The Ontario Securities Commission (OSC) recently adopted OSC Rule 72-503 Distributions Outside Canada. This new rule provides four new prospectus exemptions relating to distributions outside of Canada by Ontario issuers and will come into force on March 31, 2018. For the most part, these new exemptions simply codify the interpretation of existing securities legislation in Canada and are intended to bring greater certainty to cross-border activities by Ontario issuers. They are also similar, but not identical to rules already in place in other Canadian jurisdictions such as British Columbia and Alberta.
New Prospectus Exemptions
The four new prospectus exemptions are:
1. Distribution Under Public Offering Document in Foreign Jurisdictions
The prospectus requirement will not apply to a distribution of securities to a person or company outside Canada if, at the time of the distribution, one or both of the following apply:
- the issuer has filed a registration statement in accordance with the 1933 Act registering the securities in connection with the distribution, and that registration statement is effective; or
- the issuer has filed an offering document that qualifies, registers, or permits the public offering of those securities in accordance with the securities laws of a specified foreign jurisdiction and, if required, a receipt or similar acknowledgement of approval or clearance has been obtained for the offering document in the specified foreign jurisdiction.
The 16 specified foreign jurisdictions are: 1. Australia, 2. France, 3. Germany, 4. Hong Kong, 5. Italy, 6. Japan, 7. Mexico, 8. The Netherlands, 9. New Zealand, 10. Singapore, 11. South Africa, 12. Spain, 13. Sweden, 14. Switzerland, 15. United Kingdom of Great Britain and Northern Ireland, and 16. any other member country of the European Union.
Securities issued under this prospectus exemption will be freely tradable in Canada (i.e., there are no resale restrictions controlling sales back into Canada).
2. Concurrent Distribution under Final Prospectus in Ontario
The prospectus requirement will not apply to a distribution of securities to a person or company outside Canada if,
- the issuer of the securities or the selling security holder has materially complied with the disclosure requirements applicable to the distribution under the securities law of the jurisdiction outside Canada, or the distribution is exempt from such requirements; and
- the issuer of those securities has filed with the OSC, and a receipt has been issued for, a final prospectus qualifying a concurrent distribution of the same class, series or type of securities to purchasers in Ontario in accordance with Ontario securities law.
Securities issued under this prospectus exemption will be freely tradable in Canada (i.e., there are no resale restrictions controlling sales back into Canada).
3. Distributions by Reporting Issuers
The prospectus requirement does not apply to a distribution by an issuer of a security of its own issue to a person or company outside Canada if:
- the issuer has materially complied with the disclosure requirements applicable to the distribution under the securities law of the jurisdiction outside Canada, or the distribution is exempt from such requirements; and
- the issuer is a reporting issuer in a jurisdiction of Canada immediately preceding the distribution.
Securities issued under this prospectus exemption will be freely tradable in Canada (i.e., there are no resale restrictions controlling sales back into Canada).
4. Distributions by Non-Reporting Issuers
The prospectus requirement does not apply to a distribution by an issuer that is not a reporting issuer in a jurisdiction of Canada of a security of its own issue to a person or company outside Canada if, the issuer has materially complied with the disclosure requirements applicable to the distribution under the securities law of the jurisdiction outside Canada, or the distribution is exempt from such requirements.
Securities sold under this exemption are not freely tradable back into Canada. A legend is required on the securities unless and until the issuer becomes a reporting issuer in Canada and four months have elapsed thereafter.
Exchange or Market Outside Canada
For the purposes of the aforementioned four new prospectus exemptions, a distribution made on or through the facilities of an exchange or market outside Canada is a distribution to a person or company outside Canada if neither the seller nor any person acting on its behalf has reason to believe that the distribution has been pre-arranged with a buyer in Canada.
Anti-avoidance
However, note that the four new prospectus exemptions are not available with respect to any transaction or series of transactions that is part of a plan or scheme to avoid the prospectus requirements in connection with a distribution to a person or company in Canada.
Report of Distribution outside Canada
An issuer that relies on the “Distributions by Reporting Issuers Exemption” or the “Distributions by Non-Reporting Issuers Exemption” must electronically file a report of trade with respect to the distribution as required by Form 72-503F Report of Distributions Outside Canada and its instructions.
Generally speaking, the report must be filed on or before the tenth day after the distribution date. However, an issuer that is an investment fund must file the report not later than 30 days after the end of the calendar year in which the distribution occurred.
Invitation for Discussion:
If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Linmac LLP.
Disclaimer:
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.