Amendments to Ontario Securities Act
On December 14, 1999, certain amendments to the Ontario Securities Act received Royal Assent. Some of these amendments were effective immediately and others will be effective by proclamation of the Lieutenant Governor. This proclamation will not be made until such time as conforming legislation in other provinces is introduced and approved.
Changes to Take-Over Bid Rules
The following amendments to the take-over bid rules will not come into force until proclaimed by the Lieutenant Governor.
- The minimum deposit period under a take-over bid will be extended from
21 days to 35 days and take-over bid offerors will be prohibited
from taking up securities deposited to a bid until 35 days after the
commencement of the bid. It remains to be seen whether the securities
regulator will now be more likely to dissolve a shareholders' rights plan or
"poison pill" 35 days following the launch of a hostile take-over bid.
In the recent decision released by the British Columbia, Alberta and Ontario
securities commissions in the matter of the offer by the Royal Host Real
Estate Investment Trust for all the units of the Canadian Hotel Income
Properties Real Estate Investment Trust, the commissions allowed a
shareholders' rights plan to remain in effect for only 35 days following the
making of the bid, in part, on the basis of this proposed legislative change.
Nevertheless, we expect that securities commissions will, as they did in the
Royal Host case, continue to look at a range of factors in determining
whether it is time to dissolve a pill. Clients considering an
acquisition should not assume, following the proclamation of this
legislation, that a poison pill will necessarily be dissolved 35 days
following the making of a hostile bid. It is expected that there will
be several opportunities for the commissions to consider this further before
the legislation comes into force.
- In addition to commencing a bid by the delivery of a take-over bid
circular, an offeror will be allowed to commence a take-over bid by
publishing an advertisement containing a brief summary of the bid in at
least one major daily newspaper in Ontario. To be effective, the
offeror must, on or before the date of first publication of the
advertisement, file the advertisement, file the bid documents and deliver
them to the target company, and ask for a list of its securityholders, and
the offeror must deliver the bid to those securityholders within two
business days after getting the list. In this case, the bid is deemed
conclusively to have been dated as of the date of first publication of the
advertisement. The result of this change is that an offeror will be
able to launch a bid much more quickly, thereby starting the 35 day deposit
period earlier than was previously possible. Delays that resulted
previously from targets not providing shareholder lists in a timely manner
will be avoided.
- Securities deposited pursuant to a bid will be able to be withdrawn by the
depositing shareholder at any time where the securities have not been taken
up by the offeror. Currently, securities deposited may be withdrawn at
any time before the expiration of 21 days from the date of the bid or
after 45 days. In addition, a depositing shareholder will be able to
withdraw securities even if the offeror has taken up the securities if they
have not been paid for by the offeror. Deposited securities may still
be withdrawn during the 10 day period following a notice of change or
- Any securities taken up by the offeror must be paid for within three business
days, not three calendar days.
- If the offeror waives any terms or conditions of a bid and extends the bid
in circumstances where the rights of withdrawal are applicable (i.e., the
extension is coupled with a required notice of change or variation), the bid
may be extended without the offeror first taking up the securities which are
subject to such rights of withdrawal.
- The directors of the target company will be provided with an additional
five days' notice to respond to a take-over bid by being allowed to deliver
the directors' circular within 15 days after the date of the bid.
- The OSC will be permitted to make rules varying any or all of the time periods that deal with take-over bids.
Changes to Offering Memorandum Rules
The following changes to the offering memorandum rules were stated to become effective as of December 14, 1999. Given the language of the amendments, however, we are of the view that the changes will not have effect until regulations are passed which set out the circumstances in which the statutory rights described below will apply.
- The Act now contains a definition of "offering memorandum" which seems to
catch any material given to a new investor, even public record information,
as long as the issuer is relying upon any prospectus exemption. This
would appear to catch private company distributions, as well as those of
issuers normally exempted due to their status, such as banks. We do
not believe that this is the intended result and anticipate that the
forthcoming regulations will limit the effect of this change to the types of
distributions currently caught by the offering memorandum rules.
- Once these changes are effective, if the offering memorandum contains a misrepresentation, the purchaser will have a statutory right to sue selling securityholders and issuers for damages or, alternatively, to rescind the agreement. The present regime requires the issuer to offer the right by contract which is set out in the offering memorandum and requires the aggrieved party to show it relied upon the misrepresentation. The amended Act does not require the party to show this reliance and the amendments do not seem to require that the offering memorandum disclose this statutory right. Until regulations are passed that set out the circumstances in which this new right of action will apply, we are of the view that this provision does not come into effect. We also believe that the regulations will provide that in circumstances in which the statutory right is available, the existing contractual right need not be offered.
The following became effective as of December 14, 1999.
Changes to Insider Trade Reporting Rules
Insider reports must now be filed within 10 days of a trade, not 10 days after the month in which the trade was made. This change is consistent with rules in certain of the other provinces. We recommend that issuers remind their insiders of this change and, to simplify reporting requirements, suggest filing insider reports with all required provinces in accordance with the new Ontario rules. Many issuers will have been doing this for some time already.
Changes to Reverse Take-Over Bid Rules
It is no longer possible to become a reporting issuer by filing a securities exchange take-over bid circular under the Act. Companies that have become reporting issuers through this mechanism prior to December 14, 1999 are grandfathered. Reverse take-over bid specialists beware.
Designation as a Reporting Issuer
The OSC will now be able to designate an issuer as a "reporting issuer". Interestingly, the Commission can deem an issuer to be a reporting issuer if, on the recommendation of the Director, the Commission considers that it would be in the public interest to deem a company as a reporting issuer.
Costs of OSC Investigations
The Act now gives the OSC the power to order a person who it has investigated to pay the cost of that investigation where the OSC is satisfied the person has not complied with terms or considers that person not to have acted in the public interest.