Expanded disclosure requirements in BC could having chilling effect on private placements

As we discussed in a blog post of August 16, the British Columbia Securities Commission recently announced that, effective October 3, 2011, exempt distributions (private placements) in British Columbia will be subject to expanded post-trade disclosure requirements. These new rules are expected to have a chilling effect on private placements into British Columbia, particularly by foreign public companies and investment funds, and other issuers that are not "reporting issuers" (public companies) in Canada. While issuers making an exempt distribution in B.C. will generally be required to file the new Form 45-106F6 (in addition to filing a Form 45-106F1 in other Canadian jurisdictions, as applicable), issuers that are not reporting issuers in any jurisdiction of Canada will have to comply with more onerous requirements. As we mentioned in our earlier blog post, however, an exempt distribution report on the new Form and on Form 45-106F1 will only be required for distributions effected pursuant to prescribed prospectus exemptions. The practical feasibility of collecting the required information and the fact that the additional information will be publicly accessible must be carefully considered by issuers before they decide to make a private placement in British Columbia. Specifically, the new form will require non-reporting issuers to provide disclosure in the main body of the report regarding the securities beneficially owned, or directly or indirectly controlled, by each insider and promoter of the issuer. The term "insider" under British Columbia securities legislation captures a wide range of persons including, for example, directors and officers of entities holding more than 10% of the voting rights of the issuer. Investment funds managed by an investment fund manager registered in a Canadian jurisdiction, however, will not have to provide the additional information. Importantly, the required information will include the price paid for all securities held by the insider or promoter and their directors and officers on the distribution date, including securities previously acquired. Underwriters and issuers, particularly those involved in global offerings by major non-Canadian issuers will likely face significant practical difficulties in collecting, vetting and disclosing the required information within the prescribed 10-day timeframe for filing. Also, since the information will be required in the main body of the form, it will be publicly accessible in electronic form. As such, non-reporting issuers should carefully consider these new requirements before undertaking an exempt distribution in British Columbia. Those continuing to make exempt distributions in British Columbia after October 3 should review their subscription and other related documentation to ensure they are obtaining the information necessary to fulfill these new reporting requirements. For more information, see our blog post of August 16, cited above.

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