CSA Proposals Aim to Simplify Reports of Exempt Distribution
On June 8, 2017, the Canadian Securities Administrators (“CSA”) published for a 90-day comment period (ending on September 6, 2017), proposed amendments (the “Proposed Amendments”) to National Instrument 45-106 Prospectus Exemptions (“NI 45-106”) that would amend the report of exempt distribution (the “Report”) set out on Form 45-106F1 Report of Exemption Distribution that must be filed following a distribution of securities in reliance on certain prospectus exemptions under NI 45-106. The current version of the Report came into effect on June 30, 2016 and requires filers to provide substantially more information than previous versions. As a result, since its introduction, the current Report has prompted some filers to express concerns and to ask for clarification regarding certain unintended effects of the form.
Last year, the CSA issued a notice (the “2016 Notice”) intended to assist issuers, underwriters and their advisors in preparing and filing reports of exempt distribution using the Report. For more information on the 2016 Notice, see our post: Revised CSA Staff Notice gives further guidance on preparing and filing reports of exempt distribution.
The Proposed Amendments now pick up on a number of matters discussed in the 2016 Notice and are intended to be responsive to concerns expressed by dealers conducting private placement offerings into Canada, and Canadian institutional investors, about the unintended effects of the certification requirement and other information requirements in the Report. The Proposed Amendments aim to: (1) provide greater clarity and flexibility regarding the certification requirement of the Report; and (2) streamline certain information requirements to assist filers in completing the Report.
Summary of Key Proposed Amendments
Certification of the Report
Currently, the Report must be certified by the issuer or the underwriter, but may not be certified “on their behalf” or by an agent. This feature of the Report raised concerns that the individual certifying the report was executing in their personal capacity instead of on behalf of the issuer or the underwriter. The Proposed Amendments would amend the Report certification requirement as follows:
- Clarifying that the individual certifying the Report is doing so on behalf of the issuer or underwriter.
- The information provided in the Report must be certified to be “true and, to the extent required, complete” rather than “true” as is the case under the current Report. This change is intended to address concerns with certifying completeness when not all parts of the Report are applicable, or when filers can only select one form option when multiple options might apply and there is limited ability to include additional notes in the Report.
- Including a knowledge qualifier in respect of the certification statement, which is consistent with other CSA forms and with the due diligence defence available under securities legislation.
- Permitting authorized agents to sign the Report certification on behalf of the issuer or underwriter, thereby permitting law firms and other filing agents who often prepare and file the Report to sign it on their client’s behalf.
The Report requires filers to provide a substantial amount of information. The Proposed Amendments would reduce the burden on filers by amending the Report as follows:
- Filers will be required to provide only the name of the exchange on which the issuer’s securities primarily trade, rather than the names of all exchanges on which the issuer’s securities are listed. This is intended to reduce the burden on filers completing the Report for issuers with securities listed on multiple exchanges globally.
- Filers will be required to select only one applicable exemption category instead of all applicable categories when indicating how they qualify for an exemption from providing certain director, officer and promoter information. This is intended to reduce the time and analysis currently necessary to complete this part of the Report.
- Issuers distributing securities to non-individual permitted clients will no longer be required to specify which paragraph number in the definition of “accredited investor” in section 1.1 of NI 45-106 applied to the purchaser. This is intended to reduce the burden on filers completing Schedule 1 of the Report, particularly in circumstances where an issuer is distributing eligible foreign securities only to permitted clients.
If you have questions regarding the Proposed Amendments or wish to submit a comment letter to the CSA, we invite you to contact Andrew Parker (416-601-7939).
certification Form 45-106F1 issuer post-trade report report of exempt distribution underwriter