On September 5, 2019, the Canadian Securities Administrators (CSA) published for comment proposed amendments (Proposed 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). The CSA previously announced policy projects to reduce the regulatory burden for public companies which included reducing or streamlining certain continuous disclosure requirements. Please see our April 2018 Blakes Bulletin: CSA Announce Policy Projects to Reduce Regulatory Burden for Public Companies 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. The Proposed 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.
HIGHLIGHTS OF THE PROPOSED AMENDMENTS
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 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.
- Two-Trigger Test
Currently, an acquisition of a business or related businesses is 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 Proposed Amendments will 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.
- Significance Test Threshold
Under the Proposed 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 they will continue to monitor developments in other jurisdictions including the United States and the U.S. Securities and Exchange Commission’s proposal to amend its rules and forms to improve disclosure requirements for financial statements relating to acquisitions and dispositions of businesses. Like the CSA, the U.S. Securities and Exchange Commission intends for the proposed changes to reduce the complexity and costs relating to preparing disclosure. The CSA stated that their aim is to reduce the regulatory burden for non-venture reporting issuers without compromising investor protection and the Proposed Amendments are one step towards this objective.
The CSA stated they welcome comments on the Proposed Amendments. Any comments on the Proposed Amendments are due by December 4, 2019.
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