On January 14, 2016, the Canadian Securities Administrators issued Multilateral CSA Notice 45-318 Prospectus Exemptions for Certain Distributions through an Investment Dealer (the “Notice”). In the Notice, the securities regulatory authorities in British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick (the “Participating Jurisdictions”) announced the intention to adopt a prospectus exemption (the “Exemption”) that, subject to certain conditions, allows issuers listed on a Canadian exchange to raise money by distributing securities to investors who have obtained advice about the suitability of the investment from an investment dealer. The Exemption will be effective in each Participating Jurisdiction concurrently with, or as soon as possible after, the issuance of the Notice.
The purpose of the Exemption is to facilitate capital raising for listed issuers and encourage participation of retail investors in private placements, while maintaining appropriate investor protection. The Exemption allows listed issuers to issue listed securities to an investor who has obtained advice about the suitability of the investment from an investment dealer, subject to a number of conditions. As set out in the Notice, the key conditions are:
- the issuer must be a reporting issuer in at least one Canadian jurisdiction and have a class of equity securities listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc.;
- the issuer must have filed all timely and periodic disclosure documents as required under the continuous disclosure requirements in the Participating Jurisdiction’s securities legislation;
- the offering can only consist of a listed security, a unit consisting of a listed security and a warrant to acquire another listed security, or another security convertible into a listed security at the security holder’s sole discretion;
- the news release announcing the offering must:
- disclose, in reasonable detail, the distribution, including use of proceeds, and any material fact not yet generally disclosed, and
- include a statement that there is no material fact or material change about the issuer that has not been generally disclosed.
- the investor must obtain advice regarding the suitability of the investment from an investment dealer;
- in British Columbia, Saskatchewan, Manitoba and New Brunswick, the investor must be provided with a contractual right of action in the event of a misrepresentation in the issuer’s continuous disclosure record regardless of whether the investor relied on the misrepresentation. In Alberta, purchasers are afforded a statutory right of action under Part 17.01 of the Securities Act (Alberta); and
- although an offering document is not required, if an issuer voluntarily provides one, an investor will have certain rights of action in the event of a misrepresentation in it.
The first trade of securities issued under the Exemption will be subject to resale restrictions under section 2.5 of National Instrument 45-102 Resale of Securities. Furthermore, issuers will have to file a report of exempt distribution within 10 days after each distribution under the Exemption.
There is no corresponding exemption from the dealer registration requirement. In general, issuers with an active non-securities business do not have to register as a dealer because they are not in the business of trading. In this regard, guidance is provided in Companion Policy 31-103 CP Registration Requirements, Exemptions and Ongoing Registrant Obligations.
The Participating Jurisdictions have adopted the Exemption by way of:
- BC Instrument 45-536 Exemption from prospectus requirement for certain distributions through an investment dealer in British Columbia;
- General Order 45-930 Exemption from prospectus requirement for certain distributions through an investment dealer in Saskatchewan;
- Blanket Order 45-503 Exemption from prospectus requirement for certain distributions through an investment dealer in Manitoba;
- Blanket Order 45-508 Exemption from the Prospectus Requirement for Certain Distributions through an Investment Dealer in New Brunswick; and
- Alberta Securities Commission Rule 45-516 Prospectus Exemptions for Retail Investors and Existing Security Holders in Alberta (the “Alberta Rule”).
The Alberta rule also repeals ASC Rule 45-513 Exemption for Distribution to Existing Security Holders, consolidating the existing security holder exemption and the Exemption in a single rule.
For more information, please see the Notice.