Canada: Canadian Securities Regulators Aim To Right-Size Disclosure Obligations For Venture Issuers: Does "Less Mean More"?

Last Updated: April 29 2015
Article by Henry A. Harris and Faran Umar-Khitab

Venture issuers will soon be able to take advantage of modified disclosure requirements that are intended to be less onerous and help reduce the cost of compliance for junior public companies. As was announced in April 2015 by the Canadian Securities Administrators (CSA), changes will come into force on June 30, 2015, for certain continuous disclosure and corporate governance obligations of venture issuers — generally defined as public companies not listed on the senior Toronto Stock Exchange.

Given the unique nature of the Canadian capital markets where the majority of public companies in Canada fall within the definition of venture issuer, the amendments stand to have far reaching impact for both issuers and investors in Canada. The general intent of the changes is to improve the quality and relevance of the disclosure for investors by simplifying the requirements and lessening the burden of preparation for management. But does less but more focussed disclosure mean more meaningful information?

The amendments stem from a CSA proposal published in May 2014, which was introduced in response to an unsuccessful effort by the CSA in 2011-2012 to introduce more comprehensive changes which were not met with support from the venture issuer community due to a perception that any benefits of an updated disclosure system would be outweighed by the burden of transitioning to a new and significantly different regime.    

The more modest changes published in April 2015 address such areas as providing venture issuers with the option of replacing full interim MD&A with more abbreviated quarterly highlights, increasing the threshold to trigger significant acquisition (BAR) reporting, and reducing the amount of historical financial statement disclosure in IPO prospectuses, among other things. 

Highlights of the changes to the disclosure and governance requirements of which venture issuers and investors will want to take note are as follows:

Option to prepare Quarterly Highlights rather than full Interim MD&A

One of the key changes is that venture issuers will now be able to choose to satisfy the requirement for interim management's discussion and analysis (MD&A) by instead providing quarterly highlights disclosure. This will consist of a short, focussed discussion of all material information about the issuer's operations, liquidity and capital resources including:

  • financial condition, financial performance and cash flows and any significant factors causing variations to prior periods;
  • known trends, risks or demands;
  • major operating milestones;
  • commitments and events or uncertainties that have materially affected the company or may do so going forward;
  • significant changes from certain prior disclosure; and
  • significant transactions between related parties.

While the option to provide quarterly highlights is available to all venture issuers, investors in larger venture issuers with significant revenue may want full interim MD&A to assist them with making informed decisions. Venture issuers will have to take the needs of their investors into consideration when deciding whether to provide interim MD&A or quarterly highlights. The ability to choose to file quarterly highlights in lieu of full interim MD&A will be available for financial years beginning on or after July 1, 2015.

Increased Threshold for Business Acquisition Report (BAR) Disclosure

The threshold for whether an acquisition is significant will be increased from 40% to 100%. Currently for venture issuers the trigger for requiring the filing of a BAR is 40% based on asset and investment tests set out in the relevant requirements. Starting June 30, 2015, the new significance threshold to trigger a BAR for an acquisition will be 100% (based on the existing tests). The same significance threshold of 100% will also apply to both prospectuses (used to finance proposed acquisitions) and management information circulars (requiring prospectus level disclosure for shareholder approval of proposed acquisitions). This means that issuers that do acquisitions above 40% but below 100% will no longer have to go to the expense of preparing a comprehensive BAR report which also involves preparing financial statements. In addition, as of June 30, 2015, a venture issuer's BAR report will no longer need to include pro forma statements.

Executive Compensation Disclosure Narrowed in Scope

Venture issuers will have the option to use a new Form for executive compensation disclosure which is narrower in scope than the existing Form in the following ways:

  • compensation disclosure will only be required for three individuals rather than five. This will include the CEO, CFO and the next highest paid executive officer whose total compensation exceeds $150,000 annually;
  • two years of compensation disclosure is required to be disclosed (reduced from three years); and
  • the grant date fair value of stock option and other equity based awards will not be required to be disclosed in the summary compensation table but certain other enhanced information regarding share based awards will.

IPO and Subsequent Prospectus Offerings

In keeping with the CSA's goal of streamlining the disclosure obligations for venture issuers, the prospectus requirements will be amended on June 30, 2015 as follows:

  • only two years of audited financials will be required rather than the previous requirement of three years; and
  • the narrative description of the business and operating history has similarly been reduced to disclosure of the past two completed financial years.

Venture issuers will be able to access such reduced disclosure requirements for both an initial public offering (IPO) as well as any subsequent prospectus offering.

Audit Committee Composition

Starting with financial years beginning on or after Jan. 1, 2016, venture issuers will be required to have an audit committee composed of a minimum of three directors, a majority of whom cannot be executive officers, employees or control persons of the issuer or of an affiliate. The requirement is essentially codifying the existing requirement for venture issuers listed on the TSX Venture Exchange (TSXV). Given the move towards more simplified interim disclosure by way of quarterly highlights and the fact that there is no requirement to have auditor involvement in quarterly filings (unlike the U.S.), this requirement may be considered a reasonable balance in improving oversight of quarterly reporting for venture issuers, including those not listed on TSXV. 

Where do we go from here?

In many respects, the CSA amendments not only reflect the Canadian securities regulators' efforts to provide a more suitable and manageable disclosure system for smaller issuers, but may also be seen as the Canadian response to a trend in the United States, where the SEC in recent years has shown a willingness to adapt to a more lenient disclosure and governance regime for emerging growth companies under the JOBS Act.

Will less be more? Only time will tell over the next several quarters in assessing the quality of the disclosure by venture issuers.  If management of venture issuers are able to step up under these "right-sized" more flexible and simplified requirements, to produce shorter but more meaningful and focussed disclosure for investors, then these initial amendments may represent a turning point towards further regulatory changes in our unique Canadian venture market.

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 Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
7 Nov 2019, Seminar, Birmingham, UK

Providing content specifically tailored to the needs of GCs and Heads of Legal working in government organisations and their affiliates.

14 Nov 2019, Seminar, London, UK

Providing content specifically tailored to the needs of GCs and Heads of Legal working in government organisations and their affiliates.

Similar Articles
Relevancy Powered by MondaqAI
Collins Barrow National Incorporated
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Collins Barrow National Incorporated
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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