Client Updates

CSA Creates New Exemption to Allow Eligible Listed Public Companies to Issue Freely Tradable Securities Without Filing a Prospectus

Brad Ross, Emily Hamovitch and Andrew Patel
On September 8, 2022, the Canadian Securities Administrators (CSA) announced a new prospectus exemption aimed at streamlining the process for eligible listed public companies to raise small amounts of capital through the issuance of freely tradable securities. The Listed Issuer Financing Exemption (the “Exemption”) allows those companies to raise the greater of $5 million or 10% of the company’s market capitalization, up to a maximum of $10 million in a 12-month period.

Background

Under Canadian securities laws, issuing freely tradable securities (particularly to retail investors) usually requires the issuer to file a prospectus. While Canadian securities laws allow eligible listed public companies to utilize a streamlined short form prospectus system, the time and cost associated with preparing the required documents and the timeframe of regulatory review may still present significant challenges in efficiently raising capital. These challenges can be exacerbated for smaller public companies raising relatively small amounts of capital.

The Exemption

In response to these concerns, the CSA introduced the Exemption to allow eligible listed public companies to distribute freely tradeable equity securities to the public without a prospectus in certain circumstances. The Exemption is available to issuers with securities listed on a Canadian stock exchange who have been a reporting issuer in Canada for at least 12 months and have filed all required continuous disclosure documents. The Exemption allows these issuers to raise the greater of $5 million or 10% of the issuer’s market capitalization, up to a maximum of $10 million in a 12-month period, so long as the distributions do not result in an increase of more than 50% of the issuer’s listed securities in that 12-month period. 

Issuers utilizing the Exemption will be required to issue a press release announcing the distribution and file a short offering document containing the information specified in Form 45-106F19 Listed Issuer Financing Document (the “Offering Document”). Such information includes the details and price of the securities being offered, a brief summary of the issuer’s business and any recent developments, any material facts not otherwise disclosed in the issuer’s public disclosure, and the use of the funds raised. The Offering Document will not be reviewed by applicable CSA staff in advance of the distribution. If the Offering Document contains any misrepresentations, the issuer, and in some jurisdictions, the executives signing the Offering Document and the issuer’s directors, would be subject to the statutory liability regime applicable to prospectus offerings.

The Exemption is not available to certain types of issuers, including investments funds, issuers without active operations (including SPACs and CPCs) or issuers that will not have available funds to meet their business objectives and liquidity requirements for a period of 12 months following the distribution. The Exemption is also not available in certain other circumstances, including if an issuer intends to use the funds raised to complete a “significant acquisition” or a transaction that requires security holder approval or for the distribution of subscription receipts, special warrants, or convertible debentures.

Although available to eligible issuers of all sizes, the Exemption is expected to primarily benefit smaller issuers by providing a more cost and time efficient way to raise money through the public markets from a broader group of investors or without a pricing discount that might otherwise accompany the issuance of a security that is not immediately freely tradable.

The amendments that provide for the Exemption will come into force on November 21, 2022, provided all necessary approvals are obtained.

If you would like to discuss the Exemption or for any further information, please contact any member of our Capital Markets Group.

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