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Understanding Proposed Changes to Venture Issuer Regulation

28/07/2010


​​There’s good news on the horizon for venture issuers. Proposed regulatory changes suggest reducing disclosure requirements, meaning you’ll spend less time and cost preparing necessary disclosures for periodic reporting and prospectuses and have more time to focus on critical business development and governance issues. But the changes may not work for everyone. It is important to understand what’s being proposed so you can weigh in on the issue and take an active role in determining the regulatory environment in which you operate.

On May 31, 2010, the Canadian Securities Administrators (CSA) issued a consultation paper called Tailoring Venture Issuer Regulation.  In it, the CSA proposes a single new regulatory instrument for venture issuers to replace the governance and continuous disclosure requirements in the following instruments:

  • National Instrument 51-102, Continuous Disclosure Obligations
  • National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings
  • National Instrument 52-110, Audit Committees
  • National Instrument 58-101, Disclosure of Corporate Governance Practices

The CSA hopes that consolidation will strengthen venture issuer reporting to better meet the needs and expectations of investors. The proposed changes reinforce governance standards, eliminate certain costly requirements and introduce supplemental disclosures that may be more relevant for venture issuers and their investors.

Key Features of the Proposed Changes

  • A requirement to include an annual report that will:
    • present information similar to that in the Management Discussion and Analysis (MD&A) and Annual Information Form, but with further disclosure on the nature of the business, management, governance and executive compensation
    • include the annual audited financial statements and MD&A
    • briefly describe the venture issuer’s business objectives, key performance and milestones as well as performance against those targets
    • eliminate the requirement for quarterly financial results for the past eight quarters. Instead, the venture issuer will be required to discuss performance during the most recently completed financial year and compare it with performance in the prior year, incorporating non-GAAP measures and analysis where appropriate
    • disclose director and executive officer compensation, including salaries, consulting fees, retainers, bonuses, committee and meeting fees, and stock options
    • increase emphasis on corporate governance and ethical conduct. The CEO, CFO and two directors will be required to sign an integrity certification, which, in addition to replacing the certifications currently required under NI 52-109, will also confirm that all directors and executive officers have acknowledged their duties to act honestly and in good faith and to exercise an appropriate level of care, skill and judgement
  • The elimination of requirements to disclose three and nine-month interim financial statements and associated MD&A
  • The introduction of a mid-year report, consisting of six-month interim financial statements, the associated MD&A, certain supplemental information and the integrity certification
  • More substantive corporate governance requirements. The directors’ and executive officers’ obligations to act honestly and in good faith with a view to the best interests of the venture issuer, and to exercise appropriate care, diligence and skill, will be strengthened by a requirement that the board of directors implement procedures to address conflicts of interest and related party transactions, and to reduce the risk of insider trading
  • No requirement to file a business acquisition report. Instead, enhanced material change reporting will require venture issuers to provide information on Disclosable Events, defined as transactions representing 20 per cent or more of the venture issuer’s market capitalization
  • Annual and mid-year reports are expected to meet the disclosure requirements of the Short Form Prospectus and certain exempt offerings
  • Two years of historical financial statements will be sufficient in IPO prospectuses instead of the current three years

While the proposed changes will, in general, benefit venture issuers, the reduced disclosures may not be sufficient if you are a venture issuer looking to move to senior markets or attract U.S. or other international investors. Your MNP advisor can help you understand how these changes might impact your operation and whether or not they go far enough to allow you to achieve your goals.

If you’d like to learn more about the proposed changes or find out how you can provide feedback and comments on the proposal, contact James Fuerderer, CA, Public Companies Advisor or any member of our Public Companies team.