Corporate Finance & Securities Law includes financing vehicles or instruments, whether public or private, including IPOs, capital market equity offerings, installment receipt transactions, securities regulation and compliance, debt securities, bond issues, linked debt/equity instruments, structured financings, hybrid structured financings incorporating tax-driven and capital markets products, private placements, commercial paper; financing structures related to capital reorganizations and restructurings, mergers & acquisitions, leveraged buyouts, takeovers, management buyouts and buy-ins; venture and development capital, high-risk (vulture) capital; asset-backed financings, asset-backed securities, asset securitization, receivables financing, and off-balance sheet financing.
New Rules for Securities Crowdfunding
The Canadian Securities Administrators has proposed new rules for securities crowdfunding. The proposed national instrument, which will harmonize the regulatory framework in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, and Nova Scotia, aims to boost the effectiveness of securities crowdfunding as a way for small businesses to raise capital. In this alternate mode of financing, start-ups and early-stage enterprises issue securities, like shares or debt instruments, to a multitude of people via the internet.
Louis Morisset, chairperson of the CSA and president and chief executive officer of the Autorité des marchés financiers, said in a news release that these types of businesses could benefit from “unified regulatory requirements for securities crowdfunding to expand their access to capital.”1 The proposed harmonized framework would “increase the thresholds for capital-raising and investing, while still providing appropriate investor protection.”
Key changes introduced by the proposed national instrument include the following:
- The maximum total amount that can be raised by a business under the start-up crowdfunding prospectus exemption per year increased to C$1 million from C$500,000.
- The maximum investment per person for each distribution under the prospectus exemption increased to C$2,500 from C$1,500. This maximum amount is C$5,000 if the purchaser obtains advice from a registered dealer that the investment is suitable for the purchaser.
- A funding portal cannot avail of the start-up crowdfunding registration exemption if, within the last decade, it has been subject of a proceeding involving a claim such as fraud, theft, or breach of trust.
- A funding portal should annually certify that it has sufficient working capital to continue operations for at least the next year.
- An issuer who intends to utilize the distribution proceeds for an investment in, merger with, or acquisition of an unspecified business cannot avail of the prospectus exemption.
British Columbia Changes Its Securities Act
In an effort to combat white collar crime, the Government of British Columbia made strict new changes to the Securities Act. A Ministry of Finance press release said the Act gives the BC Securities Commission the “strongest enforcement and collection tools” in Canada.
In an interview with Canadian Lawyer, Sean Boyle, a Vancouver partner with Blake Cassels & Graydon LLP, said the Securities Amendment Act makes “unprecedented” changes to the nature of administrative securities hearings.2 With the amendments, “administrative penalties will be determined by the executive director, by staff, and they’ll order them on an ex parte basis,” said Boyle. “Without a hearing, they will allege and find that someone has breached the Securities Act, and they will fine them hundreds of thousands of dollars, if not millions of dollars. And then that individual has a right of review, after the fact.” The changes to the Securities Act also include allowing the Securities Commission to seize property owned by immediate family members of those found guilty of wrongdoing, Boyle said.
The Securities Act amendments come amid a crack-down on financial crime in the province. In May, BC Premier John Horgan announced a commission of inquiry into money laundering—the Cullen Inquiry. The government has also introduced changes to the Business Corporations Act, which will require businesses to keep transparent records of all owners and any associated entity with direct or indirect control over the business. The government said the legislation is meant to fight hidden ownership, money laundering, and tax evasion.
- “Canadian securities regulators propose new nationally harmonized crowdfunding rules.” February 27, 2020. https://www.osc.gov.on.ca/en/NewsEvents_nr_20200227_csa-propose-new-nationally-harmonized-crowdfunding-rules.htm.
- Macnab, Aidan. “BC government making ‘unprecedented’ changes to Securities Act.” Canadian Lawyer. December 19, 2019. https://www.canadianlawyermag.com/practice-areas/corporate-commercial/b.c.-government-making-unprecedented-changes-to-securities-act/323941.