Author(s):
Rob Lando
Volume 1, Number 6 – September 10, 2013
Have you heard that Canadian wrappers are a thing of the past and can be relegated to the dustbin of history? If that’s what you’ve heard, then you’ve heard wrong. Canadian wrappers are often still required. And even though you sometimes do not need a Canadian wrapper anymore, you still have to comply with a host of other requirements when selling securities into Canada.
What Is a Canadian Wrapper?
A Canadian wrapper is a short supplement that is attached to (or wrapped around) a U.S. or other non-Canadian prospectus or offering memorandum to help achieve compliance with some of the requirements for private placements of securities to Canadian investors. It is used to convey prescribed supplemental information for Canadian compliance purposes and to obtain deemed representations and warranties from the investor about its eligibility to purchase securities under a Canadian prospectus exemption.
Why Are People Saying Canadian Wrappers Are No Longer Required?
The Canadian securities regulators have granted exemption orders, or “wrapper exemptions,” to a number of securities dealers. If all of the required conditions are satisfied, the wrapper exemptions provide relief from many of the specific disclosure requirements that have traditionally been addressed by a Canadian wrapper. Specifically, the wrapper exemptions eliminate the need to disclose the availability of statutory rights of action for material misstatements or omissions in an offering document, as would otherwise be required under the laws of some provinces. They also eliminate the need to make prescribed Canadian disclosure on the cover page of an offering document about relationships that could give rise to potential conflicts of interest between the dealers and the issuer or a selling security holder.
When Would a Wrapper Still Be Required?
A Canadian wrapper may still be required for a number of reasons. First, the wrapper exemptions can only be used by the dealers who have obtained them, and not by any other dealers selling securities in Canada.Second, each dealer making Canadian sales under the wrapper exemptions must have obtained a one-time signed acknowledgment form from each purchaser in Canada agreeing to participate in offerings that do not follow the usual Canadian disclosure requirements. Trying to get these signed acknowledgment forms from all of their Canadian investors has been a difficult and time-consuming exercise for the dealers involved. Third, the wrapper exemptions may only be used if the offering document contains all of the disclosure regarding dealer relationships that would be required under SEC and FINRA rules for an SEC-registered offering – so if the offering is not registered in the United States, this condition may not be satisfied.
In addition, the wrapper exemptions can only be used if the following requirements are met:
- the securities are being offered primarily outside Canada;
- all Canadian purchasers are “permitted clients”;
- the issuer is incorporated, formed or created in a country other than Canada;
- the issuer is not a reporting issuer in any province or territory of Canada;
- the issuer has its head office or principal executive office outside Canada;
- the issuer is not an “investment fund,” unless the wrapper exemption obtained by the dealer making the sale allows for sales of investment fund securities (not all of the wrapper exemptions do); and
- none of the Canadian purchasers are individuals in the province of Ontario, unless they have been given prescribed disclosure about their rights under Ontario freedom of information and protection of privacy legislation.
Are There Any Other Canadian Requirements?
Whether you use a Canadian wrapper or can rely on a wrapper exemption, you will still need to consider many other Canadian securities law requirements before selling securities into Canada, such as the following: (i) the need to comply with dealer registration requirements; (ii) the possible application of Multilateral Instrument 51-105, which in some situations can subject the issuer to ongoing Canadian public company reporting requirements as a result of making private placement sales; (iii) the need for investment fund managers to be registered in certain provinces if any of the funds they manage have investors in those provinces, absent an exemption; (iv) the need to register limited partnerships before they distribute securities in some provinces; (v) the special Canadian requirements that apply to distributing rights in a rights offering; and (vi) the additional Canadian compliance requirements that will apply at the time of a registered exchange offer, or at the time of an exchange if the securities are exchangeable into securities of a different issuer.
In addition, private placements of securities must be reported to the Canadian securities regulators within 10 days of the settlement date, and sales made under the wrapper exemptions must be reported monthly in a special additional report.
Canada and the United States have a lot in common, including the general principles behind their securities laws. But there are some differences you might find surprising. This newsletter will provide answers to some of the most commonly asked questions about Canada’s securities laws. While we hope you find it interesting, we also hope you understand that it is intended only to provide general information and should not be considered legal advice.
Rob Lando is a leading expert on Canadian securities laws and their application in Canada/U.S. cross-border corporate finance and M&A transactions. Rob is a partner in the New York office of Osler, Hoskin & Harcourt LLP and can be reached at (212) 991.2504 or by email at rlando@osler.com.
Osler, Hoskin & Harcourt LLP is a leading business law firm practising nationally and internationally from offices across Canada and in New York, and is consistently ranked as one of Canada’s top firms.
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