Securities

United States Moves to T+2 Securities Settlement

This week, the SEC approved a rule that would require broker-dealers to settle most securities transactions on a T+2 basis (shortening the current regime from T+3), effective September 5, 2017. See additional information in the post from our partner Jason Brenkert here. Will Canadian regulators follow suit?

Capital Markets / Corporate

Cross-Border Loan Transactions: Supplementing Canadian Law Governed Loan Documents with Collateral and Guaranty Documents Governed by U.S. Law

Many cross-border loan transactions involve subsidiaries that are organized in the United States and/or U.S. based collateral. To the extent that the underlying loan is made to a Canadian borrower by a Canadian lender, these transactions are typically documented with loan agreements governed by Canadian law (often under the law of the Province where the primary Canadian borrower is organized, but sometimes based on the law of a Province selected by the Canadian lender). In many of these transactions, in addition to the Canadian law governed documents, the Canadian lenders will also require the use of U.S. law governed documents for guarantees provided by U.S. organized subsidiaries and Security Agreements for collateral owned by U.S....

Securities

Compliance with XBRL for Foreign Private Issuers that Prepare their Financial Statements in Accordance with IFRS Required Beginning with Annual Reports for Fiscal Periods Ending on or after December 15, 2017

On March 1, 2017, the United States Securities and Exchange Commission (SEC) published the taxonomy for the eXtensible Business Reporting Language (XBRL) for financial statements prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (IFRS). Accordingly, foreign private issuers that prepare their financial statements in accordance with IFRS may immediately begin submitting their financial statements in SEC filings in the XBRL format. While Rule 405 of Regulation S-T would require foreign private issuers that prepare their financial statements in accordance with IFRS to submit financial data in XBRL upon publication of the taxonomy, the SEC has stated that such foreign private issuers are only required to...

Securities / Tax

When Will a Canadian Corporation be Treated as a Passive Foreign Investment Company?

A Canadian corporation will generally be a passive foreign investment company or “PFIC” if, for a tax year, (a) 75% or more of its gross income is passive income (the “PFIC income test”) or (b) 50% or more of the value of its assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “PFIC asset test”). Gross income generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and passive income generally includes, for example, dividends, interest, certain rents and royalties, certain...

Natural Resources / Securities

Resource Extraction Disclosure Requirements are Dumped

Canadian miners and oil & gas companies should be aware that on February 14, 2017, President Trump approved a joint resolution of Congress that disapproved a recent SEC rule requiring specific disclosure by resource extraction issues. The obligation to report was imposed by Rule 13q-1 under the Exchange Act. The rules would have required resource extraction issuers to disclose payments made to the U.S. federal government or foreign governments, including foreign subnational governments, for the commercial development of oil, natural gas or minerals. See the full discussion from our partner Kimberley Anderson here.

Natural Resources

Impact of New Administration on Natural Resources Development in United States

Anyone who has owned or operated a project involving public lands in the United States knows of the complex jigsaw puzzle of land ownership that defines the landscape of the United States. Jurisdictional governance is divided among Federal, state, Indian, and private ownership, resulting in regulatory tides to which natural resources, energy, and mining projects are subject. The collection of applicable laws, rules, orders, guidance documents, environmental reviews, permits, approvals, and administrative processes create a challenge for parties looking to develop mineral resources. With the election of President Donald Trump and Republican majorities in both the U.S. House and Senate, the tide is changing, and natural resources development—including the mining and energy industries—will...

Capital Markets / Securities

SEC Issues No Action Letter Regarding Canadian Companies’ Registration of Rights Offerings on MJDS Form F-7

In December 2015, the Canadian Securities Administrators (CSA) announced an amended regime for a prospectus-exempt rights offering in Canada. This amended regime allows certain public companies in Canada to conduct a prospectus-exempt rights offering without prior CSA review of the rights offering circular, and using a greatly simplified rights offering circular that assumes, without incorporation by reference, that the shareholder is familiar with the issuer’s other continuous disclosures. While the new regime revitalized the market in Canada for rights offerings, it raised several questions regarding the extension of the rights offering to U.S. shareholders. Form F-7 under the Multi-Jurisdictional Disclosure System (MJDS) has historically provided a means for eligible Canadian issuers to register...

Securities

OTCQX Update

In recent years, many Canadian companies have sought to create a U.S. market for their shares by listing on the OTCQX. Qualifying Canadian companies that have their primary listing on the Toronto Stock Exchange, the TSX Venture Exchange or the Canadian Securities Exchange may generally obtain a quotation on the OTCQX or the next lower tier of the OTC Markets, the OTCQB, without filing a registration statement with, or becoming subject to ongoing reporting requirements with, the U.S. Securities and Exchange Commission. During 2016, the initial listing requirements for OTCQX included a minimum share price of US$0.25, a minimum market capitalization of US$10 million, an operating business, no current bankruptcy or reorganization proceedings,...

Benefits / Tax

DSU Plans Require Careful Review to Avoid Adverse U.S. Tax Treatment

A Canadian company is planning to adopt a deferred share unit plan (DSU plan) for its directors. Only one or two of its directors are U.S. citizens or U.S. residents (“U.S. Directors”). With only one or two U.S. Directors, you wonder whether it is important to consider U.S. tax implications. The answer is a resounding yes because the typical form of Canadian DSU plan will not comply with U.S. tax laws governing deferred compensation. Participation by a U.S. Director will result in significant adverse tax consequences for the U.S. Director under Section 409A of the Internal Revenue Code. Specifically, for U.S. federal income tax purposes, the value of the DSUs as of December...

Benefits / M&A / Securities

New Approach for the Assumption of Options in M&A

A Canadian SEC reporting company that looks to acquire a company with outstanding equity grants in the United States will frequently need to address the question: What alternatives are available for the assumption of the target’s outstanding options or other equity-based compensatory awards? Under U.S. law, both the grant of the equity award and the exercise or conversion of the equity award must be registered under the 1933 Act or satisfy an available exemption. For Canadian issuers that are SEC reporting companies, the alternative approaches available to satisfy the 1933 Act requirements for the exercise or conversion of the assumed awards were formerly restricted to (i) an S-8 registration statement (either existing or...