Unofficial consolidation of OSC Policy 51-601 as of January 1, 2011
Unofficial consolidation of OSC Policy 51-601 as of January 1, 2011
ONTARIO SECURITIES COMMISSION POLICY 51-601
REPORTING ISSUER DEFAULTS
PART 1 – PURPOSE
1.1 Purpose of this Policy
This Policy describes the Commission’s list of reporting issuers, outlines the key deficiencies resulting in an issuer being noted in default and indicates how the Commission determines whether a reporting issuer is in default of any requirement of the Act or the regulations.
PART 2 – LIST OF REPORTING ISSUERS
2.1 General – The Commission maintains a list of Ontario reporting issuers that identifies those reporting issuers that are in default. The list is available for public inspection at the Commission’s offices during normal business hours and is on the Commission’s website at http://www.osc.gov.on.ca/en/Companies index.htm.
2.2 Completeness of the List
- Given the breadth of the definition of "reporting issuer", the Commission does not represent that this is a complete list of Ontario reporting issuers. For example, there may be corporations subject to the Business Corporations Act that have offered securities to the public within the meaning of that statute but have not filed material with the Commission. They would fall within the definition of “reporting issuer”, but would not be on the list. Also, since the Commission does not continuously review the corporate status of issuers, corporations that have been dissolved may still be on the list.
- The absence of a default notation on the list of reporting issuers does not necessarily mean that the reporting issuer is in full compliance with all of its obligations under the Act or the regulations. There may be situations where an issuer is in default of a continuous disclosure requirement but the default is not reflected in the list.
These situations may arise for the following reasons. First, the list will not reflect undetected deficiencies. For example, if an issuer fails to make a required filing relating to a non-periodic event, such as a material change report or a business acquisition report, this deficiency may not be immediately apparent to staff responsible for maintaining the list. Secondly, a deficiency may be detected, but the issuer may disagree with staff as to whether the issuer is in default. As described in subsection 3.2(2) below, if the issuer and staff disagree about whether the issuer is in default, the issuer will generally not be noted in default pending a determination of the issue by the Commission. Thirdly, where an issuer has been noted in default, the default notation may subsequently be removed if it is determined that the default has ceased to be material. For example, an issuer may be noted in default for failing to file an interim financial report1 and related MD&A, and then remain in default for an extended period of time. In these circumstances, the Commission may be prepared to remove the default notation, and revoke a cease trade order if one has been issued, where the Commission is satisfied that the issuer has substantially brought its filings up to date. The Commission will generally consider this to be the case where the issuer files audited annual financial statements and related MD&A for the three most recently completed financial years and interim financial reports2 and related MD&A for the current financial year. In these circumstances, the Commission may, depending upon its review of all relevant factors, accept that the issuer should no longer be considered in default of a current material continuous disclosure requirement and remove the default notation. As a technical matter, the issuer remains in default of those filing requirements that have not been met.
Market participants should consider these limitations and make their own investigations as appropriate before relying on the list.
2.3 Categories of Default – If a reporting issuer is in default, beside the issuer’s name on the reporting issuer list will appear the words “In default” and one or more letters indicating the nature of the default. These categories of default occasionally change to reflect amendments to the Act or regulations. At the issue date of this policy, the key continuous disclosure deficiencies resulting in default are those listed in Appendix A.
PART 3 – DETERMINING WHETHER A REPORTING ISSUER IS IN DEFAULT
3.1 The Test – The Commission will generally not consider a reporting issuer to be in default unless it is in default of a material requirement of the Act or the regulations. While the categories set out in Appendix A identify a number of material requirements, they are not an exhaustive description of the circumstances in which a reporting issuer may be considered to be in default.
3.2 The Process
- Subject to subsection (2), staff will notify a reporting issuer when noting an the issuer in default. If an issuer is notified by staff, it may either remedy the default within the time specified by staff or provide information to staff to demonstrate that it is not in default. If an issuer remedies the default within the time period specified by staff or satisfies staff that it is not in default, staff will remove the default notation.
- If staff is of the view that a reporting issuer is in default based on a content deficiency in the issuer’s continuous disclosure record, staff will notify the issuer before noting the issuer in default. If the issuer and staff disagree about whether the issuer is in default, the issuer will generally not be noted in default at that time. Staff may seek an order from the Commission under paragraph 127(1)5 that the issuer’s continuous disclosure record be amended in whatever manner is necessary to address the issues identified. At the same time, staff may seek any other orders from the Commission under subsection 127(1) that the Commission considers appropriate. Subsection 127(4) of the Act provides that the Commission will not make any such orders without a hearing.
- National Policy 12-203 Cease Trade Orders for Continuous Disclosure Defaults describes how Canadian Securities Administrators will generally respond to certain types of continuous disclosure defaults by reporting issuers.
3.3 Removal of Default Notation – A reporting issuer will no longer be identified as being in default once it has remedied the default by filing the required document, correcting the deficiency in its continuous disclosure record, remitting the applicable fee or otherwise demonstrating that it is not in default.
3.4 Filing Considerations
- An issuer may become a defaulting reporting issuer if it does not file a document when it is due.
- National Instrument 13-101 System for Electronic Document Analysis and Retrieval (SEDAR) (NI 13-101) provides that a document filed through SEDAR is filed on the day that the transmission of the document is completed, so long as it is completed by 5:00 p.m. A temporary hardship exemption is available under NI 13-101 to an issuer that encounters unanticipated technical difficulties when attempting to file through SEDAR.
- A document that is not filed through SEDAR is filed when the Commission receives it, not when the issuer sends it. A reporting issuer that relies on the postal system may become a defaulting reporting issuer if the mail is delayed or the document is lost in the mail. A reporting issuer that sends a document to the Commission by facsimile should retain the facsimile verification as evidence that the Commission received the document.
PART 4 – CERTIFICATE OF NO DEFAULT
PART 5 – FORM OF CERTIFICATE OF NO DEFAULT
Key Deficiencies Resulting in Default
1. Failure to file the following continuous disclosure prescribed by Ontario securities laws:
- annual financial statements;
- interim financial report;3
- annual or interim management’s discussion and analysis (MD&A) or annual or interim management report of fund performance (MRFP);
- annual information form (AIF);
- certification of annual or interim filings under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109);
- proxy materials or a required information circular;
- issuer profile supplement on the System for Electronic Disclosure By Insiders (SEDI);
- material change report;
- written update as required after filing a confidential report of a material change;
- business acquisition report;
- annual oil and gas disclosure prescribed by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) or technical reports for a mineral project required under National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101);
- mandatory news release;
- corporate governance disclosure as required by National Instrument 58-101 Disclosure of Corporate Governance Practices;
- audit committee disclosure as required by National Instrument 52-110 Audit Committees; or
- disclosure in an issuer’s MD&A relating to disclosure controls and procedures and their effectiveness that is referred to in a certificate filed under NI 52-109.
2. Continuous disclosure that is deficient because:
- financial statements of the reporting issuer, or the auditor’s report accompanying the financial statements, do not comply with the requirements of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) or National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards;
- the reporting issuer has acknowledged that its financial statements, or the auditor’s report accompanying the financial statements, may no longer be relied upon;
- the reporting issuer’s AIF, MD&A, MRFP, information circular, or business acquisition reports do not contain information for each of the content items required by NI 51-102 or NI 81-106; or
- the reporting issuer’s technical disclosure or other reports do not comply with the disclosure requirements of NI 43-101 or NI 51-101.
3. Failure to pay a fee required by Ontario securities laws.
4. Failure to comply with any other requirement related to continuous disclosure.
1 For periods relating to financial years beginning before January 1, 2011, “an interim financial report” should be read as “interim financial statements”.
2 For periods relating to financial years beginning before January 1, 2011, “interim financial reports” should be read as “interim financial statements”.
3 For periods relating to financial years beginning before January 1, 2011, “interim financial report” should be read as “interim financial statements”.