Dealer business model in a subscription agreement, before the
investor purchases the securities. This type of disclosure in a
subscription agreement would likely satisfy the restriction on
recommending related or connected securities contained in
section 13. 6 of NI 31-103.
Arguably, in the absence of the use of an OM, the Captive
Dealer business model already requires that an issuer’s
subscription agreement satisfy the requirements of NI 31-105; the
nature and extent of the relationship between the Captive Dealer
and connected issuer must be explicitly referred to on the cover
page of the subscription agreement (among other areas) where it
is in plain sight of an investor.
If the MIE is a corporation, the business corporations’
legislation of the jurisdiction of that MIE likely requires it to prepare
annual financial statements. For example, in Alberta, the Business
Corporations Act requires a corporation to prepare annual financial
statements (along with the report of the auditor, if any) and deliver
the statements to each shareholder at least 21 days prior to each
annual shareholders meeting.
While there is an inherent conflict of interest with the Captive
Dealer business model utilized heavily by MIEs, it is unrealistic to
expect these Captive Dealers to sell product of a competing MIE
or to have a competing MIE’s Captive Dealer sell its product. In
the past, some Captive Dealers and related issuers have engaged
in questionable business practices including the misappropriation
of investor funds and have concealed their poor financial condition
in an effort to sell product. Through existing safeguards built into
the OM exemption, existing securities and corporate legislation,
and disclosure in subscription documents that is compliant with NI
31-103 and NI 33-105, many of the concerns of the CSA and OSC
have already been addressed.
For more information contact:
Matthew T. Burgoyne
The contents of this article do not constitute legal advice and
is provided for information purposes only. This article does not
necessarily reflect the opinions of McLeod Law LLP or any of its
lawyers or clients. The content of this article is not intended to be
used as a substitute for specific legal advice or opinions.
In today’s complex business environment business leaders are under pressure to keep
up with changing requirements and increased regulatory scrutiny. Bringing the most
current knowledge, in-depth experience and strong leadership capabilities, MNP is
committed to working closely with private capital markets investors, dealers and their
professional advisors to help clients take their business to the next level.
Sean Du Plessis, CPA, CA
INCREASED IFRS FINANCIAL REPORTING
REQUIREMENTS UNDER NI 45-106
Where do you go from here?
Stephen Warden, CPA, CA, CMA