Canada: CSA Announces Fundamental Changes To Venture Issuer Disclosure

On April 9, 2015, the Canadian Securities Administrators (CSA) announced significant changes to the disclosure requirements applicable to venture issuers (the Amendments). The Amendments address continuous disclosure and governance obligations, as well as disclosure for prospectus offerings.

Quarterly highlights in place of interim MD&A

Venture issuers will now have the option to provide brief quarterly highlights disclosure in place of full interim management's discussion and analysis (MD&A).

The quarterly highlights document should include an analysis of the issuer's financial condition, financial performance and cash flows, and any significant factors that have caused period-to-period variations in these figures. In addition, the highlights should include known trends, risks or demands; major operating milestones; commitments; expected or unexpected events or uncertainties that have materially affected the issuer's operations, liquidity and capital resources; significant changes from certain disclosures previously made; and any significant transactions between related parties that occurred in the interim period.

The quarterly highlights do not need to update the issuer's annual MD&A; however, any material change from previously announced plans should be disclosed. Venture issuers who wish to use the new format may do so with respect to financial years beginning on or after July 1, 2015.

Significant acquisition threshold increased to 100%

The CSA has increased the threshold for the significance tests that trigger a BAR from 40% to 100%, thereby reducing the instances where BARs will be required by venture issuers. In addition, the requirement to include pro forma financial information once a BAR has been triggered no longer applies to venture issuers. These changes will apply to all disclosure, including ongoing continuous disclosure, disclosure regarding significant acquisitions in a prospectus, as well as the "prospectus-level disclosure" that may be required in an information circular.

Executive compensation disclosure

Venture issuers will now have the option to use a new Form 51-102F6V Statement of Executive Compensation – Venture Issuers (the New Form). The New Form requirements differ from Form 51-102F6 requirements as follows:

  • The number of individuals for whom disclosure is required has been reduced from a maximum of five individuals to a maximum of three individuals. Disclosure is now required for the CEO, the CFO and one additional executive officer.
  • The New Form requires only two years, instead of three, of past executive compensation disclosure.
  • The summary compensation tables for named executive officers (NEOs) and directors have been combined, and the requirement to provide the grant date fair value of securities issued as compensation has been removed.
  • Additional disclosure regarding perquisites may be required for NEOs or directors where the value of such perquisites crosses certain total salary thresholds for the relevant year.

Additionally, the deadline for venture issuer's executive compensation disclosure has been extended from 140 days to 180 days after the applicable financial year-end. Venture issuers who wish to use the new Form 51-102F6V may do so with respect to financial years beginning on or after July 1, 2015.

Audit committees

Venture issuers are now required to have an audit committee of at least three persons, with the majority of the audit committee prohibited from being executive officers, employees or control persons of the issuer. The audit committee composition requirement is subject to certain exceptions such as for events outside the audit committee member's control, and for death, disability or resignation of a member. The audit committee composition requirements will apply in respect of financial years beginning on or after January 1, 2016.

General prospectus requirements

The Amendments reduce the number of years of audited financial statements that are required to be disclosed in a venture issuer initial public offering prospectus from three years to two years. Correspondingly, only two years of the issuer's business history would be required to be disclosed in the prospectus. The prospectus disclosure requirements have also been amended to conform to the amendments made to the general disclosure regime as described above.

Other than transition dates noted above, the Amendments are set to come into force on June 30, 2015.

The author wishes to thank Kathy Snow, securities law clerk, for her help in preparing this legal update.

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

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Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

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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