The Canadian Securities Administrators (CSA) announced yesterday
the adoption of amendments to the early warning rules. The CSA
received extensive comments from market participants and industry
groups in response to the original proposals, which had been
published in March 2013. In response to those comments, the final
rules have been scaled back in a number of important respects.
Key elements of the new rules are as follows:
10% Threshold to
Remain. The threshold for shareholders to report their
ownership of shares will remain at 10% of the outstanding shares.
The CSA had originally proposed lowering the threshold to 5%,
consistent with the Rule 13d reporting threshold applicable under
U.S. rules. However, the CSA was persuaded through the comment
process that a 5% threshold would not be appropriate for the
Reporting Changes of
Ownership. Shareholders will be required to report both
increases and decreases of 2% or more. In addition, they will be
required to report when they have fallen below the 10% threshold.
Under the prior rules, there was no clear obligation to file
reports of decreases in shareholdings.
Institutional investors that rely on the Alternative Monthly
Reporting (AMR) regime will now lose their eligibility to rely on
the AMR system if they engage in proxy solicitation in opposition
to management in connection with director elections or corporate
Derivatives. Contrary to the original proposal, shares
underlying cash-settled derivatives, such as total return swaps,
will not be included in determining whether a shareholder has
crossed the 10% threshold. However, the CSA has published guidance
reminding investors that they could be deemed to have beneficial
ownership of securities held by a derivative counterparty if
investors are able, formally or informally, to obtain those
securities from the counterparty or to direct that counterparty
with respect to the voting of those securities.
Reporting of Securities
Borrowing Arrangements. The rules have clarified the
reporting obligations with respect to borrowed securities. The
purpose of these changes is to provide greater transparency for
borrowing arrangements and the potential use of borrowed securities
to engage in ″empty voting″ – that is,
the voting of shares by a holder that has no economic interest in
the shares. The rules allow for exclusion of borrowed securities
for the purpose of determining the early warning threshold trigger
for specified securities lending arrangements, provided that the
borrowed securities are disposed of within three business days and
that the borrower does not in fact vote or intend to vote the
The rules will now require more detailed disclosure in early
warning reports by shareholders regarding their ownership of shares
and their future intentions regarding the issuer. The new
requirements are similar to the disclosure obligations applicable
to filers of Schedule 13D under Rule 13d of the U.S. Securities and
The final rules are expected to come into force on May 9, 2016.
In Ontario, the effective date will depend on the proclamation into
force of amendments to the Securities Act (Ontario).
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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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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