New rules relating to reports filed with Canadian securities
regulators in connection with private placements came into force on
June 30, 2016 (see our
April 2016 MarketCaps). Now that market participants have had
some experience operating under those new rules, and in light of
concerns which have been raised, Canadian securities regulators
have published revised guidance on the preparation and filing
of reports of exempt distribution.
Gowling WLG Focus
Reports for most private placements are now filed under an
amended Form 45-106F1 in all jurisdictions. Although the new report
form eliminated the fragmented reporting requirements that
previously existed, foreign dealers conducting offerings into
Canada, as well as Canadian institutional investors, have raised
concerns about the more extensive information required and the risk
of personal liability for those signing the form. To address some
of these concerns, Canadian securities regulators have provided
relief from the requirement to disclose whether a purchaser is a
registrant or an insider of the issuer in certain circumstances in
order to facilitate access by institutional investors to foreign
investment opportunities. In an effort to further alleviate
concerns, Canadian securities regulators have published the revised
Summary of Revised Guidance
The revised guidance aims to clarify the following points:
report form must generally be signed by a director or officer of
the issuer or underwriter, certifying the contents of the report on
behalf of the issuer or underwriter. Although this potentially
exposes the director or officer to liability for any
misrepresentation made in the report, the guidance points out that
the director or officer may be able to rely on a reasonable
diligence defence under securities legislation.
Verification: An underwriter filing the report is expected
to take reasonable steps to obtain and confirm the information
regarding the issuer required by Form 45-106F1. The guidance sets
out examples of those reasonable steps, which may include reviewing
the issuer's public continuous disclosure record (where
available), reviewing the issuer's offering document, reviewing
information provided by legal counsel, and making inquiries of the
issuer. In addition, an underwriter may need to use online search
tools (set out in the guidance) to determine the North American
Industry Classification Standard (NAICS) code that most closely
corresponds to the issuer's primary business activity.
Verification: A seller must generally take reasonable
steps to confirm that a purchaser meets the criteria for a
particular prospectus exemption. For certain purchasers, such as
Canadian financial institutions, Schedule III banks and pension
funds, the guidance states that the seller may not need to
reconfirm the purchaser's status for each distribution to that
Exemption: In some cases, a purchaser (for example, a
trust company, trust corporation, registered adviser or registered
dealer) may be an accredited investor, but it may not be clear to
the filer whether the purchaser is purchasing securities for its
own account or is purchasing securities on behalf of a fully
managed account, and therefore which paragraph of the
"accredited investor" definition applies. Rather than
having to select one paragraph, the filer can now indicate that
both are potentially applicable (for example, paragraphs "(d)
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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