June 28, 2010
Listed below are recent initiatives and decisions of Canadian regulatory and governmental authorities (and one from the U.S. Securities and Exchange Commission) and Canadian courts that we believe will be of interest to mining companies and their public markets advisors. Please contact us if you would like additional information about any of these items.
Decisions of Courts and Securities Regulatory Panels
- The British Columbia Securities Commission (BCSC) agreed to issue an order cease trading a shareholder rights plan implemented by Lions Gate Entertainment Corp. (Lions Gate). The order was sought by various entities related to U.S. investor Carl Icahn, who had previously launched a hostile take-over bid for Lions Gate, and had revised the terms of their bid to not only increase the premium to market price offered but also to make the offer for all outstanding Lions Gate shares and to further provide that the bid would be extended (to allow Lions Gate shareholders who did not tender to the bid further time to tender) if either the minimum tender condition was met or if the bidders determined to waive the minimum tender condition. Although full reasons for the BCSC’s decision have yet to be released, the panel indicated in their preliminary reasons (issued on an expedited basis to assist the British Columbia Court of Appeal in considering Lions Gate’s appeal of the BCSC decision) that they would be elaborating on their "reservations" about the decisions of the Alberta Securities Commission in Pulse Data Inc. and the Ontario Securities Commission (OSC) in Neo Materials Technologies. These decisions were seen by some as potentially opening the door to a "just say no" defence in the Canadian take-over bid landscape. The British Columbia Court of Appeal rejected Lions Gate’s appeal of the BCSC decision.
- The Ontario Superior Court granted leave to the plaintiffs to proceed with, and certified, the class action proceeding in Silver v. IMAX Corporation. The decision is the first to consider the leave requirements for a statutory misrepresentation claim under the secondary market liability provisions of the Securities Act (Ontario), and appears to accept the "efficient market" (or "fraud on the market") theory for common law misrepresentation claims.
- The Supreme Court of Canada released its decision in Mining Watch Canada v. Canada (Fisheries and Oceans). The court unanimously held that the level of scrutiny to be imposed by a federal environmental assessment is determined by the project as proposed by a proponent, rather than by a discretionary scoping decision of the federal authority charged with carrying out the assessment. The case involved the federal environmental assessment process concerning the Red Chris Mine (a proposed open-pit mining and milling operation for the production of gold and copper) in British Columbia.
This is the first Supreme Court of Canada decision to interpret the procedural operation of the Canadian Environmental Assessment Act (CEAA) in relation to environmental assessments, and the proper sequence of decisions to be made when determining the level of scrutiny to be imposed on a project. The court has clarified that federal authorities do not have discretion to reduce the scope of an assessment below the scope triggered under the CEAA, although a federal authority does have discretion to increase the scope of study.
Canadian Securities Administrators
- The Canadian Securities Administrators (CSA) published for comment a proposed restatement of National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101), and have asked for comments by July 23, 2010. The proposed restatement includes several improvements that reduce or eliminate certain logistical issues that currently arise in the context of corporate finance and M&A transactions, as well as additional flexibility to use foreign mining codes and foreign experts. Please see the article discussing the proposed changes to NI 43-101 in this issue of Mining Prospects.
- A new national insider reporting regime has come into force. Insider reporting requirements and exemptions have now been harmonized under National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104) and equivalent requirements under the Securities Act (Ontario). NI 55-104 reduces the range of insiders required to file insider reports by introducing the concept of "reporting insiders" (the CSA’s stated intention is to focus the insider reporting requirements on the core group of insiders with the greatest access to material undisclosed information and the greatest influence over the reporting issuer). The deadlines for filing insider reports have also been tightened: with initial insider reports (i.e., upon becoming an insider) being required within 10 days and with subsequent reports of insider purchases or sales being required within five days of the trade (although the tightened timeline only goes into effect on October 31, 2010). The requirements have also been expanded in respect of derivatives.
The CSA have also published CSA Staff Notice 55-315 Frequently Asked Questions about National Instrument 55-104 Insider Reporting Requirements and Exemptions, CSA Staff Notice 55-316 Questions and Answers on Insider Reporting and the System for Electronic Disclosure by Insiders (SEDI) and CSA Staff Notice 55-312 Insider Reporting Guidelines for Certain Derivative Transactions (Equity Monetization) (Revised).
- The CSA published a staff notice setting out their views regarding the ability of an offeror to vary a formal take-over bid in a manner that is less favourable to the securityholders of the target issuer. Examples of such variations referred to in the notice include (i) lowering, or changing the form of, the consideration offered; (ii) lowering the percentage of the outstanding securities that the offeror is prepared to acquire; or (iii) adding new conditions. In this notice, CSA staff state that the formal take-over bid regime does not contemplate the right of an offeror to unilaterally "withdraw" a bid or, if all terms and conditions have been satisfied or waived, to reduce the offered consideration or introduce new conditions. As such, CSA staff suggest that language contained in offer documents and bid circulars that provide the offeror with the right to vary its bid in its sole discretion "may be inconsistent" with bid requirements.
- The OSC published OSC Staff Notice 52-718 IFRS Transition Disclosure Review, which summarizes the results of a review conducted by the OSC of the "extent and quality of International Financial Reporting Standards (IFRS) transition disclosure." The OSC found that reporting issuers are not adequately discussing the key elements of their IFRS changeover plan or their progress towards achieving the plan in their MD&A.
Somewhat related, the U.S. Securities and Exchange Commission (SEC) issued a statement that it expected to make decisions as to IFRS implementation in 2011. The SEC suggested that if it does decide in 2011 to incorporate IFRS, the earliest U.S. companies would be required to report under IFRS would be 2015 or 2016.
- The securities regulators in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick and Nova Scotia have published a consultation paper designed to assess market interest in developing a more tailored approach to regulating venture issuers. Venture issuers are reporting issuers whose securities are not listed on the Toronto Stock Exchange (TSX) (i.e., TSX Venture Exchange and Canadian National Stock Exchange listed issuers , as well as other reporting issuers whose shares are only traded over-the-counter or on junior exchanges abroad).
Multilateral Consultation Paper 51-403 Tailoring Venture Issuer Regulation seeks input on whether there is an opportunity to build on the current venture market regulatory regime and further enhance investor protection while reducing regulatory costs for venture issuers.
Significant proposals include (i) requiring an annual report combining certain disclosure elements found in an annual information form, MD&A, annual financial statements and annual meeting circular into one document which emphasizes forward looking rather than retrospective disclosure; (ii) eliminating the requirement for three and nine month interim financial statements and MD&A but requiring a "mid-year" report containing further disclosure than currently required for six month interim financial reporting; (iii) enhanced certifications to accompany annual and mid-year filings; (iv) enhanced corporate governance standards (including specifically enshrining fiduciary duties so that the duties can be enforced by securities regulators, requiring implementation of policies to address conflicts of interest and related entity transactions, and requiring implementation of policies designed to deter tipping and illegal insider trading); (v) replacing business acquisition reports with enhanced material change report requirements; and (vi) simplified disclosure in connection with offerings (including reducing the disclosure obligations for IPO prospectuses for venture issuers to be consistent with the proposed required disclosure for annual reports).
Canadian Stock Exchanges
- The TSX published a staff notice providing guidance on (among other things) acceptable standards for anti-dilution provisions for convertible securities (such as warrants, options, convertible debentures and convertible preferred shares). Convertible securities can contain provisions under which the exercise/conversion price will be lowered (or, alternatively, the number of underlying securities issuable upon exercise or conversion will be increased) if the issuer completes a subsequent issuance at a lower subscription price.
The notice states that the TSX will not generally accept downward adjustments to an exercise or conversion price (or an increase in the underlying securities issuable that effectively results in a downward adjustment to an exercise or conversion price) unless (i) in the case of warrants or options, the exercise price is not lower than the market price at the time the convertible security was issued (Issue Time Market Price); and (ii) in the case of convertible instruments, the adjusted conversion price is not lower than the Issue Time Market Price less the TSX’s maximum permitted discount.
Federal Government Initiatives
- The Canadian Department of Finance has released a proposed draft Canadian Securities Act. This proposed legislation was drafted by the Canadian Securities Transition Office, which was established by the Federal Government to assist in establishing a Canadian securities regulator. Representatives from each province and territory other than Alberta, Manitoba and Québec have participated in the development of the proposed legislation and the federal securities regulatory regime. The proposed legislation is designed to set out the core fundamental provisions of federal securities regulation, with the detailed technical requirements to be set out in the (not-yet-published) regulations.
Notable aspects of the proposed legislation includes (i) an opt-in mechanism that would allow willing provinces and territories to opt into the federal securities regulatory regime, and allow the securities legislation in non-opting jurisdictions to remain in force; (ii) designation of certain acts (such as fraud, market manipulation, insider trading and intentional misrepresentations) as criminal acts (enforceable in all jurisdictions, including those that have not opted-in to the federal securities regulatory regime); (iii) broad enforcement powers; and (iv) harmonized regulation of derivatives.
The Department of Finance has referred the proposed legislation to the Supreme Court of Canada to obtain a ruling as to whether it is with the legislative competence of the Federal Government. The Department of Finance has stated that it expects that it will take 10 to 24 months for the Supreme Court to issue its ruling, and has also announced that it is targeting 2012 or 2013 for the establishment of the Canadian Securities Regulatory Authority.
- The 2010 Canadian Federal Budget has proposed to change the definition of "taxable Canadian property" to exclude shares, partnership interests and trust interests that do not derive and have not derived their value principally from (i) real property, (ii) Canadian resource property, or (iii) timber resource property. This should eliminate Income Tax Act (Canada) Section 116 compliance obligations (for non-residents) when selling many types of securities that are otherwise not exempted under a Canadian tax treaty.
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