The Canadian Securities Administrators (CSA) recently published CSA Staff Notice 51-344 Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2015. The notice provides stakeholders with guidance arising from the key deficiencies identified by CSA members in their continuous disclosure reviews of reporting issuers last year.
The areas covered by the review include deficiencies in financial statements and MD&A as well as related party transactions among other areas. In addition, the CSA provided guidance on mining issuers' continuous disclosure which we discussed in detail on CanadianMiningLaw.com. The following notable areas were highlighted by the CSA as being common sources of disclosure deficiencies:
- Certification of Disclosure: CSA staff highlighted situations where there were inconsistencies between the conclusions in certificates about the effectiveness of internal controls over financial reporting (ICFR) and the corresponding disclosure in an issuer’s MD&A. CSA staff also found that some issuers identified the same material weakness in the design or operations of ICFR for several consecutive years and during that time period grew their operations significantly. Though National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings does not require that issuers remediate material weaknesses, according to CSA staff, MD&A disclosure will be useful to investors if it discusses whether the issuer has a plan to remediate an identified material weakness and whether there are any mitigating procedures to reduce the risks that arise from the unaddressed material weakness.
- Material Contracts: CSA staff remind issuers that they must file material contracts by the time that they file their Annual Information Forms. Examples of material contracts cited by CSA staff include a financing or credit agreement with terms that relate directly to anticipated cash distributions or a contract on which the issuer’s business is substantially dependent.
- Material Change Reports: CSA staff remind issuers that a material change report must be filed as soon as practicable after the date of a material change, or within 10 days of such date. Specific examples of material changes cited by CSA staff that must be reported include the elimination or significant reduction of dividend payments or the issuer experiencing a significant increase or decrease in near term earnings prospects.
- Selective Disclosure: Selective disclosure, being the provision of material non-public information to some persons and not broadly to the investing public, should be avoided. Specifically, as per National Policy 51-201 Disclosure Standards, when issuers hold private meetings with analysts or attend industry conferences, they must ensure that selective disclosure is not provided at these venues. CSA staff suggest that keeping detailed notes or transcripts is useful to determine if unintentional selective disclosure has occurred. If such disclosure has occurred, CSA staff note that issuers must make a public announcement and contact the relevant stock exchange to have trading halted.
- News Releases: CSA staff note that certain issuers failed to issue and file a news release on a timely basis after deciding to refile a continuous disclosure document or restate financial information in financial statements. Section 11.5 of National Instrument 51-102 Continuous Disclosure Obligations provides that if an issuer decides to refile a document which differs materially from information originally filed, the issuer must immediately issue and file a news release disclosing the change.
For further information, please consult CSA Staff Notice 51-344.