Overview and Key Takeaways
In a noteworthy development for companies (1) considering a new listing on the TSX Venture Exchange ("TSXV"), or (2) that have obtained a new TSXV listing within the last 36 months, the TSXV has announced "significant changes" to former TSXV Policy 5.4 – Escrow, Vendor Consideration and Resale Restrictions.
Now entitled Policy 5.4 – Capital Structure, Escrow and Resale Restrictions ("New Policy 5.4") and effective June 2, 2025, the changes apply to new listings, including an initial public offering ("IPO"), reverse takeover, change of business or qualifying transaction. The changes include:
- The amendment and expansion of the ways an issuer can demonstrate an acceptable capital structure.
- The elimination of the TSXV's "surplus securities" escrow regime, such that principals' securities will be escrowed according to what was formerly known as the "value securities" escrow schedule.
- Revised seed share resale restrictions ("SSRRs"), including which shares are caught by the restrictions.
- Transition provisions allowing for escrow agreements and SSRRs under old Policy 5.4 to be amended to reflect the provisions of New Policy 5.4, subject to TSXV and disinterested shareholder approval.
- Overall, issuers and prospective issuers should consider the implications of – and the potential opportunities afforded by – New Policy 5.4, such as the potential for greater liquidity or restructuring their capitalization.
Our more detailed comments follow.[1] For more Fasken capital markets thought leadership, visit our Capital Markets and M&A Knowledge Centre and subscribe.
Demonstrating Acceptable Capital Structure
The ways an a issuer can demonstrate an acceptable capital structure have been amended and expanded. The capital structure analysis has been simplified by eliminating the "surplus securities" escrow regime in favour of maintaining only the "value securities" escrow regime.
Accordingly, the focus of New Policy 5.4 is now simply to establish those ways an issuer seeking a new listing can demonstrate an acceptable capital structure.[2]
Escrowed Securities Held by Principals
With the elimination of the "surplus securities" escrow regime, all securities held by principals of the issuer, subject to limited exemptions, will be escrowed under the "value securities" escrow regime and released consistent with the schedules of NP 46-201 – Escrow for Initial Public Offerings.
The overall length of the escrow period remains 18 months for Tier 1 Issuers (25% released on the Bulletin Date and 25% every 6 months thereafter) and 36 months for Tier 2 Issuers (10% released on the Bulletin Date and 15% released every 6 months thereafter). The "Bulletin Date" is the date of the TSXV bulletin confirming its final acceptance of the applicable transaction.
Non-IPO transactions are subject to substantially the same escrow requirements as IPOs but with certain notable exceptions. For example, while escrow is required where the issuer will have a market capitalization of at least $100 million upon completion of the non-IPO transaction, the issuer may request an exemption in its application listing.
Non-Principals and Seed Share Resale Restrictions
SSRRs are hold periods imposed on certain securities held by persons who are not principals of the issuer on completion of the applicable transaction. New Policy 5.4 simplifies the restrictions, including which securities are caught or exempted.[3] The applicable release schedule is now limited to a one year hold period with 20% of the securities being released every three months, with the first release being on the Bulletin Date.
Transitioning Existing Arrangements to New Policy 5.4
The TSXV recognizes that, had New Policy 5.4 been in effect over the last 36 months, some securities currently subject to resale restrictions may have already been released. As such, in the interest of fairness and to level the playing field for such issuers, New Policy 5.4 includes transitional provisions. In particular:
- Existing escrow agreements under the old policy that are currently in effect will remain in force. However, issuers can apply to the TSXV to amend these escrow agreements to reflect the provisions of New Policy 5.4. Such amendments must receive disinterested shareholder approval and be made in accordance with the terms of the escrow agreement.
- Issuers can apply to the TSXV to amend the terms of any existing SSRRs to reflect the provisions of New Policy 5.4. This does not require shareholder approval. Applications must be made through LINX and include the applicable transaction fee.[4]
Strategic Considerations and Further Information
Overall, issuers and prospective issuers should consider the implications of – and the potential opportunities afforded by – New Policy 5.4, such as the potential for greater liquidity or restructuring their capitalization.
New Policy 5.4 should also increase the appeal of going public in Canada given that the elimination of the "surplus securities" escrow regime will notably reduce the escrow burden on founders and early investors. Fasken's guide to IPOs and Going Public in Canada is available here.
New Policy 5.4 is available here and the TSX Corporate Finance Bulletin summarizing New Policy 5.4 is available here. The TSXV will be hosting information sessions regarding New Policy 5.4 on Wednesday, June 11 and Wednesday June 18, 2025.
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.
