Canada's securities regulators have adopted National
Policy 12-203, Cease Trade Orders for Continuous Disclosure
Defaults. The policy harmonizes the regulators'
approach to late or deficient continuous disclosure filings and
outlines the criteria regulators will use in deciding whether
to issue a management cease trade order (MCTO) or a general
cease trade order (GCTO). An MCTO is generally preferable
because it prohibits trading only by specified individuals
– typically officers and directors – whereas a GCTO
prohibits all trading in the issuer's securities.
Scope of the Policy
The new national policy applies to the following types of
continuous disclosure filings:
annual information forms;
annual and interim financial statements, management's
discussion and analysis, and management reports of fund
certifications under MI 52-109.
Depending on the circumstances, the regulators may also
apply the policy to other continuous disclosure defaults or
institute enforcement proceedings.
Although the regulators recognize that issuers may sometimes
have difficulty complying with filing deadlines because of
circumstances beyond their control, they generally will not
extend an issuer's filing deadlines simply to allow the
issuer to avoid being in default.
Criteria for Imposing a GCTO or an MCTO
A GCTO will usually be imposed on an issuer if the
continuous disclosure default is unlikely to be rectified
quickly and the circumstances that gave rise to the default are
likely to continue. By contrast, an MCTO may be imposed if a
default is expected to be rectified relatively quickly –
which means two months in most cases. Other criteria affecting
the type of cease trade order that may be imposed include
whether the issuer generates revenue from operations, the
trading level of the issuer's securities and the
issuer's history of complying with continuous disclosure
Applying for an MCTO
An issuer should contact its principal regulator at least
two weeks before the due date for a required filing and apply
in writing for an MCTO instead of a GCTO. If meeting the
two-week deadline is not feasible despite reasonable diligence,
the issuer should briefly explain in the MCTO application the
reasons for its delay. In the application, the issuer must
explain the reasons for the continuous disclosure default
and its expected duration;
explain how it satisfies the eligibility criteria for an
MCTO instead of a GCTO;
set out a detailed remediation plan that explains how the
issuer proposes to remedy the default, with a realistic
briefly describe its blackout policies and other policies
and procedures relating to insider trading; and
provide consents from the parties subject to the MCTO,
including their acknowledgment that they will be prohibited
from trading until two full business days after the
continuous disclosure default is rectified.
Communication with the Marketplace
To be eligible for an MCTO, an issuer must issue a
"default announcement" as soon as it determines that
it will not comply with a continuous disclosure requirement;
the regulators expect this determination to normally be made at
least two weeks before the filing deadline. The default
announcement (which must disclose, among other things, details
about the default and the issuer's remediation plans) may
be contained in a material change report if the default
represents or is related to a material change.
During the period of the MCTO, the issuer must issue
biweekly news releases ("default status reports") to,
among other things, update the information previously
disclosed, the remediation actions undertaken and the status of
any investigation into events that contributed to the
This bulletin summarizes the key elements of new NP
12-203.1 We would be pleased to provide more
detailed information about the policy if necessary, including
the impact of an MCTO on trading by insiders, the mechanics of
and forms of documentation required to support an MCTO
application and special provisions applicable to insolvent
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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