The OSC reviewed roughly the same number of prospectuses in
fiscal 2014 as they did in fiscal 2015. However, two new
industries accounted for an increasing share of the OSC’s
prospectus reviews: medical marijuana and gaming. OSC staff
found that reporting issuers in these industries required enhanced
disclosure as a result of certain novel considerations that ought
to be disclosed to investors including regulation and differences
in legal status across jurisdictions. The OSC also noted that
they received the first IPO prospectus filed by a special purpose
acquisition corporation in fiscal 2015 and that four SPAC IPO
prospectuses have been filed to date. We discussed SPACs in a
prior post and note that Stikeman Elliott LLP
is the only law firm to have acted as legal advisors on all four
Canadian SPACs filed to date.
The OSC staff made the following notable observations in
connection with prospectus filings and suggested that in some of
these cases pre-file discussions with staff may be appropriate:
Significant acquisitions. OSC staff noted that
when issuers are raising funds to finance an acquisition that would
be the issuer’s primary business or a material portion
thereof, they must consider whether the financial statement
disclosure required for a significant acquisition is sufficient for
the prospectus to contain full, true and plain disclosure.
OSC staff recommend that issuers consider whether more than two
years of financial statements are necessary and whether more than
one of those years ought to be audited.
Primary business. OSC staff stated that
an issuer completing an IPO must provide three years of financial
history disclosure (two years if a venture issuer) even if such
financial history spans more than one legal entity. In
addition, the financial history of businesses acquired or that will
likely be acquired may need to be provided as a “primary
business” where the businesses are in the same business as
the issuer. In this respect, OSC staff note that there is no
significance test for acquisitions that fall within the definition
of “issuer” in item 32.1 of Form 41-101F1 Information Required in
a Prospectus. Further, if the acquired
business is over 100% when compared to the primary business of the
issuer, regulators may expect disclosure of the financial history
of the business even though it is not the same as that of the
Promoters. Where a promoter exists at
the time of an IPO, OSC staff state that issuers should consider
whether the promoter’s relationship with the issuer has
changed at the time of a subsequent offering. OSC staff state
that the reference to two years in s. 58(6) of the Ontario Securities Act does
not mean that promoter status automatically terminates after two
years. The promoter analysis must be conducted on a case by
Use of proceeds and financial condition of
issuer. OSC staff note that an important part of
prospectus reviews is considering an issuer’s financial
condition and intended use of proceeds. A prospectus must
disclose how the issuer intends to use the proceeds of the
financing and the issuer’s financial condition, including
Insider reporting. The Annual Report contains
detailed guidance for correctly completing insider reports.
Notably, an issuer’s profile supplement must show all
securities and related financial instruments held by reporting
insiders. Note that under the Ontario Securities
Act, a related financial instrument is “an agreement,
arrangement or understanding to which an insider of a reporting
issuer is a party, the effect of which is to alter, directly or
indirectly, the insider’s: (a) economic interest in a
security of the reporting issuer, or (b) economic exposure to the
reporting issuer”. In addition, OSC staff stated that
deferred share units, restricted share awards and other similar
securities must be created on SEDI under the category of
“issuer derivative” and not “equity”.
For further information, please consult OSC Staff Notice
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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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