Canada: Changes To SEC Disclosure And Reporting Requirements For Foreign Private Issuers


The U.S. Securities and Exchange Commission ("SEC") recently adopted several rule amendments that affect foreign private issuers ("FPIs") that file reports with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act") or conduct registered securities offerings in the United States. These amendments include, among other things:

  • an annual test for FPI status;
  • an accelerated filing deadline for Annual Reports on Form 20-F;
  • a requirement for full U.S. GAAP reconciliation of financial statements included in annual reports and registration statements; and
  • changes to the going private rules for FPIs.

Annual Test for FPI1 Status

Currently, companies filing reports as FPIs are required to assess their status as FPIs at the end of each fiscal quarter and, additionally, upon completion of certain transactions, including purchases or sales of their equity securities (with certain exceptions), any non-ordinary course purchase or sale of assets, and any purchases or sales in a public tender offer or exchange offer by a non-affiliate. Under the amended rule, companies will be required to test their eligibility as FPIs only once for the year, at the end of their second fiscal quarter.

Companies that do not qualify as FPIs at the end of their second fiscal quarter will have to comply with the same reporting requirements and use the same reporting forms as U.S. reporting companies, effective as of the first day of the following fiscal year. Accordingly, these issuers will have six months to transition to the forms and other requirements applicable to U.S. reporting issuers.2

Canadian issuers filing Exchange Act reports under the multijurisdictional disclosure system ("MJDS") must likewise test their eligibility as FPIs at the end of their second fiscal quarter. However, Canadian issuers must continue to test their eligibility to file annual reports on Form 40-F (the MJDS annual report form) as of the end of their fiscal year. Thus, for example, a Canadian issuer would determine whether it satisfied the $75.0 million public float requirement for use of Form 40-F in fiscal 2009 based on its public float as of the end of fiscal 2008.

For non-reporting issuers, the determination of FPI status will be made as of a date within 30 days prior to the issuer's filing of a registration statement under the Exchange Act or the Securities Act of 1933 (the "Securities Act").

Accelerating the Reporting Deadline for Form 20-F Annual Reports

Currently, FPIs are required to file annual reports on Form 20-F within six months of their fiscal year end. The amended rules accelerate the Form 20-F annual report filing deadline to four months after fiscal year end for all FPIs, regardless of their size. However, the four-month filing deadline will not be effective until the Form 20-F filed for an issuer's first fiscal year ending on or after December 15, 2011.

Canadian MJDS filers are not affected by this rule change.

U.S. GAAP Reconciliation for Annual Reports and Registration Statements

Under current SEC rules, financial statements included in annual reports and registration statements filed on Form 20-F, and in certain registration statements filed under the Securities Act, must be reconciled to U.S. GAAP pursuant to either Item 17 (partial reconciliation) or Item 18 (full reconciliation) of Form 20-F, unless the financial statements are prepared either in accordance with U.S. GAAP or the International Financial Reporting Standards as issued by the International Accounting Standards Board.

The rule amendments mandate reconciliation to U.S. GAAP in accordance with Item 18 of Form 20-F. However, FPIs currently preparing financial statements according to Item 17 may continue to do so in their annual reports until filing an annual report for their first fiscal year ending on or after December 15, 2011. Additionally, MJDS filers may continue to provide Item 17 reconciliations in their annual reports on Form 40-F.

In connection with the elimination of Item 17 reconciliation for Form 20-F filers, the new rules also eliminate the option, effective for fiscal years ending on or after December 15, 2009, that allowed Item 17 filers to omit segment data from their financial statements.

Exchange Act Rule 13e-3

The SEC also amended Rule 13e-3 (the "going private" rule) under the Exchange Act. Rule 13e-3 is implicated, and filing a Rule 13e-3 transaction statement on Schedule 13e-3 with the SEC is required, if an issuer (or an affiliate) engages in certain specified transactions (such as a merger, stock repurchase or tender offer for its stock) that have a reasonable likelihood or purpose of causing a "going private" effect, as defined in the Rule. Before the amendment, one "going private" effect was to cause a class of equity securities registered under the Exchange Act to be held of record by fewer than 300 persons. The amendment to Rule 13e-3 is intended to align the Rule with certain amendments adopted by the SEC in 2007 to the rules permitting FPIs to exit the U.S. reporting system. Before 2007, an FPI had to have fewer than 300 U.S. shareholders to be eligible to exit the U.S. reporting system. Under the 2007 amendments, an FPI may exit the U.S. reporting system with respect to a class of equity securities if either the securities are held of record by fewer than 300 persons worldwide or in the United States or the trading volume of the securities in the United States is below a certain level when compared to worldwide trading in the securities and certain other requirements are met.3 Accordingly, Rule 13e-3, as amended, now provides that a "going private" effect will occur if a transaction covered by the Rule causes the issuer to become eligible to exit the U.S. reporting system.

Other Disclosure Changes

The other rule changes require that FPIs disclose in their annual reports on Form 20-F (and in some instances in registration statements filed under the Securities Act) (i) the same information currently required to be disclosed by U.S. issuers regarding changes in and disagreements with their certifying accountants, (ii) the fees and other charges paid in connection with ADR facilities they maintain and (iii) the significant ways in which their corporate governance practices differ from the practices followed by U.S. companies listed on the same U.S. stock exchange. Compliance with the first two requirements is required for fiscal years ending on or after December 15, 2009, whereas the corporate governance disclosure requirements are effective for annual reports for fiscal years ending on or after December 15, 2008.


1A "foreign private issuer" is defined in Rule 3b-4(c) under the Exchange Act as a foreign (non-U.S.) issuer, other than (i) a foreign government or (ii) an issuer with more than 50% of its outstanding voting securities being held of record by U.S. residents, if any of the following is true: (A) a majority of its executive officers or directors are citizens or residents of the United States, (B) more than 50% of its assets are located in the United States; or (C) its business is principally administered in the United States.

2For example an FPI that does not qualify at the end of its second quarter in 2009 must (i) file a Form 10-K in 2010 for its 2009 fiscal year and (ii) begin complying with the U.S. proxy and insider reporting rules, and become subject to reporting on Forms 8-K and 10-Q, on the first day of its 2010 fiscal year. The issuer would continue to furnish reports on Form 6-K for the balance of its 2009 fiscal year. The issuer would likewise remain eligible to use the Securities Act issuer registration forms for foreign private issuers (e.g., Form F-3) for public offerings for the remainder of its 2009 fiscal year.

3Under the 2007 rule amendments, for an FPI to be eligible to exit the U.S. reporting system with respect to a class of equity securities, either the securities must be held of record by fewer than 300 persons worldwide or in the United States or the average daily trading volume in the United States of the subject class of the FPI's securities for a recent 12-month period can be no greater than 5% of the average worldwide daily trading volume for the securities. In either case, the FPI (i) has to have been a reporting company in the United States for at least 12 months and have filed all required reports, (ii) must not have conducted a registered securities offering (with certain very limited exceptions) in the United States in the last 12 months, and (iii) must have listed the subject class of securities on one or more foreign stock exchanges that constitute the primary trading market for the securities.

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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