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Securities Law Considerations in Anticipation of a "New Normal" and Possible Second Wave

June 29, 2020

As COVID-19 restrictions begin to lift and we move toward a "new normal" in the short to medium term, there are certain securities law matters that companies will need to consider in the weeks and months ahead. These include COVID-19-related disclosure implications and future shareholder meeting considerations.


The current context that businesses are operating in is very fluid given the presently unknown duration of the pandemic and full effect of its impact on the economy, as well as the possibility that a second wave of the virus may arise, resulting in stricter lock-down measures. As a result, for the foreseeable future, Canadian public companies will need to consider their disclosure obligations through a COVID-19 lens, including forward-looking statements in as-yet-to-be-issued public disclosure documents, previously disclosed material forward-looking information and risk factor disclosure.

Forward-Looking Information

Canadian securities law requirements applicable to forward-looking information (FLI) that is disclosed by a reporting issuer (other than FLI contained in oral statements), including future-oriented financial information (FOFI) and financial outlooks, are contained in National Instrument 51-102 – Continuous Disclosure Obligations (NI 51-102).
NI 51-102 provides that a reporting issuer must only disclose FLI if the issuer has a reasonable basis for the FLI and may only disclose FOFI or a financial outlook if such disclosure is based on assumptions that are reasonable in the circumstances. When determining whether FLI has a "reasonable basis," a reporting issuer should consider the reasonableness of the assumptions underlying the FLI and the process followed in preparing and reviewing the FLI.
In addition, NI 51-102 requires reporting issuers to (1) identify material FLI as such, (2) caution users of FLI that actual results may vary from FLI and identify the material risk factors that could cause actual results to differ materially from the FLI (see “Risk Factor Disclosure” below),; (3) state the material factors or assumptions used to develop the FLI, and (4) describe the issuer's policy for updating FLI.
Companies should carefully review any FLI proposed to be included in their public disclosure documents to ensure that the assumptions on which the statements are made continue to be true and reasonable in the current environment and sufficiently identify the material risk factors that could cause actual results to differ. This is particularly the case given the unknown duration of the pandemic and whether there may be future shut-downs of the economy in the event a second wave of the virus occurs later this year or in 2021. In addition, robust assumptions and risk factors around these salient points will need to be carefully considered and disclosed. In published guidance, the Canadian Securities Administrators (CSA) have encouraged issuers to consider using tables and other methods of presentation that clearly link specific material risk factors and material factors and assumptions to the particular FLI.

Previously Disclosed Material Forward-Looking Information

A reporting issuer that has previously disclosed material FLI in a public disclosure document must discuss in its management's discussion and analysis (MD&A) events and circumstances that occurred during the MD&A period that are reasonably likely to cause actual results to differ materially from the material FLI that the reporting issuer previously released. This includes previously disclosed earnings guidance of the reporting issuer.
Updates to or notification that an issuer is withdrawing previously disclosed material FLI must be disclosed in a news release (if such update or withdrawal constitutes material information) or in its MD&A. The MD&A must include disclosure and discussion of material differences between actual results and previously disclosed FOFI or financial outlook.
Many issuers have already issued a news release updating or withdrawing previously issued guidance as a result of impacts of COVID-19 or have updated or withdrawn such guidance in their recently filed MD&A. As the COVID-19 pandemic continues to evolve, reporting issuers must continue to assess whether further updates are necessary for any remaining outstanding FLI, either positive or negative, given the implications to the issuer's business specifically. See our May 2020 Blakes Bulletin: Earnings Calls in the Age of COVID-19: Proceed with Caution, which discusses the challenges of and best practices for formulating financial and operational projections in the COVID-19 context.

Risk Factor Disclosure

Risks related to COVID-19 may include, but are not limited to, a drop in demand for products or services, supply chain disruptions, interruptions and challenges in operations and project development, labour shortages and challenges (including as a result of work-from-home measures, lack of childcare options available to employees and employees or their families suffering from COVID-19 itself), increased costs in complying with COVID-19 regulations, credit rating risks, and significant and sustained market volatility as a result of the COVID-19 pandemic. Issuers should carefully consider and assess the specific impact to their business of these and other risks. Risk factor disclosure should be robust and entity-specific (as opposed to boilerplate) and consider both current and future known and unknown impacts.
See our April 2020 Blakes Bulletin: Anatomy of a Risk Factor, which discusses the importance of updating risk factor disclosure for the current and anticipated future environment, particularly in the context of an issuer's annual information form and MD&A. As an issuer’s annual information form is filed only once per year and each interim MD&A is designed to build on an issuer’s annual MD&A, it is important for issuers to review previous risk factor disclosure and provide interim updates for current developments and context when new quarterly reports are released, in respect of both positive developments for reopening of the economy and potential risks in light of a second wave or stricter restrictions being implemented by governing authorities.
Although the vast majority of public companies have seen negative performance trends due to COVID-19, some issuers have businesses that are outperforming. These issuers should consider whether risk factor disclosure is necessary to outline the potential temporary nature of their outperformance should the “new normal” not be as beneficial to their businesses.

Q2 2020 MD&A Considerations 

As issuers begin to prepare their Q2 2020 MD&A, it will be important to provide investors with an understanding of how significantly and in what ways COVID-19 has been impacting their business and financial results, whether positively or negatively, and how they are responding to such trends. The CSA reminded issuers of the importance of relevant and high-quality financial disclosure in a news release issued on May 29, 2020, and that “[i]t is extremely important that reporting issuers provide investors with meaningful and transparent financial information about how the global pandemic is impacting their financial situation.” On the same day, the International Organization of Securities Commissions (IOSCO) issued a statement on COVID-19-related disclosure, encouraging issuers’ fair disclosure about COVID-19-related impacts, emphasizing the need for transparent and complete disclosures. The CSA indicated their support of the IOSCO statement.

The CSA provided further guidance on the impact of COVID-19 on the content of public company reporting in a recent presentation posted to their website. In respect of an issuer’s MD&A, they stressed the need for issuers to (1) include in their discussion of operations disclosure of the specific impacts of COVID-19 on their business (including quantifying the impact of such variances where possible) and their operational responses, and (2) ensure their liquidity and capital resources disclosure (a) sufficiently addresses COVID-19 impacts on their liquidity position (short term and long term) to maintain capacity, achieve planned growth or fund development activities, and trends or expected fluctuations in their liquidity, taking into account demands, commitments, events or uncertainties, and (b) appropriately addresses defaults or arrears or significant risk of default or arrears. With the continually evolving nature of the pandemic, it may be challenging to decide what information is necessary to provide, and care should be taken while drafting MD&A to review the disclosure requirements in light of the information available at that time.

See our April 2020 Blakes Bulletin: Anatomy of a Risk Factor, which notes that the focus of an issuer’s MD&A may, in the current COVID-19 context, appropriately shift over time to be about how an issuer is actually mitigating and addressing the impacts of COVID-19 on its operations and financial condition rather than disclosing a theoretical risk of being impacted in the first place. This approach has received support in a public statement issued by the chairman of the Securities and Exchange Commission in the U.S., which while not binding on Canadian issuers whose disclosure documents are prepared in accordance with Canadian securities law requirements, is instructive.

Prospectus Offering Considerations

The disclosure considerations set out above will also need to be considered by companies contemplating a prospectus offering. In particular, companies will need to consider what additional disclosure may be necessary in the prospectus itself where the risk factor disclosure in the documents to be incorporated by reference does not adequately address COVID-19 risks or where it needs to be updated to reflect recent developments. Furthermore, underwriters may expect to see COVID-19-related risk factor disclosure in the prospectus itself, even if the risks are appropriately described in the documents to be incorporated by reference.
Companies should also consider the impact of recent developments on their business and what events or circumstances may need to be disclosed. Some examples include if the company's corporate strategy or business plans have been adjusted, if updated guidance has been issued, if the company's credit ratings have been impacted, or if COVID-19 is resulting in significant operational challenges for the company, the prospectus will need to contain clear and comprehensive disclosure of all such matters.
COVID-19 will likely be a key focus of underwriter due diligence for the foreseeable future, and underwriters should expect to see a broad list of COVID-19-specific questions included in due diligence questions for management. These may include questions related to the impact of COVID-19 on the company's financial condition and results of operations, its expected impact on future operating results and near-term and long-term financial condition, and the impact of COVID-19 on the company's guidance (if disclosed), credit ratings and commercial contracts.

Additional Information

The CSA’s recently posted presentation regarding guidance on the impact of COVID-19 on the content of public company reporting provides additional commentary on many of the other issues outlined above.


As the impact of COVID-19 became apparent and social-distancing requirements were established, various corporate regulators established temporary relief measures, including, in some cases, relating to the deadline for holding an annual shareholder meeting. In addition, the Toronto Stock Exchange provided relief from the requirement for an issuer to hold its annual shareholder meeting within six months of the end of its fiscal year, permitting issuers to hold their 2020 annual shareholder meeting at any time up to December 31, 2020Furthermore, the CSA provided public companies with temporary blanket relief from certain filing and delivery requirements that are generally tied to the sending of materials for annual general meetings. See, in part, our March 2020 Blakes Bulletin: CSA and TSX Publish Temporary Blanket Relief Due to COVID-19, our April 2020 Blakes Bulletin: Canadian Governments Suspend Corporate Deadlines and our April 2020 Blakes Bulletin: Ontario Expands and Refines Order Regarding Corporate Meetings.
Hosting in-person annual shareholder meetings during COVID-19 continues to contradict public-health advice to practise social-distancing measures. As such, any company that decided to postpone its 2020 annual shareholder meeting to later in the year, in reliance on an applicable temporary relief measure, must consider whether the postponed meeting should be held in person, virtually (i.e., using digital technologies only) or in a "hybrid" format (i.e., both in person and virtually).
Even as COVID-19 restrictions begin to lift, social-distancing requirements are expected to be eased only gradually, and restrictions on gatherings of large groups may be in place for some time. For example, Alberta's Relaunch Strategy includes three relaunch stages, with gatherings of more than 100 people for indoor seated/audience events (where people remain seated) continuing to be prohibited through Stage 2 of the relaunch. Although permitted gathering sizes will increase as we progress to Stage 3, it does not indicate what the increase in numbers will be at either subsequent stage or provide any guidance as to the timeframe for progression through the relaunch stages.
In many Canadian jurisdictions, holding a virtual or "hybrid" meeting is only permissible if specifically permitted by the corporation's bylaws. A temporary exception to this is Ontario, where the government has issued Ontario Regulation 107/20 under the Emergency Management and Civil Protection Act (O.Reg. 107/20), which permits Ontario Business Corporations Act corporations to hold an annual shareholder meeting via telephonic or electronic means, provided that shareholders are able to vote or establish a communications link to the meeting via such means, even where prohibited by the corporation's articles or bylaws. If a company's bylaws prohibit virtual or "hybrid" meetings, the board of directors may amend the bylaws with the amendment effective until the next meeting of shareholders (when the amendment can be confirmed or rejected by shareholders). Similar relief has been provided by the Government of Quebec, which issued a ministerial order on April 26, 2020, with additional details provided by press release, to temporarily allow certain entities, including corporations governed by the Quebec Business Corporations Act, to hold a virtual meeting of shareholders in circumstances where all members are able to communicate with each other immediately, even if their bylaws otherwise prohibit participation in meetings through technological means.
Given the unpredictable nature of the pandemic, companies may want to also consider hosting their annual shareholder meeting for 2021 in a virtual or hybrid meeting format. Planning early for this will allow companies to assess the various digital platforms currently available and plan appropriately, including locking in their preferred meeting date and timing.
Institutional shareholders and shareholder advisory groups, including Institutional Shareholder Services (ISS), have typically favoured in-person or hybrid meeting formats over virtual-only meetings as they provide shareholders with a more meaningful opportunity to participate. As social-distancing guidance and requirements were implemented by various governments, ISS issued, in April of this year, updated voting guidance policy indicating that ISS is extremely mindful of the risks created by the COVID-19 pandemic and the need for social-distancing measures and that virtual-only meetings may be necessary and desirable in the circumstances. ISS recommended that companies provide clear disclosure as to the reason for a virtual-only meeting, that effort be made to provide shareholders with the means to participate as fully as possible (subject to the laws of the local jurisdiction) and that companies commit to returning to in-person or hybrid meetings as soon as possible. It remains to be seen whether large group gatherings, including physical shareholder meetings, will be permitted or advisable later this year or in 2021.
For further information, please reach out to a member of our Capital Markets group or your usual Blakes contact at any time.
Please visit our COVID-19 Resource Centre to learn more about how COVID-19 may impact your business.