Recent administrative proceedings on the part of the Securities
and Exchange Commission (SEC) serve as a cautionary note for
Schedule 13D filers with respect to
the breadth of their duty to amend their filings when there are
material changes or developments in the information previously
reported. Overall, these cases suggest that caution is warranted
for filers of Schedule 13D when planning a going private
transaction that involves registered securities. Indeed, these
recent enforcement proceedings indicate that the preliminary
preparation of a transaction with respect to company's
registered securities may trigger a requirement to amend Schedule
13D to disclose publicly the plans or intentions.
In Canada, the early warning system differs from the Section
13(d) regime. Still, it requires that filers of early warning
reports disclose the purpose of the offeror and any joint actors in
effecting the transaction as well as any future intention to
acquire ownership of, or control over, additional securities of the
reporting issuer. Further, filers must amend their early warning
reports where there is a change in a material fact in a report
filed previously. Despite the differences between the Canadian and
U.S. regimes, the recent SEC cases underscore the importance of
ensuring the timely disclosure of changes in material facts
published in Canadian early warning reports.
On March 13, 2015, the SEC announced that it had settled charges
against eight officers, directors or major shareholders for failing
to update their stock ownership disclosures to reflect material
changes, including steps to take the companies private. At issue in
these administrative proceedings is the application of the
reporting requirements enacted under Section 13(d) of the
Securities and Exchange Act of 1934 in the context of going private
In a nutshell, Section 13(d) mandates the filing of a Schedule
13D by any person or group who acquires beneficial ownership of
more than 5% of any class of registered securities in a public
company. Schedule 13D requires disclosure namely of: (1) the
identity of the acquirer; (2) a description of the purpose(s) of
the acquisition of the securities of the issuer. Specifically, item
4 of Schedule 13D requires that the filer describes any plans or
proposals which relate to or would result namely in an
extraordinary corporate transaction such as a merger, a
reorganization, a liquidation or a going private transaction; (3)
the interest of each beneficial owner, including those acting
together as a group. A filer must promptly update its Schedule 13D
filing where there is a material change in the information
disclosed, including the acquisition or disposition of 1% or more
of the class of securities that are the subject of the filing.
In the settlements announced, the SEC emphasized that
qualitative disclosures providing narrative response to line item
requirements of Rule 13d-101, such as item 4, are subject to
material change. Thus, "generic disclosure that indicates the
beneficial owner is reserving the right to engage in any of the
kinds of transactions enumerated [above] must be amended when a
plan with respect to a disclosable matter has been
formulated". Most notably, the SEC added that "depending
on the facts and circumstances, however, an amendment also may be
required before a plan has been formulated" if there is a
material change in the fact disclosed in the prior filing.
In these cases, the SEC found that respondents breached Section
13(d) by failing to update their ownership disclosures to reflect
material changes, including steps to take the companies private.
Specifically, according to the SEC, the respondents took steps to
advance undisclosed plans to effect going private transactions. For
instance, some respondents determined the form of the going private
transaction, obtained waivers from preferred shareholders, and
assisted with shareholder vote projections. Others had informed
company management of their intention to privatize the company and
formed a consortium of shareholders to participate in the going
private transaction. In these circumstances, the SEC was of view
that respondents had taken a series of significant steps that, when
viewed together, resulted in a material change from the disclosures
made previously in their Schedule 13D filings.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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