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Amendments to Ontario Securities Act


January 1, 2000

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. 

Delayed Changes

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.        

  1. 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. 
  2. 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. 
  3. 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 variation. 
  4. Any securities taken up by the offeror must be paid for within three business days, not three calendar days. 
  5. 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.
  6. 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.
  7. 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. 

  1. 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. 
  2. 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. 

Immediate Changes

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.