March 15, 2012

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What it means for Venture Issuers

On July 29, 2011, the Canadian Securities Administrators published for comment National Instrument 51-103: Ongoing Governance and Disclosure Requirements for Venture Issuers (“NI 51-103”) which, if and when adopted into law, will introduce a new regulatory regime for venture issuers. The intent of the Instrument is to streamline and tailor venture issuer disclosure requirements. Another key feature of NI 51-103 is to consolidate the vast majority of disclosure obligations applicable to venture issuers into a single instrument, thereby reducing disclosure redundancies.

NI 51-103 will apply to venture issuers – reporting issuers that do not have any of their securities listed or quoted on the Toronto Stock Exchange, an exchange registered as a “national securities exchange” under section 6 of the U.S. Securities and Exchange Act of 1934, or a marketplace outside of Canada or the U.S., other than the AIM of the London Stock Exchange and the PLUS markets operated by the PLUS Markets Group.

Moreover, the definition of “venture issuer” as described in NI 51-103 will exclude debt-only issuers, preferred share-only issuers and issuers of securitized products. These issuers will continue to be subject to venture issuer requirements under National Instrument 51-102 Continuous Disclosure Obligations. Further, the proposed definition also excludes issuers which are subject to BC Instruments 51-509 Issuers Quoted in the U.S. Over-the-Counter Markets, and the CSA also intends to exclude from the definition issuers subject to proposed Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets.

Essentially, NI 51-103 will replace the governance, disclosure and certification obligations of venture issuers currently provided under National Instrument 51-102 Continuous Disclosure Obligations, National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, National Instrument 52-110 Audit Committees and National Instrument 58-101 Disclosure of Corporate Governance Practices.

Some of the key proposals include: strict governance responsibilities regarding conflicts of interest, disclosure of material related entity transactions and trading policies; filing of annual and mid-year reports, which will include financial statements and auditor’s reports; the introduction of voluntary interim filings; specific rules relating to proxy solicitation and information circulars, as well as prospectuses and other offering documents; the replacement of business acquisition reports with enhanced material change reporting; and individualized compensation disclosure for directors and named executive officers.

Although the effective date and transition period for the implementation of NI 51-103 is currently unknown, venture issuers ought to familiarize themselves with the Instrument. NI 51-103 recognizes the specific concerns facing venture issuers and the important economic role played by small and medium-sized businesses in Canada. This new tailored framework will allow venture issuers to devote more resources to growth, while reducing their costs of compliance.


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