Canada: CSA Final Rule Amendments Aim To Streamline Venture Issuer Disclosure

The Canadian Securities Administrators (CSA) published on April 9, 2015, in final form, amendments to the continuous disclosure and governance obligations of venture issuers (the Amendments). The objective of the Amendments is to streamline and tailor disclosure by venture issuers. In Canada, venture issuers are generally junior public companies whose shares are listed on the TSX Venture Exchange (TSX-V) or the Canadian Stock Exchange (CSE). Provided all necessary ministerial approvals are obtained, the amendments will come into force on June 30, 2015.

The Amendments will affect the continuous disclosure and governance obligations contained in National Instrument 51-102 – Continuous Disclosure Obligations and National Instrument 52-110 – Audit Committee, as well as the disclosure obligations pertaining to prospectus offerings, contained in National Instrument 41-101 – General Prospectus Requirements.

Key features of the Amendments include:

  • Option to use "quarterly highlights" instead of interim MD&A: starting in respect of financial years beginning on or after July 1, 2015, all venture issuers may meet interim management's discussion and analysis (MD&A) requirements by filing instead a shorter "quarterly highlights" report, which will consist of a short discussion of the material information of the venture issuer's operations, liquidity and capital resources, including known trends, risks, demands, major operating milestones, commitments, expected or unexpected events and material uncertainties. The amendments first proposed by the CSA in May 2014 would have made the "quarterly highlights" option available only to venture issuers without significant revenue in their most recently completed financial year.
  • Scaled-down executive compensation disclosure: starting in respect of financial years beginning on or after July 1, 2015, venture issuers may use a scaled down form of disclosure for executive and director compensation arrangements, pursuant to which, notably,
    • the number of executive officers for whom the compensation disclosure must be included will be reduced from five to three (the Chief Executive Officer, the Chief Financial Officer and the other most highly compensated individual whose compensation exceeds $150,000); and
    • the number of years for which the information on executive compensation must be disclosed will be reduced from three to two years.
  • More lenient BAR disclosure regime:
    • the threshold at which a business acquisition report (BAR) is required for venture issuers will be increased from 40% to 100%, meaning that the results of the "asset test" or the "investment test" would need to exceed 100% instead of 40% of the consolidated assets of the venture issuer, therefore reducing the number of instances where venture issuers must file BARs.
    • venture issuers will no longer be required to include pro forma financial statements in any BAR.
  • Audit committee independence requirement: starting in respect of financial years beginning on or after January 1, 2016, venture issuer audit committees will need to be composed of at least three members, a majority of whom cannot be executive officers, employees or control persons of the issuer.
  • Less financial information in IPO prospectus: a venture issuer initial public offering (IPO) prospectus will only need to include two, instead of three, years of historical audited financial statements.

The Amendments also clarify the filing deadlines for executive compensation disclosure for both venture and non-venture issuers. Non-venture issuers must file no later than 140 days after the end of the issuer's most recently completed financial year and venture issuers must file no later than 180 days after the end of the issuer's most recently completed financial year.

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