarterly Highlights

The CSA propose to permit venture issuers without significant revenue to prepare and file a streamlined quarterly disclosure document, referred to as "quarterly highlights", in the place of quarterly interim MD&A, for the first three quarters of an issuer's fiscal year.

Quarterly highlights would consist of a short discussion regarding the issuer's operations and liquidity including known trends, demands, major operating statistics and changes thereto, commitments, events, expected or unexpected, or uncertainties that have materially affected operations and liquidity in the quarter or are reasonably likely to have a material effect going forward.

When assessing whether an issuer has significant revenue in a financial year, a venture issuer is to consider only the actual total revenue reported in its annual financial statements.

Business Acquisition Reports

Currently all issuers are required to file a BAR within 75 days of a significant acquisition, including audited financial statements of the acquired business for the most recent financial year and pro forma financial statements of the issuer.

The proposed amendments increase the significance threshold for venture issuers by raising each of the asset test and investment test thresholds from 40% of the consolidated assets of the venture issuer (calculated using the most recent interim or annual financial statements of the venture issuer) to 100%, thereby reducing the instances where BARs are required.

The CSA is also proposing to eliminate the requirement that BARs filed by venture issuers must include pro forma financial statements.

Executive Compensation Disclosure

The proposed amendments would allow venture issuers to comply with either the existing executive compensation disclosure requirements under Form 51-102F6 – Statement of Executive Compensation, or a new proposed executive compensation form specific to venture issuers (proposed Form 51- 102F6V) that would have the effect of streamlining disclosure to a certain extent as follows:

  • a venture issuer specific definition of 'Named Executive Officer' that would include the Chief Executive Officer and Chief Financial Officer during any part of the most recently completed financial year, and only one other executive officer whose total compensation was more than $150,000 (reduced from three other executive officers under the current requirements) at the end of the most recently completed financial year;
  • two years of disclosure (reduced from three years); and
  • eliminating disclosure of the fair market value of stock (options) and other share-based awards, and replacing it with detailed disclosure about the issuance and exercise of such securities.

Audit Committee Composition

Previously, venture issuers were exempt from composition requirements for their audit committees. The proposed amendments would require venture issuers to have an audit committee consisting of a minimum of three members, the majority of whom are independent (i.e. having members other than executive officers, employees or control persons of the venture issuer or of an affiliate of the venture issuer). This would be generally consistent with existing requirements under the TSX Venture Exchange.

Prospectus Disclosure

The proposed continuous disclosure amendments would be conformed within the prospectus requirements for venture issuers as follows:

  • permitting the use of quarterly highlights instead of existing interim MD&A;
  • permitting compliance with executive compensation disclosure requirements using the Proposed Form 51-102F6V in a prospectus; and " BAR-level disclosure required in a prospectus only where the acquisition is significant at the 100% level.

For issuers conducting an initial public offering (IPO) who will be a venture issuer upon completion of the IPO, two years (instead of three years) of audited financial statements will be required in the IPO prospectus.

The proposed amendments would also reduce the requirement to describe a venture issuer's business and its history from three to two years.


Executive Compensation Disclosure Deadline

The proposed amendments also establish a fixed deadline for filing executive compensation disclosure, set at 140 days after their most recently completed year end for non-venture issuers and either 140 or 180 days after their most recently completed year end for venture issuers. The CSA is requesting comments specifically on the appropriate venture issuer deadline.

Importantly, for those issuers whose applicable corporate law and constating documents permit their annual meeting of shareholders to be held later than such deadline, this could result in an issuer having to file its executive compensation disclosure twice: once in stand-alone form to meet the foregoing deadline and again within its management information circular filed in connection with its annual meeting of shareholders.

Mining Issuer Disclosure

The proposals include revisions to annual information form disclosure to conform to changes made to NI 43-101 in 2011.


The proposed amendments described above are only in draft form, and are subject to comment from interested parties. The comment period is open until August 20, 2014. In addition, there are specific questions the CSA has set out in the notice, which is available here.

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

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