With the New Year just around the corner, investment funds that take advantage of the option in National Instrument 45-106 – Prospectus Exemptions (NI 45-106) to file certain Reports of Exempt Distribution on Form 45-106F1 (Reports) once a year, instead of after every distribution, have some homework to do. As discussed below, for some funds, two regulatory developments in 2019 might make the process of preparing and filing reports more complicated and time-consuming.
Background: To rely on many of the exemptions in NI 45-106, issuers must report prospectus-exempt distributions to every securities regulator where a distribution of securities was made to a resident of that province or territory. Generally, the filing deadline is ten days after the date of distribution. Investment funds, however, can file their forms once a year, by January 30, for distributions made in the preceding year in reliance upon the accredited investor (AI), minimum amount, or additional investment in fund units exemptions. Distributions made by an investment fund in reliance on other prospectus exemptions may need to be reported to the relevant securities authorities within ten days of the distribution.
How to file the Reports and Pay Fees: An investment fund that is required to file the Report must file it electronically as follows:
- In British Columbia, through the online eServices portal of the British Columbia Securities Commission (BCSC);
- In Ontario, through the online Electronic Filing Portal of the Ontario Securities Commission (OSC); and
- In all other jurisdictions, through SEDAR.
Note that BC Instrument 13-502 Electronic Filing of Reports of Exempt Distribution has been amended to require all Reports to be filed through the BCSC’s eServices portal. Paper filings (by Canadian or foreign issuers) are no longer acceptable. If the investment fund is a non-reporting issuer and does not have a profile set up on the BCSC online eServices portal, an advance registration form must be sent to the BCSC 24 hours prior to filing.
Likewise, if the investment fund does not currently have a SEDAR profile, it must create one prior to filing Form 45-106F1 on SEDAR.
Each securities regulator charges a separate filing fee for the Report. Filing fees for forms filed in British Columbia and Ontario are paid directly online when submitting the form through the regulators’ respective online portals. Filing fees payable to other jurisdictions must be made electronically through SEDAR.
Reports for Exempt Distributions to Fully Managed Accounts May Be More Complicated: Since 2016, NI 45-106 has deemed that in connection with a distribution made in reliance on the AI exemption, a trust corporation, trust company or registered adviser (collectively, the Adviser) purchasing securities on behalf of a fully managed account is considered to be purchasing the securities as principal. As a result, in all jurisdictions, issuers (or their underwriters) only have to provide information about the Adviser, not the beneficial owners of the securities, in the Reports. However, as we reported in our February 2019 bulletin, the Canadian Securities Administrators (CSA) have taken different approaches to where Reports need to be filed and fees paid:
- Group 1 – Manitoba and Québec: If the exempt distribution has a connection to either province (such as beneficial owners of fully managed accounts resident in either province), issuers and registrants should consider carefully whether a Report must be filed, and fees paid in those provinces. The fees payable for filing a Report in Québec may be significant because they are calculated based on the gross value of the securities distributed in that province.
- Group 2 – Almost Everywhere Else: The regulators in all other provinces and territories (except Saskatchewan) have indicated that the Report needs to be filed and the fees paid based on the location of the Adviser.
- Group 3 – Saskatchewan: The regulator has granted blanket, exemptive relief so that the outcome (at least for now) is the same as Group 2.
Next Steps and How We Can Help: Hopefully you have but if you haven’t already started to collect the required information and prepare your forms, we encourage you to do so as soon as possible. Should you require assistance with annual filings of Reports for investment funds, please contact your usual lawyer at AUM Law or one of our securities clerks as soon as possible to ensure that filing deadlines can be met.
December 11, 2020