COVID-19: Capital markets and securities update

27 mars 2020 | Lawrence D. Wilder, Rory Godinho, Jonathan Tong, Abid Ahmed

( Disponible en anglais seulement )

As the COVID-19 outbreak continues to affect the global economy, Canadian reporting issuers are encouraged to stay mindful of resulting changes to the regulatory landscape. This update canvasses recent developments and provides an update to our last COVID-19 related issue of Securities Practice Notes.

A. Toronto Stock Exchange – Staff Notice 2020-002

On March 23, 2020, the Toronto Stock Exchange (TSX) issued Staff Notice 2020-002 (the “TSX Notice”). The TSX Notice provided issuers notice on further measures it is taking in response to the COVID-19 pandemic.

Financial Statements

Typically, an issuer is required to file a Form 9 (Request for Extension or Exemption for Financial Reporting/Annual Meeting) (“Form 9”) if it requires an extension of the time limit for filing or mailing its annual or interim financial statements. Pursuant to the TSX Notice, the TSX will not require an issuer to file a Form 9 during 2020 for a late filing of its annual and/or interim financial statements.

Annual Meeting

The TSX has extended the timeframe within which issuers must hold their annual meeting of securityholders (“Meeting”). An issuer is required to hold a Meeting within six months of the issuer’s fiscal year end. However, the TSX is now permitting an issuer that must hold a Meeting during 2020 to hold its Meeting on any date in 2020, up to and including December 31, 2020. Issuers are not required to submit a Form 9 in connection with this relief.

Despite the foregoing, the TSX expects issuers to comply with applicable legislation regarding the timing of their Meeting. For example, both the Canada Business Corporations Act (“CBCA”) and the Business Corporations Act (Ontario) require corporations to hold a Meeting within 15 months of their last Meeting. The CBCA also requires corporations to hold a Meeting no later than six months after the end of its preceding financial year.

As such, issuers in Canada are encouraged to review their governing statutes to ensure they are in compliance with the applicable legislation.

We suggest that issuers consider the following, as well as other industry-specific and macroeconomic considerations, when deciding whether or not to delay their 2020 Meetings:

  • What is the priority? Issuers are relieved from prioritizing the timing of Meetings, provided they remain compliant with their governing statutes and the requirements specified therein.
  • Is there a reason to delay? Unless there is a material reason to delay, an issuer that has filed its Meeting materials may provide its shareholders with a level of reassurance that management is well-suited to lead the company during such difficult times by proceeding with the Meeting (with necessary accommodations/adjustments, including by way of a virtual meeting – see below).
  • Could delay incite shareholder activism? A delay could potentially allow for opportunists and activists in the market to become more active against management. Issuers should note that the 2009 proxy season following the 2008 financial crisis was among the busiest activist years on record in Canada.

Security Based Compensation Arrangements

Normally, every three years after the institution of a security based compensation plan (“Plan”), issuers must obtain securityholder approval for any unallocated options, rights or other entitlements (“Awards”). Pursuant to the TSX Notice, issuers may continue to grant Awards under the Plan until the earlier of the 2020 Annual Meeting or December 31, 2020. Moreover, Awards granted during this timeframe may be exercised absent securityholder ratification.

Normal Course Issuer Bids

Under a normal course issuer bid (“NCIB”), issuers are permitted to acquire listed securities where the purchases do not, when aggregated with all other purchases by the issuer during the same TSX trading day amount to more than the greater of: (i) 25% of the average daily trading volume of the listed securities of that class and (ii) 1,000 securities.

From the date of the TSX Notice up to and including June 30, 2020 (the “Relevant Period”), the TSX has modified the purchase conditions such that the amount of NCIB purchases cannot, when aggregated with all other purchases by the issuer during the same TSX trading day, exceed 50% of the average daily trading volume of the listed securities of that class. This relief applies to any relevant NCIB purchase and to purchases made under NCIBs renewed or launched during the Relevant Period.

Delisting Criteria

From the date of the TSX Notice up to and including December 31, 2020, the TSX will not initiate a delisting review based solely on the following criteria (otherwise included in the determination for delisting):

  • the market value of the issuer’s securities is less than $3,000,000 over any period of 30 consecutive trading days; or
  • if the market value of the issuer’s freely-tradeable, publicly held securities is less than $2,000,000 over any period of 30 consecutive trading days.

Given the turbulent environment of the markets, the TSX has advised that it will, on a case-by-case basis, use a shorter time period than the standard five-day volume-weighted average trading price of an issuer’s listed securities to determine market price for the purposes of pricing securities (including warrants) for private placements.

B. TSX Venture Exchange Updates

In line with the temporary relief provided by the TSX, the TSX Venture Exchange (“TSX-V”) issued a staff bulletin on March 23, 2020 permitting issuers:

  • that must hold a Meeting during 2020 to hold their Meeting on any date in 2020, up to and including December 31, 2020; and
  • that must obtain annual securityholder approval of rolling stock option plans to obtain approval at its 2020 Meeting, even if the meeting is held more than one year from the date the plan was last approved.

Similar to the TSX, the TSX-V cautioned issuers to be mindful of the applicable legislation regarding the timing of their 2020 Meeting. As discussed above, corporate statutes may require issuers to hold their Meetings by a certain date notwithstanding the temporary relief being provided by the securities exchanges.

In addition, the TSX-V announced on March 25, 2020 that it is extending the deadline for issuers that must pay their 2020 annual sustaining fees (“Annual Fees”) from March 31, 2020 to May 31, 2020. Moreover, the TSX-V will permit issuers to pay their 2020 Annual Fees in installments, with the first installment of 50% of Annual Fees due on May 31, 2020 and the balance due on July 31, 2020.

C. Virtual Meetings – Proxy Advisory Update

Our last article touched on the recent popularity of virtual Meetings and further guidance from the Canadian Securities Administrators relating to this procedure (accessible at the Canadian Securities Administrators website).

On March 19, 2020, proxy advisory firm Glass Lewis acknowledged the concerns surrounding virtual Meetings and advised that for the duration of the 2020 proxy season (March 1, 2020 through June 30, 2020), they would take into account the ramifications of the COVID-19 pandemic when applying their policies on virtual Meetings.

Glass Lewis notes their reluctance to recommend voting against members of the governance committee if comprehensive disclosure is not provided, so long as the company cites COVID-19 as its reason for doing so. However, for all virtual Meetings occurring after June 30, 2020, their standard policy will apply. Glass Lewis expects proxy statements to include robust disclosure concerning shareholder participation. This is the case, even if the COVID-19 pandemic is not resolved by this date, as companies have been given sufficient time to address shareholder concerns as outlined in their standard policy.

ISS, another proxy advisory firm, expects institutional investors to be more accommodating of virtual Meetings given the pandemic. While ISS does not have a formal policy on virtual Meetings, ISS has stated that they will require companies to provide adequate disclosure that enables meaningful shareholder participation.

This publication is intended to be a summary of the applicable legal considerations and not legal advice for any specific issuer. Issuers are encouraged to contact a member of Miller Thomson’s Capital Markets and Securities Group for specific advice.

 

Miller Thomson is closely monitoring the situation around the COVID-19 pandemic to ensure that we provide our clients with the appropriate support in this rapidly changing environment. For additional information, please see our COVID-19 resources page.

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