The Canadian Securities Administrators (CSA) have recently published CSA Staff Notice 51-366 Regulatory Concerns with Certain Asset or Business Acquisitions (the Staff Notice) that provides guidance about regulatory concerns with certain with certain asset or business acquisitions – primarily taking place in venture markets –including concerns with misleading disclosure that could constitute market manipulation.
The guidance provided in the Staff Notice relates to reporting issuers that distribute a significant number of securities to acquire assets or businesses that appear to have little or no actual value or operating history and pay what appear to be significantly inflated prices. The Staff Notice explains the regulatory concerns with these types of acquisitions and reminds issuers of the requirements that may apply but does not introduce any new requirements. Key regulatory concerns with these transactions include:
- The potential for misleading disclosure or misrepresentations in a reporting issuer’s continuous disclosure record;
- A potential lack of a reasonable basis for the value ascribed to the asset or business being acquired;
- Potentially untrue or unbalanced promotional campaigns to support the acquisition; and,
- Whether a reporting issuer records all or a portion of the consideration paid as intangible assets or goodwill based on unreasonable or unsupportable assumptions, and impairs them shortly after the acquisition.
CSA staff advise that they will continue to apply additional regulatory scrutiny to reporting issuers involved in acquisitions that appear to raise the concerns set out in the Staff Notice.
CSA Staff Notice 51-366 Regulatory Concerns with Certain Asset or Business Acquisitions is available for download from the websites of member jurisdictions.
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.