Prospectus Exemptions – 45-106
January 1, 2023
As the Canadian Securities Administrators (CSA) continue to enhance investor protection, registrants relying on the offering memorandum (OM) prospectus exemption under National Instrument 45-106 Prospectus Exemptions (NI 45-106) must be aware of recent amendments. These changes, effective from March 8, 2023, require issuers to provide additional disclosure to purchasers.
The following are key amendments and their impact on OM disclosure, particularly for real estate issuers and collective investment vehicles (CIVs).
General Amendments:
The amendments introduce several general disclosure requirements for issuers utilizing the OM prospectus exemption:
Enhanced Cover Page Disclosure: Issuers must provide more detailed information on the cover page to highlight key matters for purchasers.
Disclosure Relating to Related Parties: Issuers must disclose any business transactions, compensation, or purchase/sale history involving related parties.
Criminal and Quasi-Criminal Convictions: Disclosure of any criminal or quasi-criminal convictions for directors, executive officers, or control persons is now mandatory.
Redemption and Retraction Disclosure: Issuers must disclose information about redemption/retraction fees, limitations, requests made, and fulfilled, including the price paid and the source of funds.
Dividend and Distribution Disclosure: Issuers must disclose the source of funds for dividends or distributions that exceed cash flow from operations.
Cautionary Disclosure for Expert Reports: If expert reports, statements, or opinions are included in the OM without statutory liability against the expert, cautionary disclosure is required.
Interim Financials in Ontario: If a distribution is ongoing, issuers must amend the OM to include interim financials for the most recently completed six-month period. However, an exemption is available if an additional certificate is appended.
Real Estate Issuers:
Additional requirements have been introduced specifically for real estate issuers:
Independent Appraisal: If an interest in real property is acquired from a related party or the OM discloses a value for such an interest, an independent appraisal must be provided to the purchaser.
Schedule 1 to Form 45-106F2: Real estate issuers must complete a new schedule, including relevant disclosures for developers and owners/operators of developed real property, penalties/sanctions, and purchase/sale history with related parties.
Collective Investment Vehicles (CIVs):
CIVs have specific disclosure obligations under the amendments:
Description of Investment Objectives: CIVs must provide a comprehensive description of their investment objectives.
Disclosure of Penalties and Sanctions: Information regarding penalties, sanctions, bankruptcy, insolvency, and criminal or quasi-criminal convictions for persons involved in selecting and managing investments must be disclosed.
Portfolio Information: CIVs must disclose information about the portfolio and its performance.
Takeaways:
The amendments to NI 45-106 introduce additional disclosure requirements for issuers relying on the OM prospectus exemption. It is crucial for registrants, particularly real estate issuers and CIVs, to understand and comply with these changes. By adapting their disclosure practices, issuers can ensure compliance, provide enhanced transparency to purchasers, and align themselves with the CSA's commitment to investor protection.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer.
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