Canada: Amendments To Disclosure Rules For Venture Issuers

On June 30, 2015, amendments to various disclosure requirements for venture issuers will come into force. The amendments are intended to make the disclosure requirements for venture issuers more suitable and manageable at their stage of development. The amendments relate to continuous disclosure and governance obligations, and to disclosure for prospectus offerings.

The amendments (collectively, the "Amendments") will be implemented through changes to National Instrument 51-101 Continuous Disclosure Obligations ("NI 51-102"), National Instrument 41-101 General Prospectus Requirements, National Instrument 52-110 Audit Committees ("NI 52-110"), Companion Policy 51-102CP ("51-102CP"), and Companion Policy 41-101CP.

Summary of Amendments

The key Amendments for venture issuers are as follows:

1. Option to provide quarterly highlights instead of instead of full interim MD&A

For financial years beginning on or after July 1, 2015, venture issuers will have the option to provide quarterly highlights instead of full interim MD&A. Regulators believe that quarterly highlights will likely satisfy the needs of investors in smaller venture issuers. However, issuers with significant revenue may want to consider using the full interim MD&A to assist their investors in making informed investment decisions. Issuers are encouraged to consider their investors' needs in deciding whether to provide quarterly highlights or a full interim MD&A.

Venture issuers opting to provide quarterly highlights will be required under the amended NI 51-102 to provide a short discussion of all material information about their company's operations, liquidity and capital resources. The discussion should include:

  • an analysis of the company's financial condition, financial performance and cash flows and any significant factors that have caused period to period variations in those measures;
  • known trends, risks or demands;
  • major operating milestones;
  • commitments, expected or unexpected events, or uncertainties that have materially affected your company's operations, liquidity and capital resources in the interim period or are reasonably likely to have a material effect going forward;
  • any significant changes from disclosure previously made about how the company is going to use proceeds from any financing and an explanation of variances; and
  • any significant transactions between related parties that occurred in the interim period.

51-102CP contains more detailed guidance on the requirements for quarterly highlight disclosure.

The requirement for venture issuers to provide unaudited interim financial statements and the related certifications will remain in place.

2. Executive Compensation Disclosure

The Amendments to NI 51-102 clarify that for financial years beginning on or after July 1, 2015, venture issuers will be required to file executive compensation disclosure within 180 days after their financial year-end. Non-venture issuers will be required to file executive compensation disclosure within 140 days of their financial year end. Typically, most issuers will include this disclosure in their information circular or annual information form.

The Amendments to NI 51-102 also provide for a new form for Statement of Executive Compensation disclosure which is tailored to venture issuers. The new form includes a staggered threshold for perquisite disclosure: $15,000 if the Named Executive Officer ("NEO") or director's salary is $150,000 or less, 10% of salary if the NEO or director's salary is greater than $150,000 but less than $500,000 or $50,000 if the NEO or director's salary is $500,000 or greater. The current form provides for disclosure of perquisites, including property or other personal benefits provided to an NEO that are not generally available to all employees, and that in aggregate are worth $50,000 or more, or are worth 10% or more of an NEO's total salary for the financial year. Other changes in the new venture issuer form for Statement of Executive Compensation, include: (i) summary compensation table disclosure is only required for the two most recently completed financial years, (ii) the format for tabular disclosure of equity and non-equity compensation has been amended, and (iii) requirements to provide disclosure on external management companies.

3. Business Acquisition Reports "Significance" level increased from 40% to 100%

The Amendments increase the threshold at which a Business Acquisition Report ("BAR") is required for venture issuers from 40% to 100%, therefore decreasing the instances in which BARs will be required from venture issuers. This will reduce the administrative burden and costs to venture issuers associated with completing acquisitions, as BARs generally require, among other things, substantial disclosure and audited financial statements for the business acquired.

4. Audit Committee Composition Requirements

The Amendments to NI 52-110 require venture issuers to have an audit committee consisting of at least three members, the majority of whom may not be executive officers, employees or control persons of the issuer. This is a departure from the current NI 52-110 which provides venture issuers with an exemption from the audit committee composition requirements. The Amendments, however, are consistent with the requirements for audit committee composition in the policies of the TSX Venture Exchange and in corporate law such as the Business Corporations Act (British Columbia). The Amendments provide limited exemptions from the audit committee composition requirements for events outside the control of an issuer and for death, disability or resignation of an audit committee member.

Transition Dates

The transition dates for the implementation of the Amendments are as follows:

  • The option to provide quarterly highlights disclosure will apply for financial years beginning on or after July 1, 2015.
  • The new filing deadlines for executive compensation disclosure for venture and non-venture issuers will apply for financial years beginning on or after July 1, 2015.
  • The audit committee composition requirements will apply for financial years beginning on or after January 1, 2016.

Implementation of the amendments remains subject to all necessary ministerial approvals being obtained.

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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