Canada: Changes to Short Form Prospectus System: New National Instrument 44-101

Last Updated: December 1 2005

On October 21, 2005, the Canadian Securities Administrators decided to modify the qualification, disclosure and other requirements of the short form prospectus system and published new National Instrument 44-101 Short Form Prospectus Distributions, along with a new Companion Policy and a new short form prospectus form.1 Assuming all required ministerial and other approvals are obtained, the new Instrument and related documents will be effective December 30, 2005.

Currently, the basic qualifications an issuer is required to meet in order to use a short form prospectus include having a 12-month reporting history prior to the filing of the initial annual information form (.AIF.) and an aggregate market value of $75,000,000 for the issuer.s equity securities.

Under the new Instrument, the short form prospectus system will be changed to remove:

  1. the minimum market capitalization requirement;
  2. the requirement that an issuer be a reporting issuer for a minimum length of time prior to using a short form prospectus; and
  3. the requirement for regulatory review of an issuer.s initial AIF before an issuer can file a short form prospectus.

The basic qualifications for the use of a short form prospectus under the new Instrument include the requirements that the issuer:

  1. is an electronic filer;
  2. is a reporting issuer in at least one jurisdiction of Canada;
  3. is current in its filing obligations in each jurisdiction in which it is a reporting issuer;
  4. has, in at least one jurisdiction in which it is a reporting issuer, (i) current annual financial statements, and (ii) a current AIF;
  5. has equity securities that are listed and posted for trading or quoted on a .short form eligible exchange. (defined to mean each of the Toronto Stock Exchange, Tier 1 and Tier 2 of the TSX Venture Exchange, and the Canadian Trading and Quotation System Inc.); and
  6. is not an issuer (i) whose operations have ceased, or (ii) whose principal asset is cash, cash equivalents or its exchange listing (for example capital pool companies).

Similar to the current requirements, alternative qualification criteria will be in place for issuers of non-convertible securities with an approved credit rating, issuers of guaranteed non-convertible debt securities, preferred shares and cash settled derivatives, issuers of guaranteed convertible debt securities or preferred shares, and issuers of asset-backed securities.

Highlights of some of the other changes to the short form prospectus system include the following:

  • A long form prospectus will still be required
  1. for initial public offerings,
  2. if the offering is for the purpose of financing a dormant or inactive issuer, or
  3. if the offering is for the purpose of financing a material undertaking that would constitute a material departure from the business or operations of the issuer as at the date of its current annual financial statements and current AIF.
  • For bought deals, the requirement to file the preliminary short form prospectus has been extended. It now must be filed as of a date that is not more than four business days after the date of the bid letter.
  • If (a) more than 10 percent of the net proceeds will be used to reduce or retire indebtedness, and (b) the indebtedness was incurred within the two preceding years, the .Use of Proceeds. section in the short form prospectus must now contain a description of the principal purposes for which the proceeds of the indebtedness were used and, if the creditor is an insider, associate or affiliate of the issuer, must identify the creditor and the nature of its relationship to the issuer and the outstanding amount owed.
  • Issuers will now be required to file a notice declaring their intention to be qualified as a user of the short form prospectus system. The notice must be filed at least 10 business days prior to the issuer filing its first preliminary short form prospectus. Issuers that have a current AIF will be deemed to have filed this notice on December 14, 2005, ten business days before the new rules are expected to come into force.
  • Unaudited financial statements included in the prospectus will still be required to be reviewed by the issuer.s accountants but no comfort letter evidencing that review will be required to be filed with the regulators.
  • If the audited financial statements of the issuer have been reviewed in accordance with generally accepted auditing standards in the United States, the International Standards on Auditing published by the International Federation of Accoutants or certain other foreign audit standards, then the unaudited financial statements can be reviewed in accordance with the same standards.
  • When determining if an issuer is current in its filing obligations, in addition to statutory and regulatory filings, the issuer must also be current in the filings (i) it has undertaken to make, (ii) it is required to make to receive exemptive relief and (iii) it has promised to make, as part of an application for exemptive relief.
  • New guidance is included in the Companion Policy to the new Instrument respecting the financial statements of an acquired business including guidance for determining when .satisfactory alternative financial statements. can be provided in lieu of the financial statements or other information that would be required by Part 8 of National Instrument 51-102 and what the content of those .satisfactory alternative financial statements. should be.

If you have any questions or need more information concerning new National Instrument 44- 101, please contact any of the group leaders listed below or any member of the BLG Securities and Capital Markets Practice Group with whom you have consulted in the past.

Securities and Capital Markets Group Leaders:

National Leader:
Francis R. Allen Toronto 416-367-6158

Regional Leaders:
Derrick R. Armstrong Calgary 403-232-9430 Richard W. Shannon Montréal 514-954-3103 Jeremy S.T. Farr Ottawa 613-787-3511 Paul A.D. Mingay Toronto 416-367-6006 Nigel P.H. Cave Vancouver 604-640-4161


1 Copies of these documents are available at

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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