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Coronavirus Disclosure: It’s Contagious and Could Be Dangerous

By Matthew Merkley, Jeremy Ozier and Robert Van de Mark (Articling Student)
March 9, 2020

The far-reaching effects of COVID-19, otherwise known as the coronavirus, have not spared the business community or the global economy. This unprecedented epidemic is quickly growing into a health crisis with increasing risks that could disrupt business operations and affect trade and profits if the outbreak worsens.

In this article, we discuss the implications for disclosure by public companies in Canada concerning the impact of COVID-19 on their financial results, operations and cash flows, as well as the price or value of their securities in public capital markets.
Canadian reporting issuers with a December 31, 2019, year-end are currently in the middle of their annual reporting season. Non-venture issuers have until March 30, 2020, to file their annual financial statements, management’s discussion & analysis (MD&A) and annual information form (AIF), while venture issuers have until April 29, 2020, to complete their annual reporting.
Market Survey
Through March 4, 2020, there have been hundreds of filings by Canadian public companies referring to COVID-19, including through press releases, MD&A, AIFs or prospectuses.
Between January 1, 2020 and March 4, 2020, there have been over 90 filings of MD&A that already contain reference to COVID-19. The majority of such filings mention COVID-19 in either a discussion of risks or general outlook for the company. Disclosure of risks have generally consisted of: general risk of negative global financial consequences and heightened uncertainty as a result of COVID-19; the recent and future anticipated impact on production or operations in countries and regions most impacted by the virus; the impact on demand for products and services, including positive impacts (for example, companies that are part of mitigation efforts or otherwise involved in addressing COVID-19); the triggering of force majeure clauses by third-party supplies or service providers; the effect on third-party suppliers or service providers; and the effect on proposed acquisitions or planned entry or expansions into impacted areas.
Risk Factors
Form 51-102F1 – Management’s Discussion & Analysis requires issuers to discuss in their MD&A “trends and risks that are reasonably likely to affect [the financial statements] in the future,” as well as commitments, events, risks or uncertainties that management reasonably believes will materially affect the issuer’s future performance. Form 51-102F2 – Annual Information Form requires issuers to disclose risk factors relating to their company and its business. Accordingly, in preparing an MD&A and AIF, management should consider whether risk factor disclosure from prior filings sufficiently addresses the risks posed by COVID-19 or whether they need to be updated to address the developing situation.
Such risk factor disclosure can take a variety of forms depending on the specific impact to a company. For example, companies with operations in affected regions can be expected to provide focused disclosure concerning the risks of the impact of COVID-19 on financial results, such as production facilities running at less than full capacity due to an absence of members of their workforce for quarantine or preventative purposes, whereas companies impacted only more generally by such developments have augmented existing general risk disclosures concerning natural or man-made disasters, issues relating to public health or other global economic conditions. Further yet, some issuers may not operate in affected regions, but be more acutely impacted by general conditions being influenced by COVID-19, such those whose businesses depend on international trade—for example, shipping—or travel—for example, transportation, hospitality and leisure.
Forward-Looking Information and Future-Oriented Financial Information or Outlook
Issuers are also reminded of their obligations pursuant to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) with respect to forward-looking information (FLI), including future-oriented financial information (FOFI) and financial outlook.
Pursuant to NI 51-102, FLI must not be disclosed unless the issuer has a reasonable basis for the FLI. Issuers should take into account the impact that COVID-19 may have on such FLI and whether it remains reasonable to disclose such FLI. In addition, when disclosure of FLI is made, issuers must, among other things, identify the material risk factors that could cause actual results to differ materially from the FLI, and states the material factors or assumptions used to develop FLI.
With respect to FOFI or financial outlook, an issuer must not disclose such FOFI or outlook, unless it is based on assumptions that are reasonable in the circumstances. In such cases, the FOFI or financial outlook must, without limitation, be limited to a period for which the information in the FOFI or financial outlook can be reasonably estimated. Issuers intending on disclosing new FOFI or financial outlook should ensure they have considered the impact of COVID-19. Issuers must disclose and discuss in their subsequent MD&A any material differences between actual results and any FOFI or financial outlook that was previously disclosed.
NI 51-102 also contains provisions requiring issuers to update outstanding material FLI, in their MD&A, by disclosing the events and circumstances that have occurred that are reasonably likely to cause actual results to differ materially from the FLI for a period not yet complete, and discuss the expected differences. As discussed below, issuers may also be required to update FLI through the issuance of a press release that is filed on the System for Electronic Document Analysis and Retrieval (SEDAR) prior to the filing of the MD&A.
In light of the ongoing and uncertain impacts of COVID-19, issuers should also consider the requirements in NI 51-102 for having to withdraw previously provided guidance, to the extent that such statements cease to be supported by reasonable assumptions and there is no longer a reasonable basis for the achievement, or accurate updating, of conclusions, forecasts or projections in the FLI. For example, even if an issuer with operations in an affected region can predict when their production facility will be capable of returning to full capacity due to a return of its workforce, it still may, nonetheless, be unable to predict when other necessary inputs will be available from affected suppliers.
Disclosures by Canadian public companies in 2020 have tended to note that either the impact of COVID-19 is unknown and therefore have ceased providing new FOFI or financial outlook, or have carved-out the effect of COVID-19 in providing or updating previously provided FOFI or financial outlook.
Updating the Market
Canadian public companies are required to, subject to limited exceptions, immediately issue and file a news release disclosing the nature and substance of any material change and, as soon as practicable, and in any event within 10 days of the date on which the material change occurs, file a Form 51-102F3 Material Change Report with respect to the material change. For these purposes, “material change” means a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer; or a decision to implement such a change made by the board of directors or by senior management of the issuer who believe that confirmation of the decision by the board of directors is probable.
Further, each Canadian public company with securities listed on the Toronto Stock Exchange is generally required to disclose material information concerning its business and affairs forthwith upon the information becoming known to management, or in the case of information previously known, forthwith upon it becoming apparent that the information is material. For these purposes, material information is comprised of material changes—as described above—and, in the absence of a change, a fact that would reasonably be expected to have a significant effect on the market price or value of the issuer’s securities.
While general guidance provided by the Canadian Securities Administrators (CSA) provides that “[c]ompanies are not generally required to interpret the impact of external political, economic and social developments on their affairs,” there are some exceptions of which issuers should be cognizant. In particular, if an external development, such as COVID-19, will have or has had a direct effect on the business and affairs of a company that is both material and uncharacteristic of the effect generally experienced by other companies engaged in the same business or industry, the company is urged to explain, where practical, the particular impact on them. Further, the CSA has stated that their above noted guidance is premised on the assumption that investors will be aware of external developments and their general effects on an issuer, such that if an issuer’s outstanding disclosure is insufficient to provide investors with an appreciation of the material impact of an external development, such as COVID-19, even if such impact is characteristic of the effect generally experienced by other companies engaged in the same business or industry, the issuer should inform the market of such impacts. Accordingly, issuers should carefully consider the impact of COVID-19 on their particular businesses, both within the context of the industry they operate in, as well as the available information they have previously provided to investors.
Insiders of Canadian public companies—including officers, directors and significant shareholders—should keep in mind their securities law obligations as it relates to insider trading and tipping as a result of developments from the ongoing effects of COVID-19. Broader market conditions, as a result of COVID-19, may present opportunities for purchases by insiders as lower prices for company securities result from price and volume fluctuations that may be unrelated to the operating performance, underlying asset values or prospects of the issuer. Directors, officers and employees of Canadian public companies should carefully consider the discussion above regarding updating the market to ensure they are not in possession of material non-public information before trading in securities of the issuer, or before encouraging or recommending that others trade in securities of the issuer.
The ultimate impact of COVID-19 remains unknown at this time, but it could have significant effects on Canadian capital markets and public companies’ performance, financial condition and results of operations. Issuers should be mindful of their public disclosure obligations within this volatile context and consider the risks and effects of COVID-19 on past, present and future disclosures.
For further information, please contact:
Matthew Merkley        416-863-3328
Jeremy Ozier                416-863-5824
or any other member of our Capital Markets group.

Please visit our COVID-19 Resource Centre to learn more about how COVID-19 may impact your business.