OSC Notice 51-706 Corporate Finance Branch Report 2008, which summarizes the operational activities of the OSC's Corporate Finance Branch during the 2008 fiscal year, was published on September 12, 2008.
The Staff Notice summarizes the operational activities of the OSC’s Corporate Finance Branch for 2008, including its undertakings relating to Continuous Disclosure Reviews, Exemptive Relief Applications and Offering Document Disclosure, as well as the Branch’s views on developing issues and current priorities.
Continuous Disclosure Reviews: Predominant issues with continuous disclosure identified across all industries include deficiencies in MD&A disclosure relating to liquidity and capital resources, risks and uncertainties, related-party transactions and changes in accounting policies. Along with these deficiencies, the OSC Staff also remind issuers that the MD&A should be a “self-contained” document and that incorporating by reference from financial statements and/or the annual information form may not necessarily satisfy MD&A requirements. With respect to financial statements, some of the issues identified include premature recognition of revenue, issues with revenue recognition policy disclosure, stock-based compensation and volatility and reporting relating to cash and cash equivalents, especially given the focus on liquidity issues relating to non-bank-sponsored asset-backed commercial paper (or ABCP). The report also goes on to highlight specific issues associated with the banking, mining, manufacturing and retail, real estate and entertainment and communications industries. Targeted reviews also resulted in findings of deficiencies relating to environmental liabilities and risks.
Applications for Relief, including relief from Take-over Bid requirements: With respect to applications for relief, the OSC Staff dealt with applications to allow designated foreign issuers to file short form prospectuses (relying on half-year financial statements in place of interim statements), applications for relief from continuous disclosure requirements for an issuer subject to a compulsory acquisition and for relief relating to discounted normal course issuer bids carried out in accordance with exchange procedures. The Staff Notices highlights that staff will continue to review these on a case-by-case basis and outlines the conditions or circumstances under which relief will be considered. With respect to take-over bids, the Staff Notice also focuses on exemptive relief granted from identical consideration requirements for vendor placements, where non-Canadian target shareholders are entitled to receive cash from vendor placement sales while Canadian target shareholders receive the bidder’s securities as consideration. Factors the staff will consider in granting such relief are set out in the Staff Notice.
Offering Documents: With respect to Offering Documents, issuer oriented reviews highlighted issues with disclosure relating to MD&A, risk factors and use of proceeds. The Staff Notice also states that a number of preliminary prospectuses reviewed did not comply with new requirements under Form 41-101F1 (adopted on March 17, 2008) that require disclosure relating to the underwriters’ over-allocation position and stabilization activities.
Developing issue relating to determining when a person has beneficial ownership, or control or direction, including reporting for Derivatives: The Staff Notice highlights that with respect to determining “beneficial ownership” and “control or direction” over securities, the OSC is looking at the potential use of derivatives to avoid early warning disclosure and similar securities law requirements, and the related issues. With respect to reporting of insider holdings, the Staff Notice also sets out factors the Staff will consider in determining whether an insider has “control or direction” over securities held in a trust, and reaffirms that a person will be considered to have such “control or direction” where they directly or indirectly have or share the power to (a) vote or direct votes or (b) invest, which includes the power to acquire or dispose of securities or to direct their acquisition.
For fiscal 2009, the Notice also highlights areas of interest for the OSC, which include disclosure of non-GAAP financial measures, forward-looking information disclosure (for compliance with new requirements contained in Part 4 of NI 51-102) and disclosure relating to transition to IFRS. With respect to IFRS, the Staff Notice also cautions that although the IFRS implementation date is January 1, 2011, to comply with securities law requirements, issuers should be mindful of the fact that they will need to provide comparative audited financial statements prepared in accordance with IFRS for both 2010 and 2011 year-ends.
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