Authors: Mahdi Shams, Taylor Dignan, Dax Moir
Starting November 21, 2022, reporting issuers listed on a Canadian stock exchange can distribute free-trading securities to investors without filing a prospectus, subject to certain conditions.
In response to stakeholder feedback, the Canadian Securities Administrators (“CSA”) announced on September 8, 2022, a new prospectus exemption that allows reporting issuers listed on a Canadian stock exchange a more efficient way to access the public markets and raise capital. The Listed Issuer Financing Exemption (LIFE) will rely on an issuer’s continuous disclosure record and a short offering document to allow issuers to distribute freely tradeable listed equity securities to the public.
Reporting Issuer Conditions
In order to qualify for the Listed Issuer Financing Exemption, a reporting issuer must meet the following conditions:
- be a reporting issuer in at least one jurisdiction of Canada for at least 12 months immediately before announcing an intention to rely on the Listed Issuer Financing Exemption;
- have equity securities listed on a recognized Canadian stock exchange;
- must have filed all periodic and timely disclosure documents under applicable securities legislation and orders or undertakings to the securities regulators;
- not be an issuer that ceased operations within the past 12 months or whose assets are primarily cash, cash equivalents or an exchange listing (e.g. capital pool companies on the TSX Venture Exchange or special-purpose acquisition companies under United States securities laws); and
- not be an investment fund issuer.
Distribution Conditions
Provided that the reporting issuer satisfies the conditions above, the Listed Issuer Financing Exemption can be used to distribute freely trading securities to investors provided that the distribution satisfies the following requirements:
- an issuer’s distributions made under the Listed Issuer Financing Exemption do not exceed the greater of $5 million or 10% of the aggregate market value of the reporting issuer’s securities on the date the issuer issues a news release announcing the offering, up to a maximum of $10 million in the previous 12 months;
- an issuer’s distributions made under the Listed Issuer Financing Exemption do not result in an increase of greater than 50% of the issuer’s listed securities in the previous 12 months;
- the securities being distributed pursuant to the Listed Issuer Financing Exemption must be either:
- a listed equity security, or
- a unit consisting of a listed equity security and a warrant that is convertible into a listed equity security; and
- the capital funds raised pursuant to the Listed Issuer Financing is not being used for:
- a transaction that requires approval of any security holder;
- a significant acquisition; or
- a restructuring transaction that would require additional financial statements pursuant to the securities law prospectus rules.
Offering Document and News Release
Provided the above conditions are met, issuers can issue free-trading prospectus-exempt securities under the Listed Issuer Financing Exemption by issuing and filing a news release announcing the planned offering with applicable securities regulators and on SEDAR. In addition to a press release, issuers must prepare and file an offering document in Form 45-106F19 Listed Issuer Financing Document (the “Offering Document”) with applicable securities regulators containing certain information, including:
- the price and details of the securities being offered;
- a short summary of the issuer’s business;
- any recent developments affecting the issuer’s business;
- any material facts not disclosed in the issuer’s other public disclosure documents;
- a statement confirming the offering document has not been reviewed by securities regulators;
- a summary of the statutory rights available to the respective purchasers of the securities; and
- the proposed use of the funds being raised.
Notably, if there is a misrepresentation in the Offering Document, then the purchasers of any securities issued under the misrepresented Offering Document will have the right to:
- rescind the purchase of the securities; or
- bring a claim for damages against the issuer – and, in some jurisdictions, against the directors of the issuer and any executives who signed the Offering Document.
The Offering Document will not be reviewed by the CSA or its staff prior to the distribution of any securities under the Listed Issuer Financing Exemption.
Conclusion
The Listed Issuer Financing Exemption introduced by the CSA seeks to improve capital market efficiency in Canada by eliminating the need for short-form prospectuses, while still maintaining safeguards to uphold investor protection. Most notably, smaller reporting issuers will benefit from greater access to capital through reduced compliance costs.
The addition of the Listed Issuer Financing Exemption is reflective of capital-raising requirements in other countries and the CSA’s ongoing efforts to reduce the regulatory burden for reporting issuers. For further information on the Listed Issuer Financing Exemption and other financing options, please do not hesitate to reach out to a member of our Corporate Finance & Securities Group.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.