Canada: Will Canadian Rights Offerings No Longer Be The Financing Method Of Last Resort?

In Canada, rights offerings are considered financings of last resort. Comparatively few companies have raised funds using this method, despite that it is viewed by many as the most equitable method to existing shareholders for a company to raise funds. This may change if a new proposal to streamline the regulatory process comes into effect.

A rights offering, either by prospectus or prospectus exempt circular, involves a company issuing to its securityholders rights to acquire their proportionate number of securities being issued by the company, normally at a significant discount to the market price. Typically, securityholders are also given the ability to exercise, on a proportionate basis, those rights that have not been exercised by a certain date. Normally the rights trade on the applicable stock exchange so securityholders who do not wish to exercise their rights can sell them to third parties who are interested in exercising them. In order to be sure that this type of financing will succeed, it is very common for a stand-by guarantor to agree to exercise any rights that are not otherwise exercised. Securityholders therefore have the ability to avoid dilution and even increase their interest in the company at a significant discount to the market price, and receive free trading securities. The company, on the other hand, can ensure that the fundraising is successful through the deep discount, listing the rights and obtaining a stand-by guarantor. A rights offering can be relatively inexpensive as it does not require a broker, although they can be retained as soliciting agents.

Despite these theoretical benefits, the current regulatory requirements make the process quite time-consuming from announcement to closing, usually resulting in the market price of the shares drifting down to the exercise price of the rights. This means that few rights will be exercised by securityholders other than the stand-by guarantor (if one is in place). Further, the current regulatory requirements limit a company to only a 25% dilution for rights offerings completed by prospectus exempt circular so only a limited amount of capital can be raised without proceeding by prospectus. Knowing this, companies normally prefer to pursue a private placement.

What is more, there are recent instances in which foreign companies listed in Canada have excluded Canadian shareholders altogether from participating in a rights offering made to shareholders in other jurisdictions due to the current more onerous and time-consuming procedures required for a rights offering conducted in Canada.

Recognizing calls by market participants to overhaul the process for conducting rights offerings, the Canadian Securities Administrators (CSA) published a notice and draft amendments on Nov. 27, 2014 for public comment. If the regulatory proposals are implemented, the existing prospectus exempt rights offering model would be replaced with a new flexible, more streamlined process for conducting a rights offering for public companies (technically, reporting issuers) other than investment funds. The proposal would also update the requirements for rights offerings conducted by way of prospectus. Surprisingly, the proposals would also eliminate the prospectus exemption for rights offerings by non-public companies. 

Proposed New Rights Offering Prospectus Exemption

The process required under the current exemption is time consuming and, in practice, of limited use as it only allows for 25% dilution in respect of the class of shares to be offered in a prospectus exempt rights offering. The CSA reviewed prospectus exempt rights offerings conducted in Canada in the recent past and notes the following statistics:

  • Only 93 prospectus exempt rights offerings were conducted over the past seven years.
  • It took an average of 40 days to clear a rights offering circular from the date of filing with a CSA member.
  • The average time to complete a prospectus exempt rights offering, from the date of filing of the draft notice and circular, was 85 days.

Not surprisingly, public companies considering a rights offering often proceed by way of short-form prospectus rather than pursue an exempt rights offering.

The proposed amendments are intended to address each noted shortcoming. Most significantly, under the proposed model:

  • There would be no review of the circular by a regulator before commencing a rights offering.
  • The dilution limit on prospectus exempt rights offerings (using a circular) would be increased to 100% of the applicable class of securities to be offered (up from 25%).
  • A new short form notice of rights offering, and a new simplified form of rights offering circular in a question and answer format, would be introduced.
  • Once a notice is sent to securityholders and the notice and circular have been filed on SEDAR the company would be able to commence its rights offering. The offering must remain open for a minimum of 21 days and a maximum of 90 days. These time periods are consistent with the currently available rights offering exemption.
  • Statutory civil liability for secondary market disclosure provisions would apply to the acquisition of securities under a rights offering. As such, subscribers under the rights offering would have a right of action for misrepresentations in the public company's circular and other continuous disclosure documentation.
  • For rights offerings of listed securities, the subscription price for shares issuable upon exercise of rights must be lower than the market price for such securities as at the time the notice is filed. For rights offerings of unlisted shares, the subscription price must be lower than fair value at the time of filing of the notice provided this requirement would not apply if insiders are restricted from increasing their proportionate interest in the public company through the rights offering or a stand-by commitment.  Further, insider participation in a rights offering would not be restricted if the market price or fair value, as applicable, falls below the subscription price during the offering.
  • The proposed exemption would make it clear that the public company must make the basic subscription privilege available on a pro rata basis to all existing shareholders. This is distinct from the currently available exemption which is not clear in this regard. We note that this could raise issues that cause delays or increase costs if shareholders reside in foreign jurisdictions where a distribution of rights to them requires a prospectus or reliance on a prospectus exemption.
  • Stand-by commitments would still be permitted.  There would be certain requirements such as a confirmation by the public company that the stand-by guarantor has the financial ability to carry through with its stand-by commitment.
  • Shares issued under the proposed exemption would be subject to a seasoning period on resale such that in most cases this would not result in a hold period. This is consistent with the current rights offering exemptions.

Stand-by Guarantor Prospectus Exemption

The CSA proposals introduce a new separate prospectus exemption for securities issued to stand-by guarantors. This would not be necessary for a stand-by guarantor that is a current securityholder as the existing rights offering exemption would apply to such a trade. However, if the stand-by guarantor is not a current securityholder then the public company needs to rely upon a separate prospectus exemption. Securities issued to a stand-by guarantor that is not a securityholder before the rights offering would be subject to a restricted period on resale. 

The proposals leave it open to further discussion as to whether or not securities issued under a stand-by guarantee to a stand-by guarantor that was a securityholder before the rights offering should be subject to a restricted period on resale or not in respect of securities acquired as stand-by guarantor. We believe that if the intent of the proposals is to facilitate rights offerings, given the pivotal role that is played by stand-by guarantors in the success of the offering, they should be incentivized to act in that capacity by being treated equally with securityholders in terms of the applicable hold period to all securities issued under a rights offering to existing securityholders.

Rights Offerings by Prospectus

The CSA proposals introduce proposed housekeeping changes to provisions related to the conduct of a rights offering by way of prospectus, which for the most part are consistent with the current regime governing a rights offering by way of prospectus.

Whether by way of a prospectus or a circular, a public company making a rights offering to shareholders in Québec must provide such documents, and any disclosure documents incorporated by reference into a prospectus, in French. Where the public company is headquartered outside of Québec and has very few Québec shareholders holding in the aggregate less than 2% of the issued and outstanding shares, the public company can apply to the regulator in Québec for the de minimis exemption. Such exemption is only issued on a discretionary basis by the regulator in Québec in view of the facts of the rights offering.

Proposed Removal of Rights Offering Exemption for Non-Public Companies

The proposals go to some length to make the point that the new rights offering exemptions are intended to streamline the process and reduce the costs for public companies that plan to raise capital from existing securityholders. For public companies this should be welcome news, allowing them greater flexibility and a less onerous and less time-consuming process to complete a rights offering. Surprisingly, the proposals would eliminate the prospectus exemption for rights offerings by non-public companies.

The only rationale given by the CSA for eliminating the rights offerings exemption for non-public companies is that securityholders for such a company do not have access to the same degree of disclosure as would be the case for a public company. The same is true with regards to many other prospectus exemptions as well, such as the accredited investor exemption. Further, many shareholders of non-public companies negotiate various contractual disclosure rights in shareholder or other agreements. Eliminating the rights offering exemption for non-public companies, even if it is only used sparingly, would place additional restrictions on the ability of such companies in raising capital. If the overall goal of this proposal is to provide additional flexibility in the capital raising process why take this opportunity to add these restrictions?

The Consultation Process

The CSA are seeking feedback on the proposed exemptions generally, as well as on specific questions that have been provided. The comment period ends on Feb. 25, 2015.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.