Prior to the amendments coming into effect, there were no
specific requirements applicable to DRIPs in the TSX Company
Manual; instead companies and their legal counsel would reach out
to the TSX on an ad hoc basis for guidance on implementing
a DRIP. The new rules formalize the process.
Application of the New Rules
The new rules apply to all new DRIPs that allow existing
securityholders to either: (1) reinvest their cash dividends or
distributions by purchasing additional TSX-listed securities, or
(2) elect to receive additional TSX-listed securities in lieu of
cash dividends or distributions. The new rules do not apply to
DRIPs that provide for the payment of dividends or distributions
solely with securities purchased on the secondary market.
The new rules only apply to existing DRIPs that were implemented
prior to September 1, 2016 if and when such DRIPs are amended. The
mere listing of additional securities under an existing DRIP,
without an amendment to the DRIP, does not constitute an
New and existing DRIPs continue to be governed by Canadian
Key Features of the New Rules
Under the new rules:
securities cannot be issued under a
DRIP for a price lower than the market price (i.e. the volume
weighted average trading price for a period of between 5 and 20
trading days), less a 5% discount;
fractional securities that may result
from a DRIP must be addressed;
all of a company's Canadian
securityholders must be permitted to participate in the DRIP;
new DRIPs, and amendments to existing
DRIPs, must be submitted to the TSX (along with certain ancillary
documentation, including an opinion of legal counsel) for approval
by the TSX at least 5 business days prior to when the DRIP or the
amendments are intended to be effective;
a company must apply to list a
sufficient number of securities to cover securities to be issued
under the DRIP, and pay the listing fees in connection therewith;
the TSX must be notified, and a press
release must be issued, each time a company proposes to suspend,
terminate, resume or reinstate its DRIP.
Implementing a DRIP can be beneficial to both a company and its
securityholders. It can allow a company to preserve cash and
encourage long-term investment in the company's securities.
However, prior to implementing a DRIP, TSX-listed companies should
understand their obligations under the new rules, as well as under
Canadian securities law requirements.
On February 24, the Supreme Court of Canada heard the appeal in Teva Canada Inc. v. Bank of Montreal. The appeal concerns who bears the loss for cheques payable to fictitious or non-existing payees, which were fraudulently issued by an employee.
Cassels Brock developed this Lessons Learned series based on our experience with priority disputes between secured creditors and the realization that many secured parties make fundamental errors of law...
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