On August 20, 2020, the Canadian Securities Administrators (CSA) published amendments (Amendments) to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and its companion policies related to the business acquisition report (BAR) requirements for reporting issuers that are not venture issuers (non-venture reporting issuers).
Further to its publication for comment of the proposed amendments (Proposed Amendments) to NI 51-102 and its companion policies related to the BAR requirements for non-venture reporting issuers on September 5, 2019, and conclusion of the related consultation process, the CSA published the Amendments on August 20, 2020. For more information on the Proposed Amendments, please see our September 2019 Blakes Bulletin: CSA Propose Rules to Increase Business Acquisition Report Triggers and Thresholds.
The CSA previously announced policy projects to reduce the regulatory burden for public companies, which included reducing or streamlining certain continuous disclosure requirements. For more information on Staff Notice 51-353 – Update on CSA Consultations Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers, please see our April 2018 Blakes Bulletin: CSA Announce Policy Projects to Reduce Regulatory Burden for Public Companies. The Amendments are part of the CSA’s efforts to reduce the regulatory burden on non-venture reporting issuers by limiting the requirements for filing a BAR.
Business Acquisition Report Requirements
The purpose of the BAR requirements is to provide investors with relatively timely access to historical and, in the case of non-venture reporting issuers, pro forma financial information on a significant acquisition. Under the existing regulations, a reporting issuer that is not an investment fund must file a BAR after completing a significant acquisition. For a non-venture reporting issuer, if the results of any one of the three significance tests—the asset test, the investment test and the profit or loss test—set out in NI 51-102 exceeds 20 per cent, the acquisition is considered significant.
In response to CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden of Non-Investment Fund Reporting Issuers (for more information, please see our May 2017 Blakes Bulletin: CSA Seek to Reduce Regulatory Burdens for Reporting Issuers), the CSA received a range of comments on the BAR requirements. Among others, these comments included that the BAR disclosure is of limited value to investors given its lack of timeliness, the high cost of preparation and that it can impede the completion of a transaction. In light of the consultation feedback, as well as the number of applications for exemptive relief sought from the BAR requirements, the CSA published the Proposed Amendments and implemented the related consultation process, which ultimately led to the publication of the Amendments. In publishing the Amendments, the CSA confirmed that it is not making any material changes to the Amendments as compared to the Proposed Amendments.
HIGHLIGHTS OF THE AMENDMENTS
In publishing the Amendments, the CSA considered that the BAR requirements and related burden on reporting issuers may not be yielding information of relevance to investors’ decision-making. In addressing this issue, the CSA considered various options to alter the BAR requirements and determined that a two-trigger test and increasing the significance threshold would help achieve their policy objectives.
1. Two-Trigger Test
Prior to the Amendments, an acquisition of a business or related businesses would be a significant acquisition that requires the filing of a BAR if it triggers any one of the three significance tests for a non-venture reporting issuer. The Amendments modify the rules from an “any-one-of-three” test to at least two of the tests needing to be met in order for an acquisition of a business or related businesses to be considered significant.
2. Significance Test Threshold
Under the Amendments, the 20 per cent significance threshold for non-venture reporting issuers will be increased to 30 per cent.
In 2015, the CSA previously reduced the regulatory burden for venture issuers by increasing the significance test threshold from 40 per cent to 100 per cent, and by removing the requirement that BARs filed by venture issuers include pro forma financial statements. No further changes to the BAR requirements for venture issuers are being considered at this time by the CSA.
The CSA noted that the Amendments are being adopted following an extensive consultation process, including comment letters and other stakeholder feedback in response to the Proposed Amendments, as well as consideration of historical data on past BAR filings and exemptive relief granted to assess the impact of the Amendments. In addition, the CSA noted that the aim of the Amendments is to reduce regulatory burden for non-venture reporting issuers and address certain concerns expressed by stakeholders. In considering its options to reduce the regulatory burden associated with the BAR requirements, the CSA states that it considered international developments, including the final amendments published in May 2020 by the U.S. Securities and Exchange Commission to reduce the complexity and costs relating to preparing disclosure, but ultimately thought that the Amendments appropriately address concerns raised by stakeholders in the Canadian market. The CSA stated that the changes set out in the Amendments reflect the CSA’s drive to streamline regulation without compromising investor protection.
The CSA stated that provided all necessary ministerial approvals are obtained by October 18, 2020, the Amendments will come into force and be effective on November 18, 2020.
For further information, please contact:
Eric Moncik 416-863-2536
Kelsey Park 416-863-3255
or any other member of our Capital Markets group.
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