B.C. Securities Commission Adopts Additional Disclosure Requirements for Private Placements
August 22, 2011
Sven O. Milelli
The British Columbia Securities Commission (BCSC) has adopted amendments (the Amendments) to National Instrument 45-106 – Prospectus and Registration Exemption (NI 45-106), which will take effect on October 3, 2011. The Amendments will introduce a separate new form, Form 45-106F6 – British Columbia Report of Exempt Distribution (the New Form), which will replace Form 45-106F1 for the purposes of reporting B.C. exempt distributions (sometimes referred to as private placements). The New Form will require certain issuers to provide more disclosure to the market regarding insiders, registrants and promoters purchasing securities.
In particular, the additional disclosure requirements are significant for non-reporting issuers other than investment funds that are managed by fund managers registered in Canada (Exempt Funds). Such issuers must disclose: (i) the names, municipalities and countries of residence of their insiders and promoters; (ii) the number and types of securities controlled or owned by such insiders and promoters, including securities purchased in the exempt distribution being reported; and (iii) the total price paid for all of the securities owned or controlled by such insiders and promoters, including securities purchased in the exempt distribution being reported. In addition, all issuers other than Exempt Funds must indicate whether the purchasers of securities in a private placement are registrants or insiders of the issuer.
The companion policy to NI 45-106 has also been amended to make it clear that if a private placement is reportable in British Columbia and in one or more other Canadian jurisdictions, the issuer must file the New Form with the BCSC and file Form 45-106F1 in the other applicable jurisdictions. The Amendments do not, however, alter the circumstances in which a private placement must be reported in British Columbia. The types of exempt distributions that are reportable continue to be governed by Part 6 of NI 45-106 and include, among others, private placements made in reliance on the exemptions for accredited investors and for family, friends and business associates; the offering memorandum exemption; and the minimum investment amount exemption. Such distributions are reportable in British Columbia if (i) the relevant securities are sold to purchasers resident in British Columbia or (ii) the issuer has a significant connection to British Columbia1.
When the Amendments were proposed last year, the BCSC also made a proposal to begin publishing the full content of each filed New Form, including information regarding purchasers (which, under the New Form, is to be collected in respect of all issuers2 other than Exempt Funds), on its website. However, in response to privacy concerns raised by several commenters, the BCSC has adopted a modified version of its original proposal. In particular, the BCSC will publish online only information regarding non-individual purchasers, but will make certain information regarding individual purchasers available to the public at its offices. This information will include the individual’s name and whether or not he or she is an insider or registrant, but will not include his or her residential address. The BCSC has also amended NI 45-106 to impose a prohibition on the use of information made available at its offices other than for a person’s own investment research concerning the relevant issuer.
McCarthy Tétrault Notes
Non-reporting issuers (other than Exempt Funds) and their underwriters should carefully consider the additional disclosure requirements under the New Form before making placements in British Columbia. Issuers contemplating an offering that includes a private placement in British Columbia should consider modifying their form of subscription agreement to require purchasers to furnish the additional information required under the New Form.
Among their other consequences, the Amendments may cause foreign issuers not already subject to disclosure requirements equivalent to those mandated by the New Form to avoid making placements in British Columbia as part of global securities offerings.
1 The existence of any of the following factors would generally indicate that an issuer has a "significant connection" to British Columbia and that a distribution by it would be deemed to be made from British Columbia: (i) the issuer’s "mind and management" is primarily located within British Columbia (e.g., the issuer’s head office or the residences of its key officers and directors are located in British Columbia); (ii) the business of the issuer is administrated from, and the operations of the issuer are conducted in, British Columbia; or (iii) acts, advertisements, solicitations, conduct or negotiations in furtherance of the distribution take place in British Columbia. Whether or not an issuer has a significant connection to British Columbia, if a private placement by a non-reporting issuer (other than an Exempt Fund) is reportable in British Columbia, the information regarding insiders and promoters must be included in the New Form.
2 In the case of an offering that is reportable in British Columbia due to the issuer having a significant connection to British Columbia, information must be collected and reported regarding all purchasers. For issuers without a significant connection to British Columbia, such information must be collected and reported only in respect of those purchasers who are resident in British Columbia.