The Direction principale du financement des sociétés (“DPFS”) of the Autorité des marchés financiers (the “AMF”) recently released its Summary of Oversight and Regulatory Activities (the “Summary”) for the year ended December 31, 2023. We have prepared an overview of the key points of the Summary for reporting issuers regarding the AMF’s findings on the level of disclosure in continuous disclosure documents and the AMF’s orientation on the implementation of new regulations.

Deficiencies Identified in Continuous Disclosure Documents

During 2023, as part of its review program, the DPFS primarily identified the following deficiencies. 

Base Shelf Prospectus

The Summary reported that the dollar value indicated by some issuers in the base shelf prospectus they filed was unreasonable[1]. According to the AMF’s review, the following factors are considered as contextual factors: “the proposed use of proceeds (including concrete development milestones), previous distributions under a prospectus, the issuer’s market capitalization, and other relevant financial indicators” and these factors must be consistent with the information contained in the continuous disclosure documents and the total proposed value of the base shelf prospectus offering. As such, the AMF indicated it might have to ask a company to justify the high dollar amount of the offering, and, if the contextual factors are unreasonable, it might have to intervene to require that the company reduce the dollar value of the proposed base shelf prospectus offering. The base shelf prospectus is becoming an increasingly widely used financing tool for issuers of all sizes. It is important to ensure that the maximum amount set out in the base shelf prospectus is in line with the issuer’s business plan.

Special Transactions

In the Summary, the AMF pointed out that the news releases issued and filed for a related party transaction referred to in Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions contained, in many cases, erroneous information. The AMF has set out its expectations in this regard under two scenarios:

• if the news release issued and filed for a related party transaction provides the information required by paragraph 5.2(2) of Regulation 61-101 regarding the shorter period for filing of the material change report, a material change report must be filed for the transaction within 10 days of the date on which the change occurs; or
• if a related party transaction referred to in Regulation 61-101 does not constitute a material change in the affairs of the company and the company is therefore not required to file a material change report, the news release issued and filed for the transaction does not have to provide an explanation for the timeframe within which it is filed.

In addition, the AMF reminded companies of the importance of indicating whether, if applicable, one or more directors participating in the related party transaction abstained from voting on the transaction. This is a reminder of good corporate governance practice and of applicable principles of corporate law with regard to conflicts of interest.

Technical or Scientific Disclosure

In the Summary, the AMF indicated that it has noted several cases of non-compliance with the regulatory provisions for the disclosure of technical or scientific information on the websites of mining companies, which is generally subject to Regulation 43-101 Respecting Standards of Disclosure for Mineral Projects. Mining companies must ensure that they meet the following requirements when technical and scientific information is included on their website:

• when publicly disclosing technical or scientific information, include the name and the relationship to the company of the qualified person who (a) prepared or supervised the preparation of the information that forms the basis for the written disclosure or (b) approved the written disclosure;
• the person retained as a qualified person must also meet the other conditions listed in section 1.1 of Regulation 43‑ 101 regarding their experience and be in good standing with a professional association; and
• the qualified person must be independent when preparing, or supervising the preparation of, a technical report where that report is required, including where a preliminary prospectus is filed and where a valuation is required to be filled under securities legislation.

Virtual Annual Meetings

The AMF reiterated the importance of the guidance provided by the Canadian Securities Administrators (“CSA”) on virtual shareholder meetings, including providing clear and comprehensive instructions in proxy-related materials on how shareholders can access to the virtual meeting, on how they can register, participate and vote at such meeting; simplifying the registration and authentication procedures for platforms used to hold meetings; choosing an appropriate platform to make shareholders’ experience at a virtual shareholder meeting comparable to that of an in-person meeting.

The AMF recommended that issuers follow the best practices on holding virtual meetings, in particular by referring to the press releases published by the CSA, and considering holding hybrid meetings. The AMF stressed that it will continue to monitor the practice of virtual shareholder meetings, and it will issue further guidance and updates as required. In this regard, it should be noted that several institutional investors and independent proxy advisory firms have expressed their concerns about holding virtual-only annual meetings.

Proxy Solicitations

The AMF reiterated the importance for issuers of complying with the requirements of item 3.3 of Form 51-102F5 of Regulation 51-102 respecting Continuous Disclosure Obligations, which requires, among other things, the disclosure in the information circular of the cost or anticipated cost of the method employed if a proxy solicitation is to be made other than by mail.

Administrative Reminders

To ensure efficiency for processing an exemption application, the AMF reiterated the importance of supporting such an application with sufficient reasons demonstrating that the granting of the requested exemption is not detrimental to the protection of investors, and refer the issuers to the discretionary exemption applications page of the AMF website should they need more information. In addition, the AMF found that many applications for exemptive relief from the requirements to prepare distribution documents in French are filed late and remind that these discretionary exemption applications must be submitted in a timely manner.

The AMF emphasized that, in order to obtain a management cease trade order under Policy Statement 12-203, when a company anticipates that it will be unable to fulfill its filing requirements, such company must contact the AMF in writing at least two weeks before the filing deadline of its continuous disclosure documents. As a general rule, late applications will not be accepted.

The AMF reminded that a crowdfunding distribution must close no later than the 90th day after the date the offering document is first made available to a prospective purchaser. The AMF found that some companies mistakenly believe that the 90-day period may be interrupted by, among other things, amending the offering document or withdrawing the offering document from its platform and then making it available again. However, such practices are not compliant and do not at any time extend the 90-day period for the closing of a crowdfunding distribution nor do they restart such period.

Financial Reporting

It is noted in the Summary that some issuers have failed to properly describe their financial condition concerns in their prospectuses. The AMF reminded that these documents must contain clear disclosure of the company’s financial condition, particularly, for example, any negative cash flow from operating activities, and that this must be disclosed and highlighted as a risk factor.

For risk factor disclosure relating to financial condition, the AMF noted that issuers should consider disclosing numerous factors, such as the quantification of losses, the working capital deficit, how the company expects to remedy these issues, other sources of financing available to the company, and the implications to the company’s liquidity. In addition, issuers with going concern risk should include additional disclosure allowing investors to determine the period of time the proceeds raised under the prospectus are expected to fund their operations, the estimated total operating costs and the estimated amount of other material capital expenditures.

Prospectus Exemption

The listed issuer financing exemption under Part 5A of Regulation 45-106 respecting Prospectus Exemptions came into effect in November 2022 and was reviewed in 2023 to ensure compliance with its conditions, including, among other things, the condition requiring that, at the time of distribution, the issuer has sufficient funds to meet its business objectives and liquidity requirements for a period of 12 months following the distribution. It was found that certain issuers did not meet this condition and omitted critical information in their offering documents. The AMF found that some issuers that had filed an offering document under the listed issuer financing exemption were not in compliance with this condition and failed to include crucial information in their offering documents.

Issuers wishing to use this exemption must reasonably estimate that they will have sufficient funds to meet their business objectives and liquidity requirements for a period of 12 months following the distribution. The AMF reminds issuers to disclose the following in their offering documents:

• some details about the funds that will be available after the placement and about each expected additional source of funding;
• an explanation of any significant decline in its working capital that has occurred since the most recently audited annual financial statements;
• a detailed description of each of the principal purposes, with approximate amounts, for which the proceeds of the distribution will be used; and
• if applicable, a statement that the company’s most recently filed audited annual financial statements or interim financial report included a going concern note and an explanation of how the offering is anticipated to address any uncertainties.

Ongoing Policy Initiatives

In the Summary, the AMF indicated that it is currently reviewing policy initiatives relating to the following:

• the changes to be made to the requirements for disclosure of climate change-related matters;
• the ways to update the standards of disclosure for mineral projects;
• the amendments pertaining to board nominations, board renewal and diversity; and
• the expedited shelf prospectus regime.

SEDAR+

Following the implementation of SEDAR+ in 2023 and the automation systems of this platform, the AMF reminded issuers of the importance of updating their profile on an ongoing basis and ensuring the conformity of the information contained therein so as not to be placed on the default list.

 

[1] Section 5.4 of Regulation 44-102 respecting Shelf Distributions provides that: “A base shelf prospectus shall pertain to no more than the dollar value of securities that the issuer or selling securityholder proposing to distribute securities under the base shelf prospectus reasonably expects, at the time the base shelf prospectus is filed, to distribute within 25 months after the date of the receipt for the base shelf prospectus.”