On July 28, 2021, the Canadian Securities Administrators (the CSA) announced that it is proposing to introduce a new prospectus exemption (the Proposed Listed Issuer Financing Exemption) for issuers listed on a Canadian stock exchange. Under the Proposed Listed Issuer Financing Exemption, eligible issuers would file a short offering document and the securities they issue would be freely tradeable. The offering documents would contain prescribed disclosure including any new developments in the issuer's business, the issuer's financial condition (including confirmation that the issuer will have sufficient funds to last 12 months after the offering), how proceeds from the current offering will be used, and how proceeds from any other offering in the previous 12 months were actually used. The offering document would be certified by the issuer along with the continuous disclosure for the past 12 months. Purchasers under the Proposed Listed Issuer Financing Exemption would have two options for recourse in the event of a misrepresentation: (i) rights of action under secondary market civil liability; or (ii) a contractual right of rescission against the issuer. The offering document would also be a prescribed "core document" in the issuer's continuous disclosure record and as a result, be subject to statutory secondary market civil liability in the event of a misrepresentation.
In order to be eligible, an issuer must: (i) be listed on a Canadian stock exchange; (ii) have been a reporting issuer for 12 months immediately in at least one Canadian jurisdiction; (iii) have filed all timely and periodic disclosure documents as required under the continuous disclosure requirements in Canadian securities legislation; and (iv) have active business operations. The issuer may only issue listed equity securities or securities convertible into listed equity securities.
Eligible issuers would be able to raise up to the greater of $5 million or 10% of such issuer's market capitalization, up to a maximum of $10 million, annually. Further, eligible issuers would be restricted from making distributions of securities under the Proposed Listed Issuer Financing Exemption during the 12-month period would result in more than 100% shareholder dilution or, in the case of debt, 100% of the principal amount.
The Proposed Listed Issuer Financing Exemption is in response to comments received from the CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers, which was published on April 6, 2017 for the purpose of identifying and considering areas of securities legislation applicable to reporting issuers (other than investment funds) which could benefit from reductions of undue regulatory burdens, without compromising efficiency or investor protection of the capital market. Specifically, the CSA notes feedback from market participants that the time and cost to prepare a short form prospectus can be a barrier to capital raising for smaller issuers. The Proposed Listed Issuer Financing Exemption also reflects research on capital raising requirements in other jurisdictions.
According to the CSA, the Proposed Listed Issuer Financing Exemption is expected to provide a more efficient way for eligible issuers to raise capital by reducing regulatory burden. It is expected to reduce costs for issuers raising smaller amounts of capital through the public markets and to allow smaller issuers greater access to retail investors, while providing such retail investors with a broader choice of investments.
The CSA Notice and Request for Comments Proposed Amendments to National Instrument 45-106 Prospectus Exemptions to introduce the Proposed Listed Issuer Financing Exemption is available here on CSA member websites. The full text of the CSA announcement is available here.
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.