Securities Update; BCSC Adopts New Rules For Securities Offerings Outside of British Columbia
Updated: Jan 24, 2020
On October 31, 2017, the British Columbia Securities Commission (“BCSC”) published a blanket order revoking the existing BC Instrument 72-503 - Distribution of Securities outside British Columbia while concurrently granting new exemptions to the prospectus requirement under British Columbia securities to British Columbia issuers seeking to access foreign capital markets (“BCI 72-503”, see here).
Historically, an issuer with sufficient connections to British Columbia (typically an issuer with a head office , significant assets or a majority of its controlling mind and management in British Columbia – or even the issuer being a reporting issuer in British Columbia) distributes its securities to investors, the distribution is considered to have taken place in British Columbia even if none of the investors reside in the province. The BCSC’s view on its extraterritorial application of BC’s securities laws were often problematic, often requiring British Columbia issuers to secure and align private placement exemptions in both the jurisdiction where an investor is resident (a universal securities law application) and British Columbia or, if a British Columbia issuer was seeking to conduct an IPO or a follow-on offering in a foreign jurisdiction, that issuer would have had to file and receipt a Canadian prospectus (regardless of whether there were any British Columbia investors or whether the issuer was, or planned to be, listed on a Canadian exchange) or otherwise find a prospectus exemption that the issuer could can rely upon to avoid that obligation.
While the old BCI 72-503 provided for a private placement exemption for foreign offerings to issuers listed on a qualified stock exchange, the exemption was limited, requiring issuers to get prescribed certification and representations in a subscription agreement from foreign investors (often incompatible with market practices and expectations in the jurisdiction where the foreign offering was being conducted); limited application of the private placement exemption to issuers only listed on a “qualified stock exchange” (meaning issuers listed or quoted on a non-qualified stock exchange, such as the OTC or the Canadian Securities Exchange could not rely on the exemption) and resale restrictions.
The revised foreign private placement exemption under the new BCI 72-503 requires only that:
the investor does not reside in British Columbia;
the investor purchases the issuer’s securities as a principal; and
the issuer complies with the securities laws of the jurisdiction where the investor resides and therefore is now available to all British Columbia issuers;
regardless of whether they are listed on a qualified stock exchange. The issuer must not be relying on Multilateral Instrument 45-108 - Crowdfunding in the jurisdiction where the investor resides. However, a separate prospectus exemption exists for foreign crowdfunding distributions under BC Instrument 72-505 Exemption from prospectus requirement for crowdfunding distributions to purchasers outside British Columbia. The first trade of a security purchased in reliance on this exemption is still subject to resale restrictions in section 2.5 of National Instrument 45-102 - Resale of Securities and British Columbia issuers who relied on this exemption must still, within 10 days of the date of distribution: (1) file with the BCSC a trade report in Form 45-106F1 - Report of Exempt Distribution (“Form 45-106F1”); and deliver to the BCSC a copy of any offering material that was filed with, or delivered to, securities regulators in the jurisdiction where the investor resides.
The new foreign public offering exemption allows British Columbia issuers to conduct a public offering that:
is made to an investor that is not a Canadian resident or on or through an exchange or market outside Canada (provided that the issuer or selling securityholder has no reason to believe that the investor is a Canadian resident); and
for U.S. public offerings, the issuer has an effective registration statement under U.S. securities laws; or
for non-U.S. foreign public offerings, the issuer has a foreign prospectus that has been approved by the securities regulators in the country where the public offering is conducted;
without filing a Canadian prospectus. There are no applicable resale restrictions.
For British Columbia issuers who are reporting issuers, as soon as practicable, they must file on SEDAR the U.S. registration statement for U.S. public offerings or the foreign prospectus and any supplement thereto for non-U.S. foreign public offerings, as applicable. For British Columbia issuers who are not reporting issuers, within 10 days of the date of distribution, they must file with the BCSC a streamlined trade report in Form 45-106F1, omitting information previously required on each investor, and deliver to the BCSC a copy of the U.S. registration statement or foreign prospectus and any supplement thereto, as applicable.
There is also a new foreign “testing of the waters” exemption that allows British Columbia issuers that are emerging growth companies under the U.S. JOBS Act to take advantage of the U.S. testing of the waters exemption for oral or written communications permitted under section 5(d) of the U.S. Securities Act of 1933 by the issuer, or any person authorized to act on behalf of the issuer, with a potential that is not a Canadian resident and gauge interest in a potential U.S. offering. These communications in the U.S. were historically considered “acts in furtherance of a trade” and triggered the requirement to file and receipt a Canadian prospectus under British Columbia securities laws. If the potential investor does not reside in the U.S., then the issuer would have to consider whether the “testing the waters” communications are allowed under the securities laws of the country where the potential investor resides.
Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.