The Financial Post recently published an article called, “Stock exchange cracks down after stream of ‘shell’ companies make it to market” by Barbara Shecter and Peter Koven. This is a follow-up article to their previous one published in February 2016 called, “Caught in a web of spinoffs: Inside Canada’s expanding universe of ‘shell’ companies”.
Shell companies were becoming reporting issuers through court approved plans of arrangement, but by becoming reporting issuers in this manner, these shell companies avoided the trouble and expense of filing prospectus-level disclosure and thereby circumvented regulatory scrutiny. These reporting issuers then became automatically eligible for listing on the Canadian Securities Exchange (CSE). The problem was that these listed shell companies often had minimal cash and no business plans.
This article discusses the overhaul of the CSE’s listing requirements in response to the proliferation of shell companies obtaining listings. Some of the amendments include requiring the issuers to achieve appropriate business milestones before listing and allowing the CSE to take into consideration the public interest, including market integrity issues. You can find the proposed amendments in Notice 2016-003 – Request for Comments – Amendments to CSE Policy 2 and Policy 8.
Although we will have to wait and see the impact of these amendments once approved and implemented, they are a step in the right direction. In my view, it will be more interesting to watch what happens, if anything, to those shell companies that already have listings.
This summary contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer for matters related to your situation before relying on any of the statements made in this summary.