Written by Bruce Hibbard, John Piasta, Andrew Disipio and Jason Wang
The Canadian Securities Administrators (CSA) have published for comment proposed amendments to implement an "access equals delivery" model (AED model) to generally permit electronic delivery of prospectuses, financial statements and related management discussion and analysis (MD&A) for non-investment fund reporting issuers. These proposed amendments are subject to a 90-day comment period ending on July 6, 2022.
Canadian securities legislation currently requires reporting issuers to physically deliver various documents to investors, including but not limited to, prospectuses, financial statements, MD&A and proxy-related materials. Although electronic delivery is already permitted in some respects, and despite the prior introduction of a notice-and-access regime for proxy-related materials relating to shareholders' meetings, many issuers continue to incur significant costs for printing and mailing the documents required to be delivered under securities laws.
Summary of the Proposed AED Model
The CSA's proposed amendments would implement an AED model for prospectuses, annual financial statements, interim financial reports and related MD&A for non-investment fund reporting issuers. The objective of "access equals delivery" is to modernize the way documents are made available to investors while reducing costs to issuers associated with printing and mailing. The proposed AED model contemplates the following:
- in all jurisdictions in Canada except British Columbia, providing public electronic access to a document and alerting investors that the document is available will constitute delivery for prospectuses under applicable securities legislation;
- in British Columbia, an exemption from the requirement under securities legislation to send a prospectus will permit access instead of delivery is intended to achieve the same outcome as implementing the model in other jurisdictions;
- for annual financial statements, interim financial reports and related MD&A, providing public electronic access to the documents and alerting investors that the documents are available, via news release, will constitute delivery for the documents; and
- in all cases, delivery of a document will occur, or the conditions in the BC exemption will be met, when:
- the document is filed on the System for Electronic Document Analysis and Retrieval (SEDAR) and, where applicable, a news release is disseminated on the same day and filed on SEDAR indicating that the document is available electronically and that a paper or an electronic copy can be obtained upon request.
The proposed AED model would not limit an investor's ability to request documents via paper copy or an issuer's ability to deliver financial statements and related MD&A based on an investor's standing instructions.
At this time, the CSA is not proposing the AED model for the delivery of documents that require immediate shareholder action and participation, such as proxy-related materials for shareholders' meetings and take-over bid and issuer bid circulars.
Purpose of the Proposed AED Model
The purpose of the proposed AED model is to modernize the way documents are made available to investors while reducing costs for issuers associated with printing and mailing such documents. The proposed AED model is intended to provide a timely, cost-efficient and environmentally-friendly method to communicate information to investors. The CSA believes that the proposed AED model will reduce the regulatory burden on issuers without compromising investor protection, while recognizing that information technology is an important and useful tool to facilitate communication with investors.
The proposed AED model is intended to be beneficial for both reporting issuers and investors alike as it facilitates the communication of information by enabling issuers to reach investors in a faster and more effective manner, as opposed to mailing documents. SEDAR is a widely-utilized platform, free of charge, that allows investors to access and search for information with ease and convenience.
Interplay of the AED Model with Corporate Law Requirements
Issuers should be aware that even if the proposed AED Model is adopted by the CSA, other corporate laws and regulations will continue to apply, some of which will continue to contain specific delivery requirements, including those set forth in the Business Corporations Act (Alberta) (ABCA) and the Canada Business Corporations Act (CBCA). Similarly, the proposed AED model would not limit an investor's ability to request documents via paper copy or an issuer's ability to deliver financial statements and related MD&A via paper copy.
For example, section 159 of the CBCA requires issuers existing under the CBCA to send annual financial statements to each registered shareholder, unless such shareholder has previously requested not to receive such materials. Notwithstanding this requirement, section 156 of the CBCA additionally allows for applications to be made to exempt an issuer from such delivery requirement. As such, issuers incorporated under the CBCA who wish to rely upon the proposed AED model and cease delivery of physical financial statements may wish to consider making such an application.
A similar delivery requirement exists, for example, for issuers existing under the ABCA. Under the ABCA, however, there is no general equivalent to section 156 of the CBCA to allow for applications to exempt an issuer from such delivery requirement.
Impact on Public Offerings
The proposed AED model applies to all types of prospectuses, except rights offerings by way of prospectus and medium-term note programs and other continuous distributions under a shelf prospectus. The proposed AED model would also not apply to prospectus offerings of investment fund securities.
Under the proposed AED model, access to the final prospectus or any amendment is deemed to have been provided if the issuer has filed the document on SEDAR and been issued a receipt, and the issuer has issued and filed a news release on SEDAR announcing that the document is available and accessible on SEDAR and containing certain additional specified disclosure.
Under the proposed AED model, the right to withdraw from an agreement to purchase securities may be exercised within two business days after the later of: (i) the date that access to the final prospectus or any amendment has been provided; and (ii) the date that the purchaser has entered into the agreement to purchase the securities. In order to rely upon the proposed AED model in connection with a prospectus offering, the prospectus would need to contain an additional cross-reference on the front page of the prospectus to alert investors to the section explaining how this withdrawal period is calculated is also required.
The proposed AED model will additionally have an impact on road shows, underwriting agreements and marketing materials as new disclosure requirements relating to any such marketing materials and road shows are required by the proposal.
Practical Applications and General Commentary
Certain investor advocates have long resisted a shift to "access equals delivery", citing concerns over shareholder disenfranchisement and a reduction shareholder engagement. However, the proposed AED model, if adopted, would bring Canada in line with the current rules and practices of other major securities markets, such as the United States and recognizes the continuing evolution towards consumption of information electronically. Notably, from an issuer's perspective, the proposed AED model would reduce costs and regulatory burdens, even though physical printing and delivery of some materials will likely still be required in order to comply with the issuer's applicable corporate statutory requirements. From an investor's and market participant's perspective, the proposed AED model provides timely and efficient access to information through SEDAR.
If the proposed AED model is implemented, issuers and their financial advisors and underwriters would be well-advised to consider what changes may be required, or beneficial, for their standard shareholder communications, road show and underwriting practices.
For further details, please see the CSA notice for the proposed amendments.
If you have any questions regarding the proposed AED model, please contact a member of the Bennett Jones Capital Markets group.