As of Today, Early Warning Disclosure in Canada Has to Contain More Detailed Information About the Purpose of Acquisitions
Effective today, significant amendments to the Canadian early warning reporting (EWR) regime (EWR Amendments) come into force (see our March 3, 2016 publication, Canada’s Early Warning Rules Get Tougher in May). Here we focus on the new, more stringent requirements to describe the purpose of acquisitions.
The new EWR Amendments require the filer to describe any plans or future intentions it might have with respect to 11 specific potential corporate actions:
- the acquisition of additional securities of the reporting issuer, or the disposition of securities of the reporting issuer;
- a corporate transaction, such as a merger, reorganization or liquidation, involving the reporting issuer or any of its subsidiaries;
- a sale or transfer of a material amount of the assets of the reporting issuer or any of its subsidiaries;
- a change in the board of directors or management of the reporting issuer, including any plans or intentions to change the number or term of directors or to fill any existing vacancy on the board;
- a material change in the present capitalization or dividend policy of the reporting issuer;
- a material change in the reporting issuer’s business or corporate structure;
- a change in the reporting issuer’s charter, bylaws or similar instruments or another action which might impede the acquisition of control of the reporting issuer by any person;
- a class of securities of the reporting issuer being delisted from, or ceasing to be authorized to be quoted on, a marketplace;
- the issuer ceasing to be a reporting issuer in any jurisdiction of Canada;
- a solicitation of proxies from securityholders; and
- an action similar to any of those enumerated above.
The EWR Amendments are intended to elicit early notification of an intent to mount change of control transactions, solicit proxies, or effect other significant corporate changes. This approach reflects the antipathy of Canadian regulators to “boilerplate” which they believe has been widely used by EWR filers. These changes have been in prospect since the initial EWR proposals were published by the CSA in 2013 (see the initial EWR proposals).
The early warning form requires the filer to describe any change in a material fact set out in a previous report filed by the acquiror under the early warning requirements in respect of the reporting issuer's securities. The United States experience may be enlightening with respect to the need to refile a report, based on U.S. Schedule 13D reporting requirements, which are analogous, but not identical, to the Canadian early warning requirements. In the U.S., a Schedule 13D report must be filed within ten days after a person or group of persons acquires beneficial ownership of more than 5% of a voting class of a company’s equity securities registered under the U.S. Securities Exchange Act of 1934. A “beneficial owner” is broadly defined to include any person who has or shares, directly or indirectly, voting or investment power with respect to a security. Schedule 13D reports must be amended to reflect any material changes in information previously reported. On May 5, 2016 the United States District Court for the District of Columbia ordered a dissident and related defendants who had previously filed Schedule 13D reports disclosing the acquisition of an issuer’s common shares, to file an amended Schedule 13D to also fully disclose their purpose for acquiring the issuer’s senior notes (see Taseko Mines Limited’s press release).
Finally and again in keeping with known regulatory positions, the EWR Amendments disqualify reporters from using the less stringent alternative monthly reporting (AMR) system if they solicit proxies from securityholders in any of the following circumstances:
- in support of one or more director nominees other than persons proposed by management;
- in support of a reorganization, amalgamation or other similar corporate action not supported by management; or
- in opposition to a reorganization, amalgamation or other similar corporate action supported by management.
alternative monthly reporting AMR early warning early warning reporting purpose of acquisition Schedule 13D Taseko Mines