BCN 2002/23 - Publication for Comment of Proposed Continuous Disclosure Rules [BCN - Rescinded]

The Commission, together with other members of the Canadian Securities Administrators (“CSA”), is publishing for comment proposed National Instrument 51-102 Continuous Disclosure Obligations, related forms and a proposed companion policy (collectively “NI 51-102”). The CSA is also publishing for comment, under a separate BC Notice (BCN 2002/24), proposed National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers and a proposed companion policy (collectively, and together with NI 51-102, the “Proposed National Instruments”).

The Commission is also publishing for comment proposed BC Instrument 51-801 Implementing National Instrument 51-102 Continuous Disclosure Obligations (the “Implementing Rule”) and proposed Consequential Amendments to the Securities Rules that would be necessary once the Proposed National Instruments become effective.  The Implementing Rule and the Consequential Amendments are attached to this BC Notice as Appendices A and B, respectively.

Explanation of and Reasons for the Implementing Rule

The Implementing Rule would provide relief from the material change reporting, proxy solicitation and information circular requirements of the Securities Act to issuers that comply with NI 51-102.  NI 51-102 is intended to replace and harmonize the material change reporting, proxy solicitation and information circular requirements in the securities legislation of each jurisdiction adopting it.

Explanation of and Reasons for the Consequential Amendments

The Consequential Amendments to the Securities Rules would repeal sections of the Securities Rules that address matters that will be covered by NI 51-102 and NI 71-102.  The consequential amendments would remove the interim and annual financial statement preparation, filing and delivery requirements for all reporting issuers, other than investment funds as defined in NI 51-102, from the Rules, since these requirements would be addressed by the Proposed National Instruments.  The requirement to file records sent to securityholders or filed with other regulatory bodies would no longer apply to issuers other than investment funds, since the Proposed National Instruments address the topic.  The requirement to make an annual filing in lieu of an information circular would also be removed for issuers other than investment funds.  The consequential amendments would also remove the concept of “finance issuer” from the Rules. 

The attached CSA Notice describes where comments and questions can be directed. All comments received by September 19, 2002 will be considered.

June 21, 2002

Douglas M. Hyndman
Chair

Ref:  National Instrument 51-102 Continuous Disclosure Obligations
Form 51-102F1 Annual Information Form
Form 51-102F2 Management Discussion & Analysis
Form 51-102F3 Material Change Report
Form 51-102F4 Business Acquisition Report
Form 51-102F5 Information Circular
Form 51-102F6 Statement of Executive Compensation
Companion Policy 51-102CP Continuous Disclosure Obligations
BC Notice 2002/24 Publication for Comment of Proposed Foreign Issuer Continuous Disclosure Rule
National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers
Companion Policy 71-102CP Continuous Disclosure and Other Exemptions Relating to Foreign Issuers
BC Instrument 51-801 Implementing National Instrument 51-102 Continuous Disclosure Obligations
Consequential Amendments to the Securities Rules

This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.

APPENDIX A

BC INSTRUMENT 51-801

Implementing national instrument 51-102 continuous disclosure obligations

1. Interpretation - In this Rule:

a) “Act” means the Securities Act;

b) “investment fund” means an investment fund as defined in NI 51-102;

c) “NI 51-102” means National Instrument 51-102 Continuous Disclosure Obligations; and

d) “Rules” means the Securities Rules.

2. Application - This Rule implements NI 51-102 by providing relief from the material change reporting and proxy requirements of the Act to issuers that comply with NI 51-102.

3. Material Change Reporting Exemption - Section 85 of the Act and section 151 of the Rules do not apply to a reporting issuer, other than an investment fund, that complies with Part 7 of NI 51-102.

4. Proxy Requirements Exemption - Section 117 of the Act does not apply to a person, other than an investment fund, soliciting proxies from securityholders if that person complies with Part 9 of NI 51-102.

5. Effective Date - This Rule comes into force on •, 2002.

APPENDIX B

Proposed Amendments to the Securities Rules

1. Subsection 1(1) of the Securities Rules, B.C. Reg. 194/97, is amended by

(a) repealing the definition of “finance issuer”

(b) adding the following definitions

(i) “group scholarship plan” means a group scholarship plan as defined in NI 51-102,

(ii) “investment fund” means an investment fund as defined in NI 51-102,

(iii) “NI 51-102” means National Instrument 51-102 Continuous Disclosure Obligations,

(iv) “NI 71-102” means National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers, and

(v) “non-redeemable investment fund” means a non-redeemable investment fund as defined in NI 51-102.

2. Section 1(2) is amended by repealing the definitions of “Canadian public accountant’s report”, “foreign public accountant’s report”, “public accountant” and “public accountant’s report”.

3. Section 2 is repealed and replaced by the following:

Foreign financial statements and reports

2 (1) Unless otherwise permitted for continuous disclosure purposes by NI 51-102 or NI 71-102, an issuer that is incorporated or organized in a jurisdiction other than Canada or a province of Canada must, before filing any of the following, obtain the written consent of the executive director and comply with any conditions the executive director may impose:

(a) financial statements prepared in accordance with foreign GAAP; or

(b) financial statements accompanied by a foreign auditor's report.          

(2) Unless otherwise permitted for continuous disclosure purposes by NI 51-102 or NI 71-102, if financial statements are prepared in accordance with foreign GAAP, the notes to the financial statements must state which accounting principles have been applied and explain and quantify any significant differences between the foreign GAAP and Canadian GAAP.

(3) Unless otherwise permitted for continuous disclosure purposes by NI 51-102 or NI 71-102, if an audit is performed on an issuer's financial statements and the auditor's report on those financial statements is prepared in accordance with foreign GAAS, the auditor's report must explain any significant differences between the foreign GAAS and Canadian GAAS.

4. Section 3 is repealed and replaced by the following:

Preparation of financial statements

3 (1) Subsections (4), (5), (6) (10), (11), (12), (13), (14) and (15) do not apply to financial statements that are required to be filed under NI 51-102 or permitted to be filed under NI 71-102.

(2) For the purposes of subsection (3), "joint regulatory bodies" means the Montreal Exchange, the Toronto Stock Exchange, the TSX Venture Exchange and the Investment Dealers Association of Canada.

(3) Subject to any contrary provision of the Act or the regulations, the interpretations, statements, schedules, notes and instructions approved and issued by the joint regulatory bodies for the purpose of their members completing a Joint Regulatory Financial Questionnaire and Report, as amended from time to time, are incorporated by reference as part of these rules.

(4) Subject to subsections (8) and (9), the financial statements required by the Act or the regulations must be prepared in accordance with generally accepted accounting principles and with any applicable provision of the Act or the regulations.

(5) Subject to sections 99, 103 (2), 111 (1), 113 (2), 144 (3) and 148 (2), a person that is required to file financial statements under the Act or the regulations must include an auditor’s report on them prepared by a person that is qualified under subsection (6) to make the auditor's report.

(6) A person is qualified to make an auditor's report referred to in subsection (5) only if the person is independent of the person that is required to file the financial statements and

(a) the person is a member, or is a partnership whose partners are members, in good standing of, and is authorized to carry on the practice of public accounting by, the institute of chartered accountants of a province or territory of Canada,

(b) the person is a member, or is a partnership whose partners are members, in good standing of, and is authorized to carry on the practice of public accounting by, the Certified General Accountants Association of British Columbia,

(c) the person is certified as an auditor by the Auditor Certification Board established under section 181 of the Company Act, or

(d) the person

(i) has qualifications as an auditor that the executive director considers are similar to the qualifications for membership in the Institute of Chartered Accountants of British Columbia or the Certified General Accountants Association of British Columbia, and

(ii) is authorized, by the appropriate authority in the jurisdiction in which the auditor is qualified, to carry on the practice of public accounting, and to report on the financial statements of issuers.

(7) Subject to subsections (8) and (9), if financial statements permitted or
required by the Act or the regulations are required to include an auditor's report, the audit must be performed and the auditor must prepare the report in accordance with generally accepted auditing standards and with any applicable provisions of the Act or the regulations.

(8) The executive director may vary or waive the application of a provision of this Part with respect to an issuer if the executive director considers that to do so would not be prejudicial to the public interest.

(9) On application by an issuer or on the commission’s own motion, the commission may order that an issuer or class of issuers is exempt from a provision of this Part, if the commission considers that to do so would not be prejudicial to the public interest.

(10) A schedule or note to financial statements must contain,

(a) if the period or date presented is a financial year or a financial year end, and the issuer is an investment issuer or an issuer that is in the development stage, an analysis of shares, bonds, debentures and other investments held by the issuer at the end of its financial year showing separately

(i) the name of each issuer of the securities held,

(ii) the class or designation of each security held,

(iii) the number of each class of shares or aggregate face value of  each class of other securities held, and

(iv) the cost and market value of each class of securities held and, if the carrying value is other than average cost, the basis of valuation, and

(b) in the case of an issuer that is in the development stage, for each period required to be covered by an income statement or a statement of changes in financial position, an analysis of each of exploration, research,  development and administration costs, whether expensed or deferred, and, if the issuer is a natural resource issuer, that analysis for each material property.

(11) Comparative financial statements must be presented on a period by period basis and be compiled as a single set of financial statements with supporting schedules and notes.

(12) Financial statements, including tabular notes to financial statements, must be presented consistently from left to right or right to left in the same chronological order.

(13) If an issuer is required by its incorporating or organizing legislation, or by the rules or policies of an exchange on which the securities of the issuer are listed, to have an audit committee of its directors, the financial statements required to be filed by the Act or the regulations must be reviewed by the audit committee before being submitted to the board of directors of the issuer for approval.

(14) The financial statements required to be filed by an issuer under the Act or the
regulations,

(a) if the issuer is a corporation, must be approved by the directors and the approval evidenced by the signature, or facsimile of the signature, of 2 directors duly authorized to evidence the approval,

(b) if the issuer is a limited partnership, must be approved by the general partner and the approval evidenced by the signature, or facsimile of the signature, of the general partner, or

(c) if the issuer is a mutual fund that is a trust, must be approved and the approval evidenced in accordance with NI 81-102.

(15) If an issuer is permitted or required to file financial statements of any other person, the Act or the regulations apply, as appropriate, to the financial statements of such other person.

5. Paragraph 120(2)(h) is repealed.

6. Section 144 is amended by:

(a) in subsection (1), striking out “other than a mutual fund” and substituting “that is a non-redeemable investment fund or group scholarship plan”;

(b) in subsection (3), striking out “an auditor’s or public accountant’s report,” and substituting “an auditor’s report, review engagement report or notice to reader,”

(c) in subsection (8), striking out “including a” and substituting “that is a non-redeemable investment fund or group scholarship plan, or”.

7. Section 145 is amended by, in subsection (1), striking out “, including” and substituting “that is a non-redeemable investment fund or group scholarship plan, or”.

8. Section 146 is repealed and replaced with the following:

Change in ending date of financial year.

146. If a reporting issuer or a mutual fund in British Columbia proposes to make a change in the ending date of its financial year, it must file a notice of the change and the reasons for it on or before the earlier of

(a) the new date elected for the financial year end, or

(b) the 360th day after the end of the latest financial year for which financial statements were required to be filed under Part 4 of NI 51-102 or section 145.

9. Section 150 is repealed.

10. Section 152 is amended by inserting the words “that is a non-redeemable investment fund or group scholarship plan” after the words “exchange issuer”.

11. Section 153 is repealed and replaced with the following:

Filing of material sent to security holders or filed in other jurisdictions

153. (1) Subject to subsection (3), every reporting issuer that is an investment fund must file a copy of any record that it

(a) sends to its security holders, or

(b) files with a government of another jurisdiction, or an agency of that government, or with an exchange wherever situate, under the securities or corporate law of that jurisdiction or under the bylaws, rules, other regulatory instruments or policies of that exchange, if the record contains information that is
(i) not already filed with the commission, whether in the same or a different form, and
(ii) material to investors.

(2) A reporting issuer that is an investment fund must file the records under subsection (1) within 7 days after the issuer

(a) sends the records referred to in subsection (1)(a) to its security holders, or

(b) files the records referred to in subsection (1)(b) with the comparable body or exchange. 

(3) Subject to the National Instrument entitled "System for Electronic Document Analysis and Retrieval (SEDAR)", a reporting issuer that is an investment fund must file a record under subsection (1) in duplicate if the record concerns a takeover bid.

12. Section 154 is repealed and replaced with the following: 

Filing of records filed in another jurisdiction

154 If the laws of the jurisdiction in which a reporting issuer that is an investment fund carries on business or in which the reporting issuer was incorporated, organized or continued require the reporting issuer to file substantially the same information in that jurisdiction as is required by these rules, the reporting issuer may comply with the filing requirements of these rules by filing a copy of the press release, timely disclosure report, information circular or financial statements and auditor's report, as the case may be, required by that jurisdiction, provided that such records are signed and certified in accordance with section 189.

13. Section 183(1) is amended by striking out the word “person” wherever it appears and substituting the words “investment fund”.

14. Section 184 is amended by:

(a) in subsection (1), inserting the words “that is an investment fund” after the words “reporting issuer” wherever they appears and substituting “mutual fund, non-redeemable investment fund or group scholarship plan”; and
(b) in subsection (2), striking out “the reporting issuer” and substituting “a reporting issuer that is an investment fund”.

15. BC Instruments 52-501 Consent - Use of Foreign GAAP In Continuous Disclosure Filings by Issuers Using OSC Prospectus Rules, 52-504 Directors Review of Interim Financial Statements, 52-505 Exemption from the Requirement to Send Interim Financial Statements and Quarterly Reports to Security Holders of a Reporting Issuer, 52-506 Exemption for Finance Issuers from the Requirement to File Report and 52-507 Audit Committee Review of Interim Financial Statements of Exchange Issuers, are repealed.

16. National Instrument 62-102 Disclosure of Outstanding Share Data, B.C. Reg. 82/2000, is repealed.