Amendments to significant acquisition rules in National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) should result in fewer "significant acquisitions" and ultimately a reduction in business acquisition reports and other disclosure being filed by Canadian reporting issuers.

  • Effective November 18, 2020, the criteria for determining whether an acquisition is significant for TSX-listed and other non-venture issuers will:
    • Require that at least two of the three existing significance tests in NI 51-102 are triggered; and
    • Increase the significance threshold in those tests to 30%.

What is Significant?

Currently, an acquisition is considered to be "significant", therefore requiring a business acquisition report (BAR), where the result of any one of the three significance tests (assets, investments or profit or loss) exceeds 20% (and in the case of a venture issuer, one of two significance tests at 100%). As a result of these amendments to NI 51-102, a non-venture reporting issuer will now only be required to file a BAR if two of the three significance tests are triggered at an increased significance threshold of 30%.

The amendments do not impact the significance tests for venture issuers, which, as part of the Canadian Securities Administrators' (CSA) efforts to reduce BAR obligations for reporting issuers, were amended in 2015 to increase the significance test threshold from 40% to 100% and remove the requirement that venture issuers include for pro forma financial statements in a BAR. The current amendments reflect a continuation of the CSA's burden reduction efforts.

Significant Benefits

If an acquisition is considered to be significant, an issuer is required to file a BAR which includes two years of comparative financial information for the acquired business (the most recent of which must be audited), as well as pro forma financial statements for the combined business, among other things. There has been a concern that the application of the significance tests has often overstated, in practical terms, the actual significance of an acquisition to an issuer; particularly in circumstances where only one of the three significance tests has been triggered. As previously discussed, the cost and burden of complying with these requirements may limit issuers' ability to access Canadian capital markets, pursue acquisitions and raise acquisition financing. The amendments to NI 51-102 are intended to reduce the incidence of anomalous results, ultimately reducing the regulatory burden for reporting issuers.

Importantly, the amendments to NI 51-102 should also reduce the burden on issuers who are undertaking initial public offerings and other prospectus offerings, as the BAR requirements and significance tests form part of the prospectus requirements where an issuer has completed, or will likely complete, an acquisition for which a BAR has yet to be filed. These amendments should also significantly reduce the time and complexity involved in acquisitions that require shareholder approval by reducing the types of acquisitions for which prospectus level disclosure is required in management proxy circulars for the relevant shareholder meetings. They should also reduce the need for issuers to apply for exemptive relief in circumstances where the applicable disclosure requirements cannot be satisfied, for example, where audited financial statements do not exist and cannot be produced.

General

The amendments to NI 51-102 will come into force on November 18, 2020. In the interim, subject to any exemptive relief, non-venture issuers will still need to comply with the existing significance rules.

For further information, please see CSA Notice of Amendments to National Instrument 51-102 Continuous Disclosure Obligations and Changes to Certain Policies Related to the Business Acquisition Report Requirements (August 20, 2020).

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