En français s'il vous plaît: What Issuers Contemplating Offering Securities in Québec Should Know About Québec French-Translation Requirements
April 19, 2011
Issuers that contemplate raising capital in Québec, whether through a prospectus offering or an offering exempt from the prospectus requirement, generally question what French-translation requirements, if any, are triggered by such an offering. Below, we answer some frequently asked questions in this regard in hopes of dispelling certain common misconceptions.
The Securities Act (Québec) (QSA) contains specific provisions requiring the translation into French of certain offering documents. In addition, the Québec Charter of the French language contains certain general provisions that may apply to documents used in connection with an offering of securities in Québec. Note that the mere distribution of securities in Québec will not, by itself, constitute "doing business" in Québec; issuers should be aware, however, that doing business in Québec would trigger additional French-language requirements under the Charter that are not discussed below.
What documents need to be translated in connection with an exempt offering?
- The distribution of securities in Québec on an exempt basis will generally be carried out as a private placement pursuant to the "accredited investor" or "$150,000 minimum amount investment" prospectus exemptions found in Regulation 45-106 respecting prospectus and registration exemptions. In such case, investors will often be delivered an offering document (even though not legally required) describing the issuer and the securities being offered, and they will typically also be asked to execute a subscription agreement.
- Under the QSA, there is no legal requirement to translate into French any offering document used in such a private placement since, with respect to exempt offerings, the QSA requires the translation of an offering document only where the specific prospectus exemption being relied on actually requires that an offering document be prepared and delivered to investors: two such exemptions are the "offering memorandum" exemption and the "rights offering" exemption under Regulation 45-106, both of which require that an offering document in prescribed form be delivered to investors.
- Under the Charter, contracts pre-determined by one party and contracts containing printed standard clauses — and related documents — must be drawn up in French, though they may be drawn up in English at the express wish of the parties. Accordingly, in the context of private placements, it is prudent to add a clause in the subscription agreement confirming the investor’s wish that it (together with related documents) be in English, if the issuer wishes to avoid having to translate into French such documents.
Are there any translation requirements applicable following closing of a private placement?
- Note that an issuer does not become a "reporting issuer" under the QSA solely by virtue of completing a private placement in Québec. Consequently, non-reporting issuers that complete private placements in Québec will have no ongoing requirement under Regulation 51-102 respecting continuous disclosure obligations to file "continuous disclosure" documents in Québec — and therefore, except as noted below in connection with a prospectus offering in Québec, no ongoing French-translation requirements.
Which documents need to be translated in connection with a prospectus offering?
- The QSA provides that every prospectus of any type, and any document required to be incorporated by reference therein, shall be drawn up in French only or in French and English. The French version of the prospectus must be filed with the Autorité des marchés financiers (AMF) and delivered to Québec investors.
- For an issuer filing a short-form prospectus, base-shelf prospectus or supplement to a base-shelf prospectus, the documents incorporated by reference therein (including the issuer’s current AIF, information circular, recent material change reports, annual and interim financial statements and related MD&A) will also have to be translated and filed in the French version with the AMF(subject to certain exemptions discussed below):
- In the case of a short-form prospectus (in preliminary or final form, as applicable), no later than the time of filing of the prospectus and, thereafter, during the course of a distribution of securities under the prospectus until termination thereof, simultaneously with the filing with the AMF of the English version of the relevant document incorporated by reference in the prospectus.
- In the case of a base-shelf prospectus (in preliminary or final form, as applicable), no later than the time of filing of the prospectus, and in the case of a shelf prospectus supplement, no later than the date of its delivery to investors or filing with the AMF. This implies that issuers wishing to have the ability to file shelf prospectus supplements from time to time without any delay associated with French translation should consider continuously translating their continuous disclosure documents incorporated by reference into the base-shelf prospectus.
- Under the Charter, the forms of order and confirmation used in connection with a prospectus offering for Québec investors will also have to be translated in the French language.
Are there any exemptions available from translation requirements?
- The AMF has granted in the past, in certain circumstances, exemptions from certain French-translation requirements in connection with prospectus offerings. The main categories of exemptions are as follows:
- temporary exemptions granting relief from translating into French certain documents incorporated by reference into a preliminary short-form prospectus or preliminary base-shelf prospectus, provided these documents are translated and filed within a certain delay (typically as soon as possible, and in any event no later than the date of filing of the final prospectus);
- temporary exemptions granting relief from translating into French certain lengthy documents of SEC issuers incorporated by reference into a base-shelf prospectus (such as Forms 10-K and 20-F) provided these documents are translated within a certain period of time (typically up to 35 days after filing with the SEC); and
- permanent exemptions granting relief from translating into French the documents (or a portion of such documents) incorporated by reference into a short-form prospectus or base-shelf prospectus that would not be required under the QSA to be incorporated by reference into the prospectus — for example, certain schedules to a Form 10-K.
- The AMF will generally not grant any exemption from the French translation requirement of the prospectus itself. However, certain issuers have filed the French version of a preliminary prospectus in Québec after the filing of the English version thereof elsewhere in Canada. In such context, no solicitation and/or distribution of securities of the issuer may occur in Québec until a receipt is issued by the AMF for the French version of the preliminary prospectus filed in Québec.
- Issuers are being cautioned that AMF Staff may exercise its discretion when granting translation exemptions, depending on the relevant facts and circumstances of each file. Staff may also impose certain conditions to the granting of these exemptions (such as adding a mention in the prospectus to the effect that the French version of the referenced document will be available on SEDAR no later than on the specific date indicated in the AMF exemption decision). Issuers are cautioned to consult Québec legal advisors as early as possible in connection with a planned offering of securities in Québec to avoid any translation issues.
After becoming a reporting issuer in Québec by completing a prospectus offering, will I have to translate my continuous disclosure documents?
- The QSA provides that an issuer that completes a prospectus offering in Québec becomes a "reporting issuer" in Québec and, therefore, subject to the continuous disclosure obligations under Regulation 51-102 respecting continuous disclosure obligations.
- The continuous disclosure documents required under Regulation 51-102 may be filed in either French or English, so there is no legal requirement per se to translate these documents into French. However, as indicated above under "What documents need to be translated in connection with a prospectus offering?", any such document will have to be translated into French once it becomes incorporated by reference into a prospectus (subject to the temporary or permanent exemptions discussed above).
- Issuers often ask whether they must translate into French an information circular prepared for a special meeting of shareholders in connection with a merger transaction. As indicated above, a continuous disclosure document such as an information circular does not have to be translated into French unless and until it becomes incorporated by reference into a prospectus. However, in the context of a takeover or merger transaction structured as an arrangement or amalgamation, AMF Staff issued a notice in 2001 stating that it would like issuers to consider, in particular, the number of beneficial holders of the offeree company in Québec as well as its degree of attachment to Québec, in making a decision whether to prepare the information circular in French or in French and English.
Is it possible to carry out a prospectus offering elsewhere in Canada with a concurrent private placement in Québec, to avoid the French-translation requirement?
Issuers proceeding with a prospectus offering in Canada sometimes contemplate not filing the prospectus in Québec, but instead selling securities to certain Québec investors on a private-placement basis concurrently with the prospectus offering, in order to avoid the costs and delay of having to translate into French the prospectus (and any documents incorporated by reference therein). Issuers should be aware, however, that in a notice issued in 1989, AMF Staff indicated that it considered any attempt to distribute securities in such circumstances to Québec investors without the benefit of a prospectus would be an abuse of the private-placement exemption — and that, in such circumstances, AMF Staff would not hesitate to intervene by denying the availability of the private-placement exemption or by issuing a cease trade of the issuer’s securities, in order to protect Québec investors and the integrity of the capital markets.
For most private placements involving Québec investors, issuers are reminded that there are no French-translation requirements that apply in connection with, and subsequent to, the offering solely as a result of the private placement.
However, under the current regime, issuers wishing to access the Québec capital markets by way of a prospectus offering will need to comply with French-translation requirements in connection with the offering and should plan in their timetables certain translation delays, except if exemptions are available as noted above. If well-planned, these requirements and related costs and delays should be minimal compared to the advantages of accessing additional capital from Québec institutional and retail investors. Most importantly, issuers are reminded that there are no ongoing French-translation requirements subsequent to a prospectus offering in Québec solely as a result of the completion of the offering.