Canada: Proposed TSX Rules For SPACs

Last Updated: October 2 2008
Article by Dyana McLellan

Most Read Contributor in Canada, September 2016

Following an emerging trend in the United States, the Toronto Stock Exchange has published for comment proposed amendments to the TSX Company Manual that would allow special purpose acquisition corporations (SPACs) to be listed on the TSX.

A SPAC is a holding or "shell" company, with no current operations or business, that completes an initial public offering to raise a substantial amount of capital and then uses that capital to acquire one or more operating businesses at a later date, similar to a reverse merger or reverse take-over. This type of entity has also been known as a "blank cheque" company in the United States.

The introduction of SPACs to the Canadian marketplace would be a significant departure from the current regulatory regime. Although capital pool companies (CPCs) are permitted on the TSX Venture Exchange for small issuers with a market capitalization of less than $2 million, the TSX requires full disclosure of the proposed use of proceeds raised and the existence of a viable, ongoing business. Expanding the regulatory environment to allow for this type of structure in Canada would make it much easier for larger issuers beyond the CPC regime to have access to new sources of capital. It will be interesting to see how this investment vehicle will be received by the Canadian market, particularly in light of the recent market volatility in world markets. Subject to any amendments and further public comment periods, the TSX Proposal would also require approval by the Ontario Securities Commission.

The requirements set out in the TSX Proposal take into consideration SPAC rules recently adopted by the New York Stock Exchange and those proposed by NASDAQ (which are expected to be adopted in the near future), as well as commercial practices that have developed with the use of SPACs in the United States. Until the recent moves by the New York Stock Exchange and NASDAQ, SPACs in North America were typically listed on the American Stock Exchange. According to the TSX, as at April 30, 2008, 94 SPACs in the U.S. had completed their IPOs, raising an aggregate of US$18.6 billion, but had not yet completed the necessary qualifying acquisition. In 2007, there were 66 IPOs completed by SPACs in the U.S. that raised approximately US$12 billion – this represented 23% of the IPOs in the U.S. in 2007 and 18% of the capital raised. Most of the major U.S. investment banks have been involved in taking these transactions to market.

There are three key areas addressed by the TSX Proposal: (i) the TSX original listing requirements to be met by the SPAC, including IPO requirements, capital structure and use of the IPO proceeds; (ii) the TSX continued listing requirements that a SPAC must meet prior to completing a qualifying acquisition; and (iii) the process relating to the completion of a qualifying acquisition or failing that, the liquidation distribution of the SPAC.

Original Listing Requirements

IPO Requirements

The TSX Proposal stipulates that a SPAC must raise a minimum of $30 million on its IPO with securities offered at a price of at least $5.00 per security. In the view of the TSX, this minimum threshold is sufficient to allow the SPAC to acquire an operating business that would be able to meet the TSX original listing requirements. At the time that the SPAC is applying for listing on the TSX, it must not be involved in an active business and it may not have entered into a written or oral, binding or non-binding agreement in respect of a qualifying acquisition. Despite not having an operating business, a SPAC's securities are sold on the experience and record of its management team and the sector in which it will make its qualifying acquisition.

As a means of aligning the interests of the founding securityholders of the SPAC with public securityholders, the TSX Proposal requires the founding securityholders to hold an equity interest of at least 10% in the SPAC. Generally, the founding securityholders would acquire their securities in advance of the IPO at a price that is typically significantly less that the IPO price. A proposed maximum equity interest for the founding securityholders has not been specified in the TSX Proposal but the TSX has indicated that it would generally consider an interest greater than 20% to be excessive. In addition, the securities held by the founding securityholders cannot be transferred prior to the completion of a qualifying acquisition, are restricted from voting on the qualifying acquisition and are not permitted to receive proceeds from any liquidation distribution (described further below).

Capital Structure

As currently drafted, the TSX Proposal requires that the securities issued by the SPAC include a conversion right and a liquidation distribution feature. The conversion right would allow securityholders, other than founding securityholders, who vote against a proposed qualifying acquisition to convert their securities into a pro rata portion of the IPO proceeds held in trust if the qualifying acquisition is completed. The liquidation distribution feature returns a pro rata portion of the IPO proceeds held in trust to securityholders, other than founding securityholders in respect of their founding securities, if a qualifying acquisition is not completed within the required time frame. In addition, the TSX Proposal stipulates that the SPAC may not obtain any form of debt financing until the time of or after the qualifying acquisition.

While the conversion right offers investors some protection if a qualifying acquisition is deemed by investors to be inappropriate or is not completed at all, the right could prove to be cumbersome and even detrimental to SPACs as it may create uncertainty as to the amount of capital available to complete an acquisition. In some cases in the U.S., investors have voted against a proposed transaction and then exercised the conversion right simply to make a profit when the SPAC is liquidated.

IPO Proceeds

Following the completion of an IPO, the TSX Proposal provides that a minimum of 90% of the gross proceeds must be put into trust with a trustee unrelated to the transaction. These funds would be required to be invested in certain permitted investments by the trustee and any interest earned on the IPO proceeds would be available to be used by the SPAC to fund administrative expenses, provided that any such intended use is disclosed in the prospectus.

To align the interests of the underwriters with those of the securityholders, the TSX Proposal requires the underwriters to deposit 50% of the commission earned on the IPO into trust with the proceeds from the IPO. This portion of the commission would then be released upon the completion of a qualifying acquisition or, failing that, distributed to securityholders as part of a liquidation dissolution. If a securityholder exercises the conversion right and the qualifying transaction is completed, the securityholder is entitled to receive his or her pro rata share of the trust funds, including the deferred commissions.

Continued Listing Requirements Prior To Completion Of A Qualifying Acquisition

To prevent the dilution of securityholders in the SPAC prior to the completion of a qualifying acquisition, the TSX Proposal restricts the issuance of additional securities, such that only rights offerings can be made to existing shareholders. As with the IPO, a minimum of 90% of the funds that are raised on a rights offering must be put into trust with the IPO proceeds. A SPAC would also be restricted from having any security based compensation arrangements in place prior to the completion of a qualifying acquisition.

Completion Of A Qualifying Acquisition

SPACs would have up to three years from the date of the closing of the distribution under the IPO prospectus to complete a qualifying acquisition. The value of the qualifying acquisition must represent at least 80% of the IPO proceeds held in trust. A proposed qualifying acquisition must be approved by a majority of securityholders, other than the founding securityholders, at a duly called meeting. The issuer may also set other conditions for the completion of the qualifying acquisition, such as a maximum percentage of securityholders exercising their conversion right. Prior to the meeting, the SPAC would be required to prepare and mail an information circular containing prospectus level disclosure that has been pre-cleared by the TSX. If multiple acquisitions are required to meet the minimum thresholds stipulated by the TSX Proposal, each transaction must be approved by the securityholders and each transaction must close concurrently and prior to the three-year deadline. As proposed, securityholders who vote against a qualifying acquisition would be entitled to convert their securities for their pro rata portion of the IPO proceeds held in trust.

The TSX Proposal would also require SPACs to file and obtain a receipt from the applicable securities commissions for a final prospectus containing full, true and plain disclosure regarding the resulting issuer assuming completion of the qualifying acquisition. The receipt must be issued prior to mailing the information circular for the meeting of securityholders called to approve the proposed qualifying acquisition. Failure to obtain a receipt for the prospectus prior to completion of the qualifying acquisition will result in the delisting of the SPAC.

Liquidation And Delisting Following Failure To Complete A Qualifying Acquisition

SPACs that fail to complete a qualifying acquisition prior to the three-year deadline would have to complete a liquidation distribution within 30 days after the deadline, following which the SPAC would be delisted on or about the liquidation distribution date. The founding securityholders may not participate in the liquidation distribution with respect to their founding securities.

Continued Listing Requirements Following Completion Of A Qualifying Acquisition

The resulting issuer will be subject to the TSX continued listing requirements and any other applicable continuous disclosure requirements from securities legislation.


The comment period for the TSX Proposal ended on September 15, 2008. It remains to be seen how the proposal will be received and what changes, if any, will be made to it as a result of input from various players in the process. In any event, the introduction of SPACs to the Canadian capital markets would be of considerable assistance to the development of small to medium sized issuers beyond CPCs on the TSX Venture Exchange. Allowing SPACs in the Canadian marketplace will, among other things, give entities looking for innovative ways to raise capital greater flexibility.

About BLG

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.