Canada: Looking To Raise Capital? Doing A Rights Offering In Canada May Get Easier

On November 27, 2014, the Canadian Securities Administrators (CSA) published for comment proposed amendments to the regulation of rights offerings in Canada, including amendments to the existing prospectus exemption for the distribution of rights to existing security holders (Proposed Exemption). If adopted, the Proposed Exemption would allow reporting issuers—other than investment funds subject to National Instrument 81-102 – Investment Funds—to raise up to 100 per cent of the number of outstanding securities without the use of a prospectus and without prior regulatory review of the rights offering document by the CSA.

The CSA has acknowledged that rights offerings can be "one of the fairer ways for issuers to raise capital" but, to date, these types of offerings have not been viewed as a preferred method of financing in Canada. The Proposed Exemption is designed to expand and streamline the use of rights offerings as a means for reporting issuers to raise capital by reducing both time and cost, while providing existing security holders the opportunity to participate in the offering and avoid any potential dilution.


A rights offering is the distribution of rights to purchase securities of an issuer, most commonly common shares. Unlike conventional private placements or prospectus offerings, since the rights are initially distributed to existing security holders, a rights offering offers issuers a method of raising capital without seeking new investors. In Canada, a rights offering must be open for a minimum of 21 days and a maximum of 90 days, during which holders can exercise their rights to subscribe for their pro rata allocation of securities, as well as a share of any securities issuable under rights that are not exercised by other holders. The distribution by the issuer of securities on the exercise of the rights is also exempt from the prospectus requirements in Canada.

The subscription price is typically set at a significant discount to the prevailing market price to entice security holders to exercise their rights. The rights are generally listed on the Toronto Stock Exchange (TSX) or the TSX Venture Exchange (TSXV), which allows security holders to sell their rights over the exchange. It is also common for one or multiple stand-by purchasers to agree to purchase shares issuable under rights that are not exercised by other holders. This "backstop" would kick in if the issuer is unable to reach a certain amount of subscriptions through its existing security holders.


Currently, the prospectus exemption for rights offerings is available on a limited basis. To rely on the exemption, the rights offering must not, among other restrictions, increase the number of outstanding securities by more than 25 per cent, assuming the exercise of all rights issued under the exemption during the preceding 12 months. There is also a time-consuming regulatory review process, in which the issuer must deliver a draft rights offering circular in prescribed form to the CSA Staff, who must then not object to the offering before the final circular can be delivered to security holders to commence the exercise period. The TSX and TSXV also have restrictions with respect to timing of record date and filings, pricing of the rights, insider participation and a potential shareholder approval requirement.

In its November 27 publication, the CSA states that over the last seven years, the average length of time to complete a rights offering was 85 days and the average time between the filing of the draft rights circular and its acceptance by the securities regulators was 40 days. The current process in Canada is considered more onerous than other jurisdictions such as Australia. Since the underlying securities are often priced at a discount, a lengthy timetable may put pressure on the price of the securities, expose the issuer to market volatility and decrease investor appetite for the offering. Compounded by the statutory limitations of the current exemption, rights offerings have generally been regarded as "financing of last resort" by Canadian market participants, and many issuers have avoided them as a result.


Under the Proposed Exemption, a rights offering circular in prescribed form would still be required but would no longer be reviewed by the CSA, and issuers would not be required to deliver the circular to security holders. Instead, the reporting issuer would send to all security holders a short notice setting out certain prescribed disclosure about the rights offering and how to electronically access the circular. The circular would be in a user-friendly, question-and-answer format and focus on information about the rights offering, use of proceeds and the financial condition of the issuer, without the inclusion of information regarding the issuer's business. This is good news for resource-based issuers, as they would not be required to disclose in the circular technical information concerning material mineral projects, which would otherwise trigger the requirement to file updated technical reports under National Instrument 43-101 – Standards of Disclosure for Mineral Projects.

Most importantly, the Proposed Exemption would increase the dilution limit from 25 per cent to 100 per cent. As a result, under the Proposed Exemption, reporting issuers wanting to issue common shares could raise up to their market capitalization without a prospectus and without CSA review, with the added condition that the rights must be issued on a pro rata basis to each security holder of the underlying securities. The exercise price must be at a discount to the market price at the time of filing the notice for issuers whose shares are listed on a stock exchange, or at a discount to the fair value if the issuer's shares are not listed.

In streamlining the disclosure and review requirements, the CSA assumes most investors exercising rights are existing holders who are already familiar with the issuer's continuous disclosure. To balance the reduced investor protection resulting from the removal of regulatory review, the CSA has proposed extending statutory civil liability for secondary market disclosure to the acquisition of securities in a rights offering. Similar to a prospectus, reporting issuers would be required to certify that the circular contains no misrepresentation and investors would have a right of action in respect of a misrepresentation in the circular and any of the issuer's continuous disclosure.

Certain requirements under the current exemption would continue in effect under the Proposed Exemption. Notably, the exercise period remains a minimum of 21 days to a maximum of 90 days. Stand-by commitments would still be permitted so long as the issuer confirms and discloses the financial ability of the stand-by guarantor to fulfil the commitment. Resale of the underlying securities would still be subject to a seasoning period, but in most cases no hold restrictions would apply for reporting issuers with more than four months of reporting history. However, the CSA indicated that they may impose a restricted period for securities acquired by stand-by guarantors who are not existing security holders.

The de minimis prospectus exemption would also continue to be available where the number of securities and beneficial holders in Canada and the local jurisdiction are less than 10 per cent of all of the securities or holders. This is useful for foreign companies with a limited number of security holders in Canada who may be interested in extending a rights offering conducted in a foreign jurisdiction to their Canadian investors.


The Proposed Exemption is a step towards transforming rights offerings into a more popular and viable alternative for reporting issuers to raise capital in Canada. By streamlining the regulatory review process and permitting larger offerings to be prospectus exempt, issuers may now be more inclined to consider raising capital through rights offerings.


The deadline for submitting comments to the CSA on the Proposed Exemption is February 25, 2015. The CSA proposal includes 13 specific questions regarding the amendments, which commenters are invited to address in their responses. Issuers, investors and other market participants may wish to avail themselves of this opportunity to provide comments.

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
13 Dec 2017, Seminar, Toronto, Canada

Class actions across Canada continue to grow in volume and complexity, triggering significant policy and financial implications for businesses in Canada. With the Law Commission of Ontario’s recent announcement that it is reactivating its comprehensive review of class actions in Ontario, we may see important law reform on the horizon to evolve with the changing landscape.

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions