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Notice and Proposed Policy: OSCP - 51-601 - Reporting Issuer Defaults
Notice and Proposed Policy: OSCP - 51-601 - Reporting Issuer Defaults
NOTICE OF PROPOSED ONTARIO SECURITIES COMMISSION
POLICY 51-601 AND RESCISSION OF
ONTARIO SECURITIES COMMISSION POLICY NO. 2.5
Purpose of Proposed Policy
The purpose of the proposed Policy is to outline the views of the Ontario Securities Commission (the "Commission") on maintaining a list of defaulting reportingissuers and issuing certificates of no default as required under the Securities Act (Ontario) (the "Act"). This Policy is intended to inform all interested parties ofthe guidelines followed and the factors considered by the Commission in determining if a reporting issuer is in default, and to provide information as to theprocedure for obtaining a certificate of no default.
The proposed Policy is an initiative of the Commission and will be adopted as a policy in Ontario. The proposed Policy is substantially similar to, and replaces,OSC Policy Statement No. 2.5 - Certificates of No Default Under Subsection 71(8) [72(8)] and List of Defaulting Issuers Under Subsection 71(9) [72(9)] ofthe Securities Act.
Terms used in the proposed Policy that are defined or interpreted in the definition instruments in force in Ontario should be read in accordance with thosedefinition instruments, unless the context otherwise requires.
Background
The Commission originally adopted the predecessor Policy Statement to OSC Policy Statement No. 2.5, OSC Policy Statement No. 3-46, in May of 1980. OSCPolicy No. 3-46 was subsequently re-numbered as OSC Policy Statement No. 2.5 on December 24, 1982 with technical amendments but without substantivechange.
Summary of Proposed Policy
The proposed Policy outlines guidelines followed by the Commission in determining if a reporting issuer is in default for the purpose of issuing a certificate of nodefault or in preparing a list of defaulting reporting issuers. The Policy provides that a reporting issuer will generally not be considered to be in default unless thereporting issuer is in default of a significant requirement of the Act or the regulations, determined in part with reference to the continuous and timely disclosurerequirements of the Act and the regulations. However, the guidelines contained in the Policy should not be considered exhaustive in determining the defaultstatus of reporting issuers.
In addition, the Policy informs interested parties as to the availability and form of the certificate of no default issued in connection with an issuer's reportingissuer and default status. The Policy provides that it is the practice of the Commission to accept requests for a certificate of no default from any interested party.
The Policy has been updated to deal with filings through SEDAR. Changes to OSC Policy No. 2.5 are generally of a non-substantive nature and are described infootnotes to the Policy.
Related Instruments
The proposed Policy is related to subsection 72(8) of the Securities Act which provides for the issuance of a certificate of no default on which the seller isentitled to rely, and subsection 72(9) of the Securities Act, which provides for the making of list of defaulting reporting issuers by the Commission.
Unpublished Materials
In proposing the Policy, the Commission has not relied on any significant unpublished study, report, decision or other written materials.
Comments
Interested parties are invited to make written submissions with respect to the proposed Policy. Submissions received by June 13, 1997 will be considered.
Submissions should be made in duplicate and delivered to the attention of:
A diskette containing an electronic copy of the submission (in DOS or Windows format -preferably WordPerfect) should also be submitted. As the Act requiresthat a summary of written comments received during the comment period be published, confidentiality of submissions cannot be maintained. Questions may bereferred to either of:
Proposed Policy
The text of the proposed Policy follows, together with footnotes that are not part of the Policy but have been included to provide background and explanation.
Text of Proposed Rescission of OSC Policy Statement No. 2.5.
The text of the proposed rescission of OSC Policy Statement No. 2.5 is:
"OSC Policy Statement No. 2.5 entitled "Certificate of No Default Under Subsection 71(8) and List of Defaulting Issuers Under Subsection 71(9) of theSecurities Act" is rescinded."
DATED: April 11, 1997.
CERTIFICATE OF NO DEFAULT UNDER SUBSECTION 72(8), AND
LIST OF DEFAULTING REPORTING ISSUERS UNDER SUBSECTION 72(9),
OF THE ACT
TABLE OF CONTENTS
PART TITLE
PART 1 GENERAL
1.1 Rationale for Certificate of No Default and List of Defaulting Reporting Issuers
PART 2 DETERMINATION IF AN ISSUER IS A REPORTING ISSUER
2.1 List of Reporting Issuers
PART 3 DETERMINATION IF A REPORTING ISSUER IS IN DEFAULT
3.1 List of Defaulting Reporting Issuers
3.2 Minor Non-compliance does not Constitute Default
3.3 Guidelines as to When Non-compliance Constitutes Default
3.4 Ability to Cure an Existing Default
3.5 Guidelines Not Exhaustive
3.6 When Filing is Effective
3.7 Filing By Mailing or Sending
3.8 Filing Under SEDAR
PART 4 NOTIFICATION OF DEFAULT STATUS
4.1 Notification Ordinarily not Provided
PART 5 AVAILABILITY AND FORM OF CERTIFICATE OF NO DEFAULT
5.1 Who May Request a Certificate
5.2 Issuance of Certificates
5.3 Form of Certificate
PART 6 FORM OF CERTIFICATE OF NO DEFAULT UNDER SUBSECTION 72(8) OF THE ACT
6.1 Form of Certificate
CERTIFICATE OF NO DEFAULT UNDER SUBSECTION 72(8),
AND LIST OF DEFAULTING REPORTING ISSUERS
UNDER SUBSECTION 72(9) OF THE ACT
PART 1 GENERAL
1.1 Rationale for Certificate of No Default and List of Defaulting Reporting Issuers
(1) In certain circumstances, holders of securities purchased under certain exemptions from the prospectus requirements cannot resell the securities without aprospectus, except under another exemption, unless, among other things, the issuer of the securities is not in default of any requirement of the Act or theregulations.
(2) The certificate provided under subsection 72(8) of the Act and the list of defaulting reporting issuers maintained by the Commission for public inspectionunder subsection 72(9) of the Act are intended to enable prospective sellers of securities to determine if the issuer of the securities is in default.
(3) The Commission is, however, aware that many interested parties other than prospective sellers of securities, including prospective purchasers of an issuer'ssecurities, rely on certificates of no default and the list of defaulting reporting issuers. This Policy is intended to inform all interested parties of the guidelinesfollowed and factors considered by the Commission in determining if a reporting issuer is in default, and to provide information as to the procedure for obtaininga certificate of no default.
PART 2 DETERMINATION IF AN ISSUER IS A REPORTING ISSUER
2.1 List of Reporting Issuers
(1) The Commission maintains an overall list of reporting issuers in addition to a list of those that are in default.
(2) The certificate provided by the Commission under subsection 72(8) of the Act sets out if the issuer is a reporting issuer and if so, if it is on the list of thosereporting issuers that are in default. The Commission relies primarily upon the list of reporting issuers described in subsection (1) and staff's internal review inissuing a certificate as it relates to an issuer's reporting issuer status.
(3) Despite subsection (2), the Commission's list of reporting issuers is not represented to be, nor can it be, an exhaustive list of reporting issuers given thebreadth of the definition of the term "reporting issuer". For example, corporations subject to the requirements of the Business Corporations Act may have offeredsecurities to the public within the meaning of that statute but may not have filed material with the Commission, with the result that they are not included on theCommission's list. In addition, the Commission does not undertake to review the corporate status of issuers on an ongoing basis, with the result that corporationsthat have been dissolved may continue to appear on the list of reporting issuers.
(4) The Commission will respond to oral inquiries as to whether an issuer is a reporting issuer appearing on the list of reporting issuers, but oral responses shouldnot be relied upon. An interested party should obtain a certificate of no default if the interested party wants a definitive statement as to whether the Commission'srecords indicate that an issuer is a reporting issuer.
PART 3 DETERMINATION IF A REPORTING ISSUER IS IN DEFAULT
3.1 List of Defaulting Reporting Issuers
(1) In responding to inquiries as to whether a reporting issuer is in default, the Commission relies primarily upon the list of defaulting reporting issuers that itmaintains under subsection 72(9) of the Act and internal reviews conducted by staff.
(2) In addition to making the list of defaulting reporting issuers available for public inspection as required by the Act, the Commission will provide oralconfirmation as to whether a reporting issuer is in default based upon the appearance of its name on the list, but oral responses should not be relied upon. Aninterested party should obtain a certificate of no default if the interested party wants a definitive statement as to whether the Commission's records indicate that areporting issuer is or is not in default.(2)
3.2 Minor Non-compliance does not Constitute Default
(1) Given that the Act and the regulations contain a large number of requirements applicable to reporting issuers, it is impossible for the Commission to know atany time if there is some minor requirement of the Act or regulations that has been contravened by a reporting issuer.
(2) A reporting issuer will generally not be considered to be in default for the purposes of issuing the certificate under subsection 72(8) of the Act or maintainingthe list under subsection 72(9) of the Act unless the reporting issuer is in default of a significant requirement of the Act or the regulations, determined in partwith reference to the guidelines set out in subsection 3.3(2).
3.3 Guidelines as to When Non-compliance Constitutes Default
(1) For the purpose of subsection 3.2(2), the Commission is of the view that the significant requirements of the Act and the regulations include the continuousand timely disclosure requirements of the Act and the regulations. The special resale privileges afforded by subsections 72(4), (5) and (7) of the Act are premisedon the assumption that, since the issuer is a reporting issuer, compliance by it with the continuous and timely disclosure requirements will ensure that currentinformation about the issuer is always available in the marketplace.
(2) The following are some of the guidelines used to determine if an issuer is in default under the continuous and timely disclosure requirements of the Act andthe regulations for the purposes of maintaining the list of defaulting reporting issuers under subsection 72(9) of the Act and the issuance of certificates of nodefault, if in each case the relevant facts come to the attention of staff:
1. A reporting issuer that has not filed all required material change reports will be considered to be in default(3).
2. A reporting issuer that has filed a confidential report of a material change under subsection 75(3) of the Act but does not comply with the obligation to updatethe Commission under subsection 75(4) of the Act will be considered to be in default.
3. A reporting issuer that has not filed financial statements within the time periods prescribed by sections 77 and 78 of the Act will be considered to be in default.
4. Even though financial statements have been filed within the prescribed time period, a reporting issuer will be considered to be in default if:
(i) the financial statements omit a required statement or auditor's report;
(ii) the auditor's report accompanying the financial statements does not comply with the requirements of National Instrument 52-104 Basis of Accounting,Auditing and Reporting(4); or
(iii) it is determined that some other deficiency in the financial statements is so significant as to constitute default.(5) (6)
5. A reporting issuer that has not disclosed that it is obligated to update FOFI or has not filed an update to FOFI (as defined in National Instrument 52-101Future Oriented Financial Information) in accordance with National Instrument 52-101(7) will be considered to be in default.(8)
6. A reporting issuer that has not filed or delivered to securityholders disclosure of the results of its review of FOFI to identify any material differences betweenactual results and the FOFI in accordance with National Instrument 52-101 Future Oriented Financial Information will be considered to be in default.(9)
7. Subject to compliance with section 82 of the Act, a reporting issuer that has not filed an information circular required by subsection 81(1) of the Act forthwithafter it is sent to securityholders or an annual report required by subsection 81(2) within 140 days after the end of the issuer's last financial year will beconsidered to be in default.
8. A reporting issuer that has not filed an AIF and MD&A in accordance with Rule 51-501 Annual Information Form and Management's Discussion and Analysisof Financial Condition and Results of Operation(10) will be considered to be in default.(11)
9. A reporting issuer that has not paid a fee required by the Act or the regulations will be considered to be in default.(12) (13)
3.4 Ability to Cure an Existing Default - A reporting issuer's name will be removed from the list of defaulting reporting issuers once the default has been curedby the filing of the correct document or remittance of the applicable fee.
3.5 Guidelines Not Exhaustive
(1) The guidelines described in subsection 3.3(2) do not represent an exhaustive description of the circumstances in which a reporting issuer may be consideredto be in default.
(2) A reporting issuer may be considered to be in default and notified that this is the case for a clear failure to comply with a significant requirement of the Act orregulations, whether or not specifically described in subsection 3.3(2).
(3) If a failure to comply described in subsection (2) is not clear, or the significance of the requirement is not obvious, the reporting issuer will be notified inadvance of any intention to treat the reporting issuer as being in default and given an opportunity to be heard by the Commission if a hearing is requested. Inthese circumstances, the reporting issuer would not be included on the list of defaulting reporting issuers pending the hearing.
3.6 When Filing is Effective(14)
(1) Depending on the document, documents required to be sent to or filed with the Commission may be mailed, delivered by hand, sent by facsimile or filedelectronically.
(2) It is the responsibility of the issuer sending or filing the document to ensure that it is sent by the proper method of sending and received by the Commission.Filing occurs only upon receipt by the Commission of the appropriate document by the appropriate method.
3.7 Filing By Mailing or Sending
(1) The mailing or sending of a document to the Commission does not in itself constitute compliance with the filing requirements of the Act or the regulations.
(2) A reporting issuer that relies on the postal system may become a defaulting reporting issuer if the mail is delayed or the document is lost in the mail. Areporting issuer that sends a document to the Commission by facsimile may become a defaulting reporting issuer if the document is not received. The issuershould retain the facsimile verification as evidence that the facsimile was received by the Commission.
3.8 Filing Under SEDAR
(1) National Instrument 13-101 System for Electronic Document Analysis and Retrieval (SEDAR) requires, or, in some cases, allows for the electronictransmission of documents to the Commission for filing. The National Instrument provides that a document transmitted electronically using the SEDAR system isfiled on the day that the electronic transmission of the document is completed (although in some cases a filing will not trigger time periods under the Act until thenext business day if not completed by 5:00 p.m. on the due date).
(2) The SEDAR system allows a filer to determine whether the electronic transmission of the document has been completed and provides the filer with the dateand time of the event. Given the nature of the documents required to be filed electronically using SEDAR, if electronic transmission of a filing required to bemade using the SEDAR system is not completed when due and no unanticipated technical difficulties have occurred, the issuer may become a defaultingreporting issuer for purposes of the Act.
PART 4 NOTIFICATION OF DEFAULT STATUS
4.1 Notification Ordinarily not Provided - Except as described in subsection 3.5(3) and in extraordinary circumstances, such as if the securities of the issuerare being cease traded, a reporting issuer ordinarily is not notified of the addition of its name to, or the deletion of its name from, the list of defaulting reportingissuers.
PART 5 AVAILABILITY AND FORM OF CERTIFICATE OF NO DEFAULT
5.1 Who May Request a Certificate - It is the practice of the Commission to accept a request for a certificate of no default from any interested party.(15)
5.2 Issuance of Certificates - The Commission recommends making a request for a certificate of no default at least two business days before the desired date ofissuance.(16)
5.3 Form of Certificate
(1) The general form of certificate of no default issued under subsection 72(8) of the Act is set out in section 6.1.
(2) The Commission may issue a modified form of the certificate of no default set out in section 6.1 if circumstances require the inclusion of additionalqualifications or otherwise do not permit the issuance of the standard form of certificate.(17)
PART 6 FORM OF CERTIFICATE OF NO DEFAULT UNDER SUBSECTION 72(8) OF THE ACT
6.1 Form of Certificate(18)
ONTARIO SECURITIES COMMISSION
CERTIFICATE UNDER SUBSECTION 72(8) OF
THE SECURITIES ACT (ONTARIO)
NAME OF ISSUER: ________________________
1. The above-named issuer is/is not (inapplicable provision is deleted) included in a list of issuers known to the Commission to be reporting issuers.
2. (APPLICABLE ONLY IF THE ISSUER IS INCLUDED IN THE LIST OF REPORTING ISSUERS INDICATED IN PARAGRAPH 1.)
The above-named reporting issuer is/is not (inapplicable provision is deleted) included in a list of defaulting reporting issuers maintained by the Commissionunder subsection 72(9) of the Securities Act (the "Act").
A reader of this Certificate is encouraged to consult Commission Policy 51-601, which contains guidelines and other information relevant to theissuance of this Certificate.
This Certificate relates only to compliance with certain provisions of the Act and the regulations made under the Act. It has no bearing on compliance with otherlaws or on the financial or other position of the issuer.
While the Commission uses reasonable efforts to ensure the accuracy of this Certificate, it disclaims any responsibility for any claims, demands, actions, suits,losses, costs, damages, expenses and liabilities consequent upon any inaccuracy in this Certificate.
[Date]
ONTARIO SECURITIES COMMISSION
(Signature)
Name
Title
1. This proposed Policy replaces OSC Policy Statement No. 2.5 - Certificates of No Default Under Section 71(8) [72(8)] and List of Defaulting IssuersUnder Section 71(9) [72(9)] of the Securities Act.
2. It is anticipated that this information will soon be available via an on-line computer bulletin board. However, interested parties are reminded that they willhave to obtain a certificate of no default for a definitive statement of the Commission as to whether its records indicate that a reporting issuer is or is not indefault.
3. Section 2(a) of Part C of OSC Policy Statement 2.5 stated that the Commission would normally not know whether a material change has occurred and as aresult whether a material change report should have been filed, but that in those exceptional cases where it determines that a material change report has not beenfiled, prior notice would be given to the reporting issuer. That language has been deleted as being unnecessary.
4. National Instrument 52-104 Basis of Accounting, Auditing and Reporting replaces National Policy No. 50 - Reservations in an Auditor's Report andNational Policy No. 27 - Canadian Generally Accepted Accounting Principles.
5. Ordinarily, a determination described in clause (iii) would be made only after a hearing, but if the deficiency is clear and significant, the reporting issuercould be considered to be in default during the period before the hearing.
6. The proposed Policy separates financial statement guidelines into two sections, 3.3(2)3 and 3.3(2)4 for greater clarity.
7. National Instrument 52-101 Future Oriented Financial Information replaces National Policy No. 48 Future-Oriented Financial Information. "FOFI" is definedin proposed National Instrument 52-101 as having "the meaning given to the term "future-oriented financial information" in paragraph 4250.03 of the Handbook,as the provisions of that paragraph may be amended from time to time".
8. A reference to FOFI has been added to the guidelines in this subsection.
9. A reference to FOFI has been added for greater clarity.
10. Rule 51-501 Annual Information Form and Management's Discussion and Analysis of Financial Condition and Results of Operation replaces OSC Policy5.10 - Annual Information Form and Management's Discussion and Analysis of Financial Condition and Results of Operation.
11. A reference to the filing requirements of AIF and MD&A under Rule 51-501 has been added.
12. A reference to a requirement to pay fees has been added.
13. Subsection C(2)(e) of OSC Policy Statement No. 2.5, provides that where a reporting issuer is exempt from compliance with a continuous disclosurerequirement by reason of a Commission order, its non-compliance with that requirement will not result in the issuer being considered to be in default unless theorder states that the issuer is to be considered to be in default. That subsection has been deleted as being unnecessary.
14. This section has been expanded to deal with other methods of filing, including SEDAR.
15. The proposed Policy makes it clear that the certificate of no default is available to any interested party.
16. This section replaces the reference in section D(2) of OSC Policy Statement No. 2.5 to the Commission endeavouring to provide expeditious service inresponse to requests for certificates.
17. This proposed Policy allows for the issuance of a modified form of the certificate of no default if "circumstances require the inclusion of additionalqualifications".
18. OSC Policy Statement No. 2.5 contains a reference in the form of certificate to the possibility of a reporting issuer filing with the Commission confidentialinformation of a material change in its affairs under subsection 75(3) of the Act. This qualification has been deleted from the form of certificate in the proposedPolicy.