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CSA Publishes Proposed NI 51-103 Ongoing Governance and Disclosure Amendments

Posted by: Axium Law · January 21st, 2013

In July 2011, the Canadian Securities Administrators (the “CSA”) published for comment a proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers (“NI 51-103”) and rule amendments (collectively, the “Original Proposals”) proposing a new mandatory regulatory regime for “venture issuers”.  Following a review of comments received, the CSA re-published a modified NI 51-103 and related rule amendments (collectively, the “Revised Proposals”) for a second comment period.

We were advised by the British Columbia Securities Commission that it is expected that final materials will be published in May 2013 and that it is currently anticipated that NI 51-103 will become effective during the summer of 2013.

Like the Original Proposals, under the Revised Proposals, the CSA is proposing the adoption of a single new national instrument for venture issuers, NI 51-103, which will mandate most of their substantive continuous disclosure and governance obligations.  If adopted, venture issuers would then no longer be required to comply with governance, disclosure and certification obligations under:

– National Instrument 51-102 Continuous Disclosure Obligations;

– National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings;

– National Instrument 52-110 Audit Committees;

– National Instrument 58-101 Disclosure of Corporate Governance Practices; and

– National Policy 58-201 Corporate Governance Guidelines.

The CSA is also proposing to make corresponding changes to the disclosure that a venture issuer must provide in a prospectus or in a required offering document under certain prospectus-exempt offerings, along with various amendments to other instruments and policies, including National Instrument 43-101  – Standards of Disclosure for Mineral Projects (“NI 43-101”).

The Revised Proposals are intended to tailor and streamline the disclosure and governance requirements of venture issuers to focus on matters of significance to venture issuer investors.

A brief summary of the Revised Proposals is set out below.

Continuous Disclosure

The significant proposals relating to continuous disclosure are:

– the introduction of an “annual report” which would contain disclosure of the venture issuer’s business, management, governance practices, audited financial statements, associated management’s discussion and analysis (“MD&A”) and chief executive officer/chief financial officer certifications in a signal document, to be filed on or before the 120th day after the end of a venture issuer’s financial year;

– replacing interim MD&A requirements with a requirement for a short discussion of the venture issuer’s operations and liquidity (i.e., “quarterly highlights”) to accompany the 3, 6 and 9 month interim financial reports, to be filed concurrently with the interim report on or before the 60th day after the end of the venture issuer’s most recently completed interim period; and

– replacing the requirement for venture issuers to file a business acquisition report (“BAR”) upon the completion of a significant acquisition with the requirement to file a material change report (which would include financial statements of the acquired business) in respect of a major acquisition.  Under NI 51-103, an acquisition is a “major acquisition” if the pre-announcement value of the consideration to be transferred for the business or related business equals 100% or more of the market capitalization of the venture issuer.  The material change report must be filed within 10 days of the acquisition; however, the financial statements in respect of same need to be filed within 75 days after the acquisition date, or within 120 days after the acquisition date if the most recently completed financial year of the acquired business ended 45 days or less before the acquisition date.

Corporate Governance

The significant proposals relating to corporate governance are:

– requiring that a majority of the members of a venture issuer’s audit committee not be executive officers, employees or control persons of the venture issuer or an affiliate of the venture issuer;

– requiring boards of directors of a venture issuer to develop and implement policies and procedures to ensure that each director is made aware of, and has an opportunity to, consider, discuss and address, in a timely fashion, conflicts of interest between the venture issuer and any of its directors and executive officers and proposed related entity transactions and the consideration to be paid or received by the venture issuer.  Venture issuers will have discretion in designing these policies and procedures which may be implemented in a variety of ways, such as written corporate policies or by way of conditions in employment or consulting agreements; and

– requiring venture issuers to develop and implement insider trading policies and procedures.

Prospectus and Certain Prospectus-Exempt Offerings

The significant proposals relating to prospectus and certain prospectus-exempt offerings are:

– creating a new long form prospectus form for venture issuers that conforms to disclosure required in an annual report under NI 51-103;

– requiring only two instead of three years of audited financial statements to be included in a long form prospectus filed by a venture issuer; and

– permitting a venture issuer to incorporate by reference the continuous disclosure documents prepared under NI 51-103 when preparing a short form prospectus under National Instrument 44-101 – Short Form Prospectus Distributions, a qualifying issuer offering memorandum under National Instrument 45-106 – Prospectus and Registration Exemptions (“NI 45-106”) and a TSX Venture Exchange short form offering document as contemplated under NI 45-106.

Triggers for a Mining Technical Report

Under current securities legislation, a venture issuer must file a current annual information form (“AIF”) in order to be eligible to use a short form prospectus, and the current AIF triggers a requirement for mining issuers to prepare and file a technical report under NI 43-101.  Currently, venture issuers are not required to file an AIF and typically only do so if they want to use a short form prospectus or prospectus exemption that requires one.  However, under the Revised Proposals, all venture issuers will be required to file an annual report and will be eligible to file a short form prospectus.

Previously under NI 43-101, the filing of a short form prospectus was a trigger for a technical report.  However, revisions to NI 43-101, which came into force on June 30, 2011, removed the short form prospectus as a trigger.

In order to maintain the status quo for venture issuers, so that the requirement for an annual report does not create a trigger for a technical report, the CSA are proposing that, for a venture issuer, a technical report would be triggered in both of the following circumstances: (i) the venture issuer files a short form prospectus, and (ii) the venture issuer’s annual report contains disclosure of the type that would trigger a technical report under NI 43-101 (i.e., first time disclosure of mineral resources, mineral reserves or a preliminary economic assessment or a change to that disclosure if that change constitutes a material change for the venture issuer).  However, the short form prospectus trigger will only apply if the venture issuer has not, in the 12 months preceding the date of the preliminary short form prospectus, filed a technical report or relied on an exemption from filing a technical report.


This blog discusses issues relevant to mining exploration and development companies carrying on business in Canada and around the world. Topics include acquiring and developing mineral projects, organizing and financing resource companies and mergers and acquisitions.

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