Revised CSA Staff Notice gives further guidance on preparing and filing reports of exemption distribution
On September 29, 2016, the Canadian Securities Administrators published a further revised version of CSA Staff Notice 45-308 (Revised) – Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions.
On September 29, 2016, the Canadian Securities Administrators (“CSA”) published a further revised verison of CSA Staff Notice 45-308 (Revised) – Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions (the “Notice”). The Notice amends and restates a previous amended and restated version of the Notice, which was published on April 7, 2016. The purpose of the Notice is to assist issuers, underwriters and their advisors in preparing and filing reports of exempt distribution on Form 45-106F1 Report of Exemption Distribution (the “New Report”) following a distribution of securities in reliance on certain prospectus exemptions under National Instrument 45-106 Prospectus Exemptions (“NI 45-106”). The New Report, which is now harmonized across all Canadian jurisdictions, came into effect on June 30, 2016 in connection with changes to NI 45-106.
The most recent iteration of the Notice adds:
- clarification regarding the certification of the Report;
- guidance on reasonable steps the underwriter filing the report should undertake to obtain and confirm the required information regarding the issuer;
- guidance on the procedures that an issuer or underwriter could implement in order to reasonably confirm that a purchaser meets the conditions for a particular exemption;
- guidance on the increased flexibility for completing Schedule 1 for purchasers in certain circumstances who may qualify under more than one paragraph of the definition of “accredited investor”; and
- a new Annex 5 with contact information of public officials regarding indirect collection of personal information.
1. Certification of the Report
The Report must be certified by the issuer or the underwriter, which will generally require the signature of the director or officer of the issuer or underwriter filing the Report. In signing the certification, the director or officer certifying the report is doing so on behalf of the issuer or underwriter. A filing agent, such as a law firm, completing the Report on an issuer’s or underwriter’s behalf cannot certify the Report on behalf of the issuer or the underwriter.
The Report states that it is an offense to make a misrepresentation in the Report. Securities legislation of a jurisdiction in which the Report is filed may impose liability on any person that makes a statement in the Report that, in a material respect and at the time and in light of the circumstances under which it is made, is misleading or untrue or does not state a fact that is required to be stated or that is necessary to make the statement not misleading. Securities legislation may also impose liability on any director or officer of an issuer or underwriter who authorizes, permits or acquiesces in the filing of such a Report, including the individual signing the Report for and on behalf of the filer. Such legislation may also provide a defence to liability based on the person or company’s knowledge after exercising reasonable diligence. The potential liability of directors and officers of the filer is determined by applicable securities legislation and case law.
2. Guidance on reasonable steps to obtain and confirm issuer information
Where an underwriter is filing the Report, the underwriter should take reasonable steps to obtain and confirm the information regarding the issuer that is required by the Report. These reasonable steps may include: (i) reviewing the offering document prepared in connection with the distribution of securities; (ii) reviewing the issuer’s public continuous disclosure record, where available; (iii) reviewing information provided by the issuer’s or the underwriter’s legal counsel; and (iv) making inquiries of the issuer.
3. Guidance on procedures to confirm that purchaser meets conditions of exemption
The person relying on a prospectus exemption (i.e. the issuer or the seller) is responsible for determining whether the terms and conditions of the prospectus exemption are met. Section 1.9(4) of Companion Policy 45-106CP Prospectus Exemptions describes procedures that an issuer (or seller) could implement in order to reasonably confirm that the purchaser meets the conditions for a particular exemption. Some examples of these steps include: (i) establishing policies and procedures to confirm that all parties acting on behalf of the issuer (or seller) understand the conditions that must be satisfied to rely on the exemption; and (ii) obtaining information that confirms the purchaser meets the criteria in the exemption.
Whether the types of steps are reasonable will depend on the particular facts and circumstances of the purchaser, the offering and the exemption being relied on.
4. Guidance where purchasers qualify under multiple paragraphs of “accredited investor” exemption
Certain purchasers may qualify as an accredited investor under more than one paragraph of the definition of “accredited investor”; however, it may not always be clear to the filer which paragraph the purchaser qualifies under for the purposes of a particular distribution. For example, trust companies, trust corporations, registered advisors and registered dealers may be purchasing securities as principal for their own account, and/or may be deemed to be purchasing securities as principal on behalf of a fully managed account.
If a purchaser is a trust company or a trust corporation, the filer can select paragraphs “(a) and/or (p)” of the definition of “accredited investor” for that purchaser when completing Schedule 1 if the trust company or trust corporation is: (i) purchasing as principal for its own account and qualifies as an accredited investor under paragraph (a) of that definition; and/or (ii) deemed to be purchasing as principal on behalf of a fully managed account and qualifies as an accredited investor under paragraph (p) of that definition.
If a purchaser is a registered adviser or registered dealer, the filer can select paragraphs “(d) and/or (q)” for that purchaser when completing Schedule 1 if the registered adviser or registered dealer is: (i) purchasing as principal for its own account and qualifies as an accredited investor under paragraph (d) of that definition; and/or (ii) deemed to be purchasing as principal on behalf of a fully managed account and qualifies as an accredited investor under paragraph (q) of that definition.
5. Contact information of public officials regarding indirect collection of personal information
The Report requires the filer to confirm that each individual listed in Schedules 1 and 2 of the Report was notified about certain information, including the title of the public official in the local jurisdiction who can answer questions about the security regulatory authority’s or regulator’s indirect collection of personal information. Annex 5 includes the contact information and title of the public official in each local jurisdiction who can answer such questions.
45-106F1 accredited investor CSA Staff Notice 45-308 report of exempt distribution