The Canadian Securities Administrators have announced the
implementation of a streamlined prospectus exemption for rights
offerings. The amendments to the rights offering regime aim to make
rights offerings more attractive by reducing the time and cost
associated with raising capital from existing security holders.
Provided all necessary approvals are obtained, the amendments will
come into force on December 8, 2015.
A rights offering involves the distribution of rights to
purchase securities of an issuer made to that issuer's existing
security holders, and falls within a specific exemption from the
requirement for an issuer to file a prospectus. The previous
prospectus exemption for rights offerings included a number of
onerous conditions, including regulatory review of the rights
offering circular and a restriction on issuing more than 25% of an
issuer's securities under the exemption in any 12-month period.
Historically, issuers have seldom used rights offerings to raise
capital because of the associated time and cost. The new regime is
intended to make rights offerings more accessible to issuers while
maintaining investor protection.
Highlights of the New Regime
Highlights of the new regime include:
Reporting Issuers Only. The
new exemption will only be available to reporting issuers, other
than investment funds. Non-reporting issuers will not be entitled
to rely on the new exemption but may conduct rights offerings if
they qualify for other prospectus exemptions.
Notice Requirement. Issuers
will be required to file and send to investors a two-page notice
disclosing basic details regarding the offering, including
information on how to access the rights offering circular
Rights Offering Circular.
Issuers will be required to file on SEDAR (but not send to
investors) a new form of rights offering circular. The circular,
which is expected to be no longer than 10 pages, must be in a
question-and-answer format and contain disclosure about the
offering, proposed use of proceeds and the issuer's financial
No Advance Regulatory
Review. The rights offering circular will not be subject to
advance review and approval by securities regulators. This is
expected to significantly reduce the time associated with
completing a rights offering.
Secondary market civil liability will now apply to rights
offerings, providing investors with a right of action for a
misrepresentation in the issuer's rights offering circular or
other continuous disclosure documents.
Minimum Subscription Prices.
The subscription price for a security issuable on exercise of a
right will have to be lower than: (a) for listed issuers, the
market price, and (b) for non-listed issuers, the fair market
value, in each case at the time the notice is filed.
Dilution Limit. The existing
dilution limit will be increased from 25% to 100% within any
Exemption. Stand-by guarantors (who agree to acquire rights
that are not subscribed for by existing security holders) will be
entitled to purchase the securities on a prospectus exempt basis
and without a four-month hold period if they are acquiring the
securities as principal.
Exemption. Issuers with a minimal connection to Canada will
continue to be able to conduct a rights offering that is exempt
from the prospectus requirement so long as certain conditions are
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific 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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