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.

The post Financial Post Follow-Up Article on Plans of Arrangement appeared first on Thauli Law.

6. The purpose of this Act is to implement Canada’s international commitments to participate in the fight against corruption through the implementation of measures applicable to the extractive sector, including measures that enhance transparency and measures that impose reporting obligations with respect to payments made by entities. Those measures are designed to deter and detect corruption including any forms of corruption under any of sections 119 to 121 and 341 of the Criminal Code and sections 3 and 4 of the Corruption of Foreign Public Officials Act.

The Act will require an entity¹ to report payments related to the commercial development of oil, gas or minerals to all levels of government, domestically (including an aboriginal government) and internationally. In particular, the Act will apply to an entity that:

• is listed on a stock exchange in Canada; or
• has a place of business, does business or has assets in Canada, and for at least one of its two most recent financial years, meets at least two of the three thresholds below:
  • it has at least $20 million in assets,
  • it has generated at least $40 million in revenue, and/or
  • it employs an average of at least 250 employees.

Reportable payments are those payments – whether monetary or in kind – that are the amount prescribed by regulation or, if no amount is prescribed, $100,000 and include:

• taxes, other than consumption taxes and personal income taxes;
• royalties;
• fees, including rental fees, entry fees and regulatory charges as well as fees or other consideration for licences, permits or concessions;
• production entitlements;
• bonuses, including signature, discovery and production bonuses;
• dividends other than dividends paid as ordinary shareholders;
• infrastructure improvement payments; or
• as otherwise prescribed

Although the Act is now in force, the regulations, which will provide guidance on the disclosure obligations, have not yet been published. The Government of Canada has not indicated when these regulations will be published, but presumably they will be before the first annual reports are due under the Act.

Disclosure of reportable payments will begin on June 1, 2016, except for payments made to aboriginal governments when such disclosure will begin on June 1, 2017. The first annual reports will be due no later than 150 days after the end of a financial year. For example, if an entity has a December 31 year-end, its first annual report will be due on May 30, 2017, or May 30, 2018 if the payment was made to an aboriginal government. The entity is required to keep records of its payment for a prescribed period or, if no period is prescribed, for seven years from the date it submits its annual report.

The Government of Canada may impose corrective measures for non-compliance with the reporting requirements. Furthermore, any person or entity that:

• fails to comply with the reporting standards or any corrective measures;
• knowingly makes false or misleading statements or knowingly provides false or misleading information; or
• structures any payments – or any other financial obligations or gifts, whether monetary or in kind, that relate to its commercial development of oil, gas or minerals – with the intention of avoiding the requirement to report;

is guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000. Any officer, director or agent who directed, authorized, assented to, acquiesced in or participated in its commission is a party to and guilty of the offence and liable on conviction to the punishment provided for the offence, whether or not the person or entity has been prosecuted or convicted.

It is worth noting that the Act allows the Government of Canada to designate the reporting requirements of another jurisdiction as an acceptable substitute for the disclosure obligations under the Act.²

This article contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer or compliance advisor for matters related to your situation before relying on any of the statements made in this article.

1. An entity means a corporation or a trust, partnership or other unincorporated organization.
2. The United Kingdom and Norway have implemented laws requiring the disclosure of payments made to governments. The United States is expected to implement rules under the Dodd-Frank Act, but such implementation has been delayed because of lawsuits. Once they do, it is anticipated that the US rules will become the most commonly used acceptable substitute.

The post The Extractive Sector Transparency Measures Act appeared first on Thauli Law.

The post Recent Changes to the Yukon Business Corporation Act appeared first on Thauli Law.

The article discusses how micro-cap companies are spinning off other micro-cap companies as “ready-to-go” reporting issuers by using the legal mechanism of plans of arrangement (POA). By becoming reporting issuers in this manner, these micro-cap companies have not only avoided the trouble and expense of filing prospectus-level disclosure required by regulators but also circumvented regulatory scrutiny. These reporting issuers then become automatically eligible for listing on the Canadian Securities Exchange (CSE). This article begins by highlighting how one company “spawned” 50 spinoff companies, many of which are listed on the CSE.

In response to growing concerns that these micro-cap companies are obtaining listings without any operating business or discernable assets, the CSE published Notice 2015-003 Regulatory Guidance on Plans of Arrangement and Capital Structure on January 23, 2015 (the Notice). The Notice indicates that reporting issuers created through POA will be subject to greater scrutiny to ensure that their primary focus is to develop their stated business objectives rather than obtain a listing. The Notice also provides guidance and indicates that the CSE is considering policy amendments that would restrict the eligibility for listing of reporting issuers created through POA. Despite this, it is my understanding that micro-cap companies created in this manner are still obtaining listings on the CSE.

This article contains general information only and is not intended to provide a legal opinion or advice. Please consult a lawyer or compliance advisor for matters related to your situation before relying on any of the statements made in this article.

The post Financial Post Article on Plans of Arrangement appeared first on Thauli Law.