March 2006
Ontario Securities Act amendments
On December 15, 2005, amendments to the Securities Act (Ontario) contained in the Ontario Government’s Fall 2005 Budget Bill, received Royal Assent. The amendments are included in the Budget Measures Act, 2005 (No. 2) (formerly Bill 18).
Among the most significant changes made to the Securities Act (Ontario) are amendments to:
• Empower a standing or select committee of the Assembly to review the Ontario Securities Commission’s (“OSC”) annual report and to report the committee’s opinion and recommendations to the Assembly.
• Prohibit a person or company from carrying on business as a clearing agency unless recognized by the OSC.
• Give the OSC rulemaking authority to prescribe activities that are not included in the definition of “solicit” and “solicitation” for purposes of Part XIX of the Securities Act (Ontario)—Proxies and Proxy Solicitation.
• Give the OSC rulemaking authority to exempt persons or companies making a solicitation, otherwise than by or on behalf of management of a reporting issuer, from sending an information circular to security holders whose proxy is solicited.
• Give the OSC rulemaking authority to regulate the governance of reporting issuers more generally (e.g. prescribing requirements related to the composition of a reporting issuer’s board of directors and qualifications for membership on the board; the establishment of board committees; the mandate, functioning and responsibilities of such committees, and the qualifications of committee members; and procedures to regulate conflicts of interest of the reporting issuer and those of its directors and officers).
• Clarify the OSC’s rulemaking authority to require investment funds to establish and maintain a body for the purposes of overseeing the activities of the investment fund manager and to prescribe the oversight body’s powers and duties and requirements relating to the mandate and functioning of the body.
• Give the OSC the power to order that acquisitions of any securities by a particular person or company is prohibited, permanently or for such other period specified by the OSC.
• Give the OSC the power to order that a person resign as a director or officer of a registrant or an investment fund manger and order that a person is prohibited from becoming or acting as a director or officer of a registrant or an investment fund manager.
• Give the OSC the power to order that a person or company is prohibited from becoming or acting as a registrant, an investment fund manager or as a promoter.
All of the Securities Act (Ontario) amendments (with the exception of the amendment dealing with mandatory recognition of clearing agencies) came into force on December 15, 2005. The amendments dealing with mandatory recognition of clearing agencies will come into force on a day to be proclaimed by the Lieutenant Governor in Council.
Canadian Securities Administrators Staff Notice 44-302, Replacement of National Instrument 44-101 Short Form Prospectus Distribution – December 16, 2005
On October 21, 2005, the Canadian Securities Administrators (“CSA”), published a notice relating to the replacement of National Instrument 44-101 Short Form Prospectus Distributions (“Former NI 44-101”) which came into effect in December 2000 with National Instrument 44-101 Short Form Prospectus Distributions (“New NI 44-101”). New NI 44-101 will come into force on December 30,
2005.
New NI 44-101 modifies the qualification, disclosure and other requirements of the short form prospectus system so that this prospectus system can build on and be more consistent with recent developments and initiatives of the CSA.
Section 2.8(1) of New NI 44-101 requires issuers to file a one-time notice of intention to be qualified to file a short form prospectus (a “qualification notice”) at least 10 business days prior to filing its first preliminary short form prospectus under New NI 44-101. Section 2.8(4) grandfathers issuers which have a current AIF as defined in Former NI 44-101 as at December 29, 2005 by deeming such issuers to have filed a qualification notice on December 14, 2005 (which is 10 business days prior to implementation of New NI 44-101). Therefore, grandfathered issuers which otherwise satisfy the New NI 44-101 qualification criteria may file a preliminary short form prospectus under New NI 44-101 on or after December 30, 2005.
(for further details, please see CSA Notice 44-302)
Standards of Disclosure for Mineral Projects - Amendments
The Canadian Securities Administrators (CSA), are amending following Instruments (which originally came into effect on February 1, 2001):
- National Instrument 43-101 Standards of Disclosure for Mineral Projects, including Form 43-101F1 Technical Report (the New Instrument); and
- Amendment Instrument for National Instrument 51-102 Continuous Disclosure Obligations (the Consequential Amendment).
The purpose of the amendments are to reflect changes that have occurred in the mining industry, correct errors, simplify the drafting, provide exemptions in specified circumstances, and generally make the Current Mining Rule more user-friendly and practical. Details of the proposed amendments were contained in a request for comments published on September 10, 2004 (see Allen Securities Netletter ALLN/2004-083, published October 1, 2004)
CSA Staff Notice 51-317 - NI 51-101 Standards of Disclosure for Oil and Gas Activities - Application of Canadian Oil and Gas Evaluation Handbook
February 24, 2006
National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities mandates adherence to the Canadian Oil and Gas Evaluation Handbook (the “COGE Handbook”) in respect of matters such as reserve and resource classification and terminology and reserves evaluation practices.
The Society of Petroleum Evaluation Engineers (Calgary Chapter) and The Petroleum Society of the Canadian Institute of Mining, Metallurgy and Petroleum, authors of the COGE Handbook, have published COGE Handbook, Volume 2 entitled “Detailed Guidelines for Estimation and Classification of Oil and Gas Resources and Reserves”, dated November 1, 2005.
Volume 2 provides explanation and elaboration on a number of matters set out in Volume 1, including guidance on applying the principles enunciated in Volume 1.
Staff of the members of the Canadian Securities Administrators urge reporting issuers with oil and gas activities, and their management, directors, and advisers, to become familiar with the discussion and guidance provided in Volume 2 of the COGE Handbook and to ensure that they apply that information to their reserves evaluation and disclosure practices.
TSX Venture Exchange Bulletin - Revised Appendix 3F - Mining Standards Guidelines - December 30, 2005
TSX Venture Exchange announced that effective the date of this Bulletin, Appendix 3F - Mining Standards Guidelines has been revised and updated to be more consistent with current securities regulatory requirements, mining industry standards and the TSX Venture Exchange’s working practices for issuers involved in mineral exploration. The revised appendix will significantly improve upon current reporting and disclosure guidance for Issuers involved in mineral exploration.
(For details, please review the revised Appendix 3F- Mining Standards Guidelines of the TSX Venture Exchange)
Conditions in Financing Arrangements for Take-Over Bids and Issuer Bids – Notice of Rule
On October 18, 2005, the Ontario Commission made Rule 62-503—Financing of Take-over Bids and Issuer Bids (the “Rule”) under section 143 of the Securities Act (the “Act”). If the Minister approves the Rule, the Rule will come into force 15 days after it is approved. If the Minister does not approve or reject the Rule, or return it to the Commission for further consideration, the Rule will come into force on January 3, 2006.
The proposed Rule was circulated for comment on July 1, 2005 (see Allen Securities Netletters ALLN/2005-042, ALLN/2005-055). The substance and purpose of the Rule is to provide guidance for section 96 of the Act, which states:
96. Financing of bid—Where a take-over bid or issuer bid provides that the consideration for the securities deposited pursuant to the bid is to be paid in cash or partly in cash, the offeror shall make adequate arrangements prior to the bid to ensure that the required funds are available to effect payment in full for all securities that the offeror has offered to acquire.
The Rule provides that financing arrangements under section 96 may be subject to conditions if, at the time the bid is commenced, the offeror reasonably believes the possibility to be remote that, if the conditions of the bid are satisfied or waived, the offeror will be unable to pay for securities deposited under the bid due to a financing condition not being satisfied.
The Rule enables the policy objectives of section 96 to be met in a flexible manner, as bidders and lenders will be able to tailor their conditions to the specific circumstances of the transaction. The Rule also addresses the uncertainty regarding the scope of section 96 that resulted from the judgment of the Ontario Superior Court of Justice in BNY Capital Corp. v. Katotakis, reported at [2005] O.J. No. 813.
Proposed Amendments to Continuous Disclosure Obligations, Acceptable Accounting Principles,Auditing Standards and Reporting Currency – December 9, 2005
The Canadian Securities Administrators (“CSA”), are publishing for comment proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”), its related forms (the “Forms”) and companion policy (“CP 51-102”), National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (“NI 52-107”), and National Instrument 71-102 Continuous Disclosure and Other Exemptions relating to Foreign Issuers (“NI 71-102”) and its related companion policy (“CP 71-102”) (collectively, the “Instruments”).
The Instruments
• harmonize continuous disclosure (“CD”) requirements among Canadian jurisdictions,
• replace most existing local CD requirements, and
• provide exemptions for certain foreign issuers from certain CD requirements.
NI 51-102 sets out the obligations of reporting issuers, other than investment funds, for financial statements, management’s discussion and analysis (“MD&A”), annual information forms (“AIF”s), business acquisition reports (“BAR”s), material change reporting, information circulars, proxies and proxy solicitation, restricted share disclosure, and certain other CD-related matters.
NI 52-107 sets out the accounting principles and auditing standards that applies to financial statements filed in a jurisdiction.
NI 71-102 provides exemptions from most CD requirements and certain other requirements for certain foreign issuers.
CSA believes that the proposed amendments to the Instruments would reduce issuers’ costs, as the amendments would address problems industry has had applying the Instruments and streamline some of the requirements. In particular, the changes CSA is proposing to the BAR requirement would reduce issuers’ costs of filing a BAR.
Related amendments
CSA intends to eliminate the following national policy and staff notices relating to continuous disclosure, as they are no longer necessary:
• National Policy 3 Unacceptable Auditors
• CSA Staff Notice 11-305 Withdrawal of CSA Staff Notice 42-301 and 52-301
• CSA Staff Notice 51-307 Status of proposed continuous disclosure rule
• CSA Staff Notice 51-308 Filing of Management’s Discussion and Analysis and National Instrument 51-102 Continuous Disclosure Obligations
• CSA Staff Notice 52-305 Optional Use of US GAAP and US GAAS by SEC Issuers
• CSA Staff Notice 52-307Auditor Oversight and Financial Statements Accompanied by an Audit Report Dated on or After March 30, 2004
CSA is not proposing to amend any other rules, except in Quebec where National Policy 3, Unacceptable Auditors is a rule.
Comments on the proposed amendments to the Instruments will be accepted until March 9, 2006.
(for details, please see (2005) 28 OSCB 9845)
Canadian Securities Administrators Staff Notice 51-316Continuous Disclosure Review of Smaller Issuers - December 12, 2005
The notice provides guidance to help smaller issuers understand their continuous disclosure obligations.
The notice summarizes common deficiencies found within the continuous disclosure record of smaller issuers, primarily focussing on financial statements and Management Discussion and Analysis (“MD&A”).
To ensure guidance reaches smaller issuers, the CSA will email a copy of the notice to all issuers with assets under $25 million. The Ontario Securities Commission will also mail copies of the notice to Ontario issuers with assets under $5 million. Smaller issuers make up a significant segment of Canada’s issuer population, and all issuers, both large and small, must comply with securities regulations. CSA believes this notice is an efficient way to address some of the deficiencies it has seen particularly from smaller issuers.
(for further detail, please see CSA Staff Notice 51-316, available on several CSA members’ websites)