Effective June 2, 2025, the TSX Venture Exchange (TSXV or Exchange) implemented significant amendments to Policy 5.4 (Policy), now titled "Capital Structure, Escrow and Resale Restrictions." Often regarded as an overly complex policy for issuers looking to list on the TSXV, these changes greatly simplify the Policy and provide a clear roadmap for companies looking to list on the Exchange. This summary provides an overview of certain key amendments.
Capital structure
Replacing a former regime that required evidence of value, the TSXV has amended and expanded the methods by which an issuer can demonstrate an acceptable capital structure for new listings, including initial public offerings (IPOs), reverse takeovers (RTOs), changes of business (COBs) and qualifying transactions (QTs). The acceptable methods now include any one of:
- Contemporaneous equity financing: Issuance of majority of the securities to arm's length parties, with specific thresholds for the number of listed shares or gross proceeds (at least 10% of post-transaction shares or at least CA$5 million in gross proceeds).
- Appraisal or valuation: Independent appraisals or valuations supporting at least 50% of the Consideration (as defined in the Policy).
- Expenditures: In relation to an asset, relevant expenditures incurred within the previous five years that support at least 50% of the Consideration.
- Net tangible assets: Net tangible assets of the target company equating to at least 50% of the Consideration.
- Operating cash flow: Cash flows from operating activities of the target company (ten times the average cash flow over the past eight quarters equating to at least 50% of the Consideration).
- Securities issued by the target company: Issuance of at least 50% of the outstanding equity securities of the target at or above certain prices.
- Current listing: Issuer listed and trading on a recognized stock exchange other than TSXV for at least one year.
- Initial public offering: New listing involving an IPO with financing (which for certainty does not include a non-offering prospectus).
Escrow for principals' securities
The amendments to the Policy eliminate the surplus securities escrow regime, maintaining only the value securities escrow regime. Key changes include:
- Escrow release schedule: Principals' securities will follow a simplified release schedule consistent with National Policy 46-201 – Escrow for Initial Public Offerings with the removal of releases heavily weighted to later in the term. The term remains 18 months (with 25% released every 6 months) for Tier 1 issuers and 36 months (with 10-15% released every 6 months) for Tier 2 issuers.
- Exemptions in non-IPO transactions: Securities held by principals carrying less than 1% of voting rights will generally be exempt from escrow. However, the TSXV reserves the right to impose escrow if the aggregate of all principals who hold less than 1% of the voting rights exceeds 5% of the listed shares.
Seed share resale restrictions (SSRRs)
SSRR applies to securities issued below certain price or within certain timing thresholds. The SSRRs apply to non-principal securities and have been simplified and amended as follows:
- SSRR securities now have a one-year hold period, with 20% released every three months starting from the date the TSXV issues its bulletin confirming its final acceptance of the given transaction.
- Securities carrying less than 1% of voting rights will generally be exempt from SSRRs. However, the TSXV reserves the right to impose SSRRs if the aggregate of all non-principals who hold less than 1% of the voting rights that would otherwise be subject to SSRRs exceeds 5% of the listed shares.
The new matrix of holding periods is much simpler with a more standardized approach, while still allowing the TSXV to impose tailored restrictions in certain circumstances.
Transition provisions
Issuers with existing escrow agreements may apply to amend these agreements to reflect the new policy provisions, subject to disinterested shareholder approval. Similarly, existing SSRRs may be amended without shareholder approval to align with the new Policy.
Dentons insight
There are a plethora of factors that issuers will have to consider when contemplating a new listing. Understanding whether a capital structure will be suitable and how the issuer's security holders may be subject to trading restrictions (and for how long) following listing are not areas where an issuer wants to devote its focus. The amendments to the Policy are welcome changes as they simplify capital structure requirements for new listing and streamline escrow and resale restriction processes. These changes are expected to enhance the efficiency and transparency of transactions on the TSXV, benefiting market participants.
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