New Prospectus Exemption Facilitates Capital Raising by Listed Issuers

Authors: Steven Robertson, Andrew Dilts

This post was written prior to our January 2017 merger, under our previous firm name, MacPherson Leslie & Tyerman LLP.

Issuers listed on Canadian securities exchanges are now able to raise capital using a prospectus exemption allowing for the distribution of securities to investors in British Columbia, Alberta, Saskatchewan, Manitoba, and New Brunswick who have obtained advice about the suitability of the investment from an investment dealer.

The new exemption is designed to foster participation in private placements by retail investors, and to facilitate capital raising by companies listed on recognized exchanges, while maintaining an appropriate level of investor protection.

Issuers relying upon the new exemption to issue securities must meet a number of key conditions in addition to the requirement that investors obtain advice from an investment dealer as to the suitability of the investment. For example, investors must be provided with a contractual right of action against the company in the case of a misrepresentation in the company’s continuous disclosure record, regardless of whether the misrepresentation was relied on by the investor (purchasers in Alberta are afforded a statutory right of action under that province’s Securities Act). If the company provides an offering document – which is not required under the exemption – the investor will also have certain rights of action against the company if that document contains a misrepresentation.

Other conditions include the following:

  • The securities offered are limited to: (1) a listed security, (2) a security convertible into a listed security at the holder’s sole discretion, or (3) a unit consisting of a listed security plus a warrant to acquire another listed security.
  • All timely and periodic disclosure documents required by securities regulation must have been filed by the issuer.
  • The company must have a class of equity securities listed on the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or Aequitas Neo Exchange Inc.
  • The company must be a reporting issuer in at least one jurisdiction of Canada.
  • The news release announcing the distribution must include a description of the use of proceeds and a statement that there is no material fact or material change about the issuer that has not been generally disclosed.

Further details about this new prospectus exemption can be found in Multilateral CSA Notice 45-318 and the provincial securities regulators’ documents described in that Notice.