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Canadian Securities Administrators Introduce New Harmonized Report of Exempt Distribution

  • Michael Varabioff
  • Morgan Hay
  • Helen Racic

Issuers and underwriters who rely on certain prospectus exemptions to distribute securities are required to file a report of exempt distribution within 10 days of the distribution. Currently, the form of report is Form 45-106F1 Report of Exempt Distribution (“Form 45-106F1”) in all jurisdictions other than British Columbia. In British Columbia, the form of report is currently Form 45-106F6 British Columbia Report of Exempt Distribution (“Form 45-106F6”, together with Form 45-106F1, the “Current Report”).

The Canadian Securities Administrators (the “CSA”) recently announced amendments to National Instrument 45-106 Prospectus Exemptions to come into force on June 30, 2016, provided all necessary ministerial approvals are obtained, which will replace the Current Report with a single, new Form 45-106F1 Report of Exempt Distribution (the “New Report”). The CSA have indicated that the New Report will reduce the compliance burden for issuers and underwriters by having one harmonized report of exempt distribution and will provide securities regulators with the necessary information to facilitate more effective regulatory oversight of the exempt market and improve analysis for policy development purposes.

Key Features of the New Report

The New Report introduces new information requirements, including disclosure of the following:

  • the six-digit North American Industry Classification System (NAICS) code that most closely corresponds to the issuer’s main business activity;
  • CUSIP numbers of securities distributed, if applicable;
  • the total number of employees of the issuer based on four broad ranges of employee numbers, being 0 – 49 employees, 50 – 99 employees, 100 – 499 employees and 500 or more employees;
  • whether a person compensated in connection with the distribution is an insider of the issuer, an employee of the issuer or is connected with the issuer and whether such person facilitated the distribution through a “funding portal” or an “internet-based portal”;
  • whether any deferred compensation will or may be paid to a person in connection with a distribution and, if so, the terms of such deferred compensation;
  • the identities of persons being compensated in respect of each purchaser or the firm NRD number if the person compensated is a registered firm; and
  • specific details about the prospectus exemption relied on, such as the category of accredited investor the purchaser met, if applicable.

Filing Systems

The New Report will be filed with the British Columbia Securities Commission (the “BCSC”) through the BCSC’s eServices, with the Ontario Securities Commission (the “OSC”) through the OSC’s Electronic Filing Portal and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) for all other jurisdictions[1]. Both the BCSC’s eServices and the OSC’s Electronic Filing Portal will generate an electronic copy of the completed report, which issuers can then use to file on SEDAR, if applicable. Issuers will be required to file Schedule 1 (Confidential Purchaser Information) and, if applicable, Schedule 2 (Confidential Director, Executive Officer, Promoter and Control Person Information) of the New Report in .xlsx format using the Excel templates developed by the CSA. Note that issuers which are reporting in any Canadian jurisdiction will not be required to complete Schedule 2 (Confidential Director, Executive Officer, Promoter and Control Person Information) of the New Report.

Transition to New Report

All issuers (other than investment fund issuers filing reports annually) must use the New Report for distributions that occur on or after June 30, 2016. If an issuer completes a distribution before June 30, 2016 and the 10-day deadline to file the report of exempt distribution occurs after June 30, 2016, the issuer must use the Current Report. If an issuer completes multiple distributions on dates that occur within a 10-day period beginning before and ending after June 30, 2016, the issuer may file either the Current Report or the New Report to report such distribution.

Further Information

As noted above, the New Report will come into force on June 30, 2016, provided all necessary ministerial approvals are obtained. For further guidance on preparing and filing the New Report see CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under National Instrument 45-106 Prospectus Exemptions.

[1] New filing requirements came into force on May 24, 2016 which require all reports of exempt distribution to be made on SEDAR rather than in paper format in all jurisdictions, other than British Columbia and Ontario. Filings in British Columbia must be made through the BCSC’s eServices, and filings in Ontario must be made through the OSC’s Electronic Filing Portal.