A new nationally harmonized form of exempt distribution report
for issuers and underwriters who rely on certain prospectus
exemptions to distribute securities in Canada on a private
placement basis will come into force on June 30, 2016. Amendments
to National Instrument 45-106 Prospectus Exemptions (NI
45-106) (the "Amendments"), including
the Amended Report 45-106F1 Report of Exempt Distribution
(the "Amended Report") have been made to
implement the new reporting requirement.
Highlights of the Amendments
The Amendments are intended to harmonize the trade reporting
regime across Canada. The Amended Report must be filed in all
provinces and territories where a distribution has taken place. It
will replace the reporting forms currently used in Canada (Form
45-106F6 in British Columbia and Form 45-106F1 in the rest of
Canada). Issuers other than investment funds must start using the
Amended Report as of June 30. Investment funds can elect to
continue to use the existing forms until January 1, 2017, after
which they must use the Amended Report.
Relative to the existing form of exempt distribution report, the
Amended Report requires disclosure of a significant amount of
additional information about the issuer, its insiders, the
securities distributed, the purchasers, the prospectus exemptions
relied on and any compensation the issuer paid in connection with
the distribution. If the issuer is an investment fund, the Amended
Report also requires a number of new disclosures about the fund
itself. The additional information required by the Amended Report
will place additional administrative burdens on issuers and
dealers, particularly in private placements with significant
numbers of subscribers.
As is the case with the existing forms, the Amended Report must
include a summary table that sets out the number of purchasers and
the total amount raised in each province and territory of Canada
and other foreign jurisdictions. However, if an issuer located
outside of Canada completes a distribution in a Canadian
jurisdiction, the issuer must only provide information about
purchasers resident in Canada. This is a welcome change as foreign
issuers have not typically been enthusiastic about having to
disclose non-Canadian components of a larger foreign offering
simply because one or more purchasers was Canadian.
The Amended Report expressly requires an officer or director of
the dealer or issuer submitting the report to assume personal
responsibility for certifying its accuracy. Given much of the
information in the Amended Report (such as information relating to
purchasers) is often outside the issuer's knowledge, it may be
difficult to identify an officer or director of the issuer who will
be willing to provide the required certification of Canadian sales
information. Directors and officers of dealers may be equally
hesitant to assume responsibility for certifying the information in
the Amended Report, much of which will relate to matters within the
issuer's knowledge. Issuers and dealers will need to develop
protocols for determining who will certify the information in the
Amended Report, and how responsibility for its accuracy will be
allocated as between the dealer and the issuer.
Consistent with current requirements, the Amended Report must
generally be filed within 10 days of the distribution date to which
it relates. Investment funds will continue to have the option to
file the reports on an annual basis (but within 30 days of the
calendar year end rather than the funds' fiscal year end as is
currently the case).
Further information with respect to the Amended Report can be
The process of assembling the information required for the
Amended Report and identifying a responsible director or officer to
certify the information is expected to present a number of
challenges to exempt distributions in Canada until a uniform market
practice develops. In the interim, issuers and dealers should
prepare well in advance of the applicable deadlines to determine
how they will gather the required information, prepare the report
and certify its contents.
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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