New Continuous Disclosure Obligations Regime

February 1, 2004

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Sébastien Vézina
Partner, Lawyer

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April 11, 2022

Federal Budget 2022: Good News for Mining Exploration Compagnies!

On April 7, 2022, Finance Minister Chrystia Freeland tabled the federal government’s new budget for 2022. This budget includes several tax measures relevant to the mining industry in Canada. The Canadian federal government intends to provide $3.8 billion over eight years to implement Canada’s first critical minerals strategy. One of the methods used to implement this new strategy and stimulate exploration is an investment vehicle well known to the mining industry: flow-through shares. The 2022 budget proposes to create a new 30% Critical Mineral Exploration Tax Credit (CMETC) for certain specified minerals. Specified minerals that would be eligible for the new CMETC are: copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals and uranium. As for the regular mineral exploration tax credit, the exploration expenses must have been incurred in Canada. The renunciation of expenses must also have been made under flow-through share agreements entered into after budget day and before March 31, 2027. It is important to note that there will be no cumulation of tax credits. Eligible expenditures will not be eligible for both the proposed new CMETC and the 15% regular mineral exploration tax credit (METC). In order for exploration expenses to qualify for the CMETC, a qualified person (as defined in National Instrument 43–101 issued by the Canadian Securities Administrators) will further have to certify that the expenses renounced will be incurred in the course of an exploration project for specified minerals. On this point, the measure seems to insert a new legal test of “reasonable expectation” that the minerals targeted by the exploration are “primarily specified minerals”. No details have yet been issued on the mechanics of applying this test. However, if the qualified person is unable to demonstrate that there is a reasonable expectation that the minerals targeted by the exploration project are predominantly specified minerals, the related exploration expenses would not be eligible for the CMETC and consequently, any credit granted for ineligible expenses would be recouped from the flow-through share holder who received the credit. Pending the tabling of a more detailed legislative version, careful attention and planning will therefore be required for new flow-through share financings to ensure that they meet the legal criteria for this new tax credit. Our team of professionals in securities, mining law and taxation is available to answer all your questions regarding this new measure and to assist you in the implementation of a successful flow-through financing: Josianne Beaudry René Branchaud Ali El Haskouri Charles-Hugo Gagné Éric Gélinas Sébastien Vézina

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June 15, 2021

Five good reasons to list your company on the stock exchange and opt for equity financing

In 2020, the pandemic disrupted the Quebec economy and the trend continued in 2021. After a difficult year for local businesses, there is an opportunity for business owners to rethink their business model as they develop their recovery plan. In this context, an initial public offering and equity financing might be a good idea. While the process is relatively costly and time-consuming for senior management, not to mention that it results in a series of obligations for the company and its executives and major shareholders, the benefits far outweigh the disadvantages. Here are five good reasons to take your company public and use equity financing to ensure a successful future. 1. Equity financing: financing your company’s growth differently The moment your company goes public, you significantly expand and diversify your equity financing sources. You are no longer dependent on traditional bank loans. Your company can now raise capital much more easily and at a much lower cost, for example through the issuance of convertible securities, share capital, rights or warrants. In addition, your pool of funders expands considerably, going far beyond founding shareholders, your banker and your very close friends and relatives. All these equity financing tools make it possible to more aggressively manage the growth of your business and take advantage of new business opportunities. 2. Equity financing: facilitating mergers and acquisitions Having a company listed on the stock exchange means having a key advantage when it comes to your expansion plan. Once listed, you can acquire another business using your company’s shares as leverage. This added flexibility increases your chances of success in negotiations. You can thus be more bold in your growth management, as you will no longer be limited to conventional financing methods. 3. Equity financing: gaining notoriety By making the decision to take your business public and opting for equity ?nancing, you will give your business greater visibility. First, the initial public offering will be an opportunity to make your company known to investors through promotional events organized by the brokers participating in the issuance, among others. Second, public companies are often followed by ?nancial analysts, and such attention can be an asset when it comes to marketing products and services. In short, by having your company in the spotlight, it will inevitably gain notoriety, both with investors and economic partners. Finally, for many customers and suppliers, doing business with a publicly traded company is reassuring. They see it as a sign of a well-established business, and this perception can facilitate the conclusion of a sale or supply contract. 4. Equity financing: increasing the market value of your business Better ?nancing costs, greater liquidity for your company’s shares, improved growth potential and increased visibility will all make the market value of your company signi?cantly higher than it was before going public. Once listed, book value will no longer be the main indicator used to determine your company’s worth. It will be worth what investors recognize its value to be, based on its potential for growth and pro?tability and its performance relative to competitors. 5. Company succession made easier When the time comes, it will be much easier for you to retire from your business and bene?t from the fruits of your years-long effort. You will have a number of options, including disposing of your shares through a secondary offering. It will also be easier to attract talented people to take over your business because of the multiple bene?ts that come with the status of public company. The advantages of listing your company on the stock exchange and opting for equity ?nancing are many. In addition to the ?ve points presented here, we could add increased credibility with clients and suppliers, better compensation for key employees, less dilution during fundraising, and others. More companies entering the stock market will rebuild our economy. If you are thinking of transforming your company into a public one, opting for equity ?nancing and taking the plunge into the stock market, do not hesitate to call on one of our lawyers practicing in business law to guide and advise you in the process.

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February 9, 2018

Securities and class actions: screening authorizations

Anyone who wants to bring an action in damages relating to the secondary securities market must prove that the action is brought in good faith and has a reasonable chance of success (s. 225.4 QSA). In Quebec,1 as elsewhere in Canada,2 no prior disclosure of evidence may be obtained by plaintiff for the purpose of meeting this burden. The procedure prescribed by the QSA is complete and sufficient, so recourse to the rules Code of Civil Procedure is unwarranted. Where such an action is brought by way of class action, the court must furthermore be convinced that the criteria for authorizing a class action are also met. The Court of Appeal does not expressly rule on whether prior disclosure is available to the investor to sustain the proposed class action. These specific rules have no impact on the general rules regarding insurance, such as a plaintiff's direct right of action against the insurer of the person who caused the damage (art. 2501 CCQ). Regardless of the subject matter (the secondary market) or the procedural vehicle (class action), a court may order a defendant to disclose such documents which are necessary for a meaningful exercise of this right, such as insurance policies. In its recent decision in Amaya Inc. v. Derome, 2018 QCCA 120, the Court of Appeal ruled on the interaction between the Securities Act, CQLR, c.V-1.1 (QSA) and the rules specific to class actions in relation to applications by investors for prior disclosure of documents by a public issuer. We summarize here a much-anticipated decision. The Specific Framework of the QSA The QSA governs actions relating to financial markets. Although such actions may be introduced on an individual basis, class actions are regarded as the preferred vehicle, “given that publicly-traded issuers generally have many investors in like circumstances and, if something goes wrong, they are likely to come together to avail themselves of the advantages of a class action.”3 Class actions are merely one of the available vehicles, and it is in no way a requirement to use this type of proceeding. With respect to actions relating to the secondary market, section 225.4 QSA requires that any investor, whether acting personally or as representative of a proposed group, be authorized by the court before bringing the proposed action. This restriction was enacted –and similarly so across Canada–4 to preserve public confidence in stock markets,5 but also to protect public issuers against opportunistic actions brought in hopes of obtaining a settlement rather than to obtain compensation for actual damage.6 Accordingly, an investor who claims to have been defrauded will have to prove to the court from which authorization is requested that the proposed action is “in good faith and there is a reasonable possibility that it will be resolved in favour of the plaintiff” (s. 225.4 para. 3 QSA). Motions for authorization should be addressed as early as possible, so that judicial resources are allocated only to meritorious cases. Interaction With Class Actions If the action takes the form of a class action, the investor must also meet the criteria for authorization of a class action (art. 575 CCP), a burden which has been established to be a light one, since it simply involves proving that “the facts alleged appear to justify the conclusions sought” (art. 575(3) CCP).7 Not only do the QSA and the CCP impose different burdens, but the authorization they require arises at different moments in the course of the proceedings o: the authorization required by section 225.4 QSA must, necessarily, precede the authorization required by article 575 CCP. As the Court of Appeal points out: “This is eminently logical: where leave is required under the Act, there is no action upon which the class action, as a procedural vehicle, can rest until that leave is granted.”8 Of course, both issues can be disposed of in one judgment.9 With these distinctions made, it is clear that any application brought for the purpose of enabling an investor to meet the burden established by section 225.4 QSA must be analyzed pursuant to the rules set out in that provision and not the rules that generally apply to class actions.10 The judgment appealed from was therefore not a “pre-authorization class action judgment”; it was a “judgment prior to leave under the [QSA]”.11 Accordingly, it had to be reviewed in accordance with the requirements and the spirit of the QSA.12 The Judgment Under Appeal The trial judge had granted an application for documentary disclosure, relying on the parties’ general duty to cooperate set forth by article 20 of the CCP.13 He thus arrived at a solution that is unique in the Canadian legal landscape.14 Though rendered during a case management conference, the judgment under appeal went significantly beyond the confines of case management. Accordingly, the application for leave should follow the rules applicable to judgments rendered in the course of proceedings, set out in article 31 para. 2 CCP.15 The trial judge's decision has addressed a point of law regarding to discovery, which impacted “the character of the proceedings themselves,” and which, if decided wrongly could cause irreparable harm to defendant, regardless of the expenses involved.16 Leave was granted and the Court of Appeal had to consider, on the merits, whether the trial judge was correct in applying the general principles of Quebec civil procedure to the applications for documentary disclosure that were before him. For the Code of Civil Procedure to “compensate[e] for the silence of the other laws if the context so admits,” as provided by its preliminary provision, such a silence must exist. In the opinion of the Court of Appeal, considering the purpose and history of section 225.4 QSA – in particular its goal of screening out opportunistic actions as soon as possible17 – and the uniformity of legislation on this subject in Canada,18 no such silence can be found to exist. On the contrary: in order to avoid short-circuiting the requirement for prior authorization and avoid fishing expeditions and mini-trials, judges who are responsible for authorizing actions of this nature must require that applicants meet their burden themselves.19 Neither the combination of articles 20 and 221 CCP or the specific context of class actions can sidestep that prohibition.20 Insofar as it was sought to allow the investor to meet the burden imposed by section 225.4 QSA, the application for documentary disclosure should have been dismissed. By contrast, the application to obtain disclosure of the insurance policies did not fall within the specific context of section 225.4 SA, and the trial judge's order was left undisturbed, Given the principle of cooperation (art. 20 CCP), but most importantly the long-settled principle that a third party seeking to exercise their right of action against the insurer of the person who caused the damage they suffered (art. 2501 CCQ) such applications can be justified in that they allow potential parties to the case to be identified.21 The Court of Appeal’s decision does not directly address whether class counsel may succeed in a request for “relevant evidence to be submitted” within the meaning of article 574 para. 3 CCP; such requests are traditionally considered to be properly made to contest the application, that is, necessarily by defendant, given that the allegations in the application for authorization to institute a class action must be assumed to be true at that stage.22 Summary Section 225.4 QSA is the expression, in Quebec law, of an intent common to all Canadian legislatures to create a screening mechanism for actions relating to the secondary market, in order to preserve investor confidence and deter frivolous suits. Accordingly, where an applicant seeks prior disclosure in order to meet the criterion for authorization set out in section 225.4 QSA, his or her application should be dismissed, including in a class action context. Where the objective of the application for prior disclosure is not one germane to the QSA, for instance, where an applicant seeks information to join an insurer to the proceedings, such application needs to be considered under the ordinary rules of Quebec law. Theratechnologies Inc. v. 121851 Canada inc., [2015] 2 SCR 106, 2015 SCC 18 Canadian Imperial Bank of Commerce v. Green, [2015] 3 SCR 801, 2015 SCC 60 Par. 52 Par. 97 Par. 84 Paras. 49 and 84; following, inter alia, Theratechnologies Inc. v. 121851 Canada inc., [2015] 2 SCR 106, 2015 SCC 18 or Canadian Imperial Bank of Commerce v. Green, [2015] 3 SCR 801, 2015 SCC 60 Para. 50 Para. 46. Paras. 20, 46 and 54 Para. 45 Paras. 42, 45 and 55 Para. 55 Derome v. Amaya inc., 2017 QCCS 44, paras. 79 et seq. Para. 36; compare: Mask v. Silvercorp Metals Inc., 2016 ONCA 641 and Mask v. Silvercorp Metals Inc., 2014 ONSC 4161 – leave to appeal ref’d: Mask v. Silvercorp Metals, Inc., 2014 ONSC 464 (Ont. Div. Ct); Bayens v. Kinross Gold Corp., 2013 ONSC 6864; Silver v. Imax, (2009) 66 B.L.R. (4th) 222, leave to appeal ref'd, Silver v. Imax,2011 ONSC 1035 (Ont. Div. Ct) Paras. 73 to 79 Paras. 66 et seq.; leave to appeal had been referred to a panel of the Court: Amaya inc. v. Derome, 2017 QCCA 335. Paras. 49 and 84 Paras. 9 and 97 Paras. 9 and 93 Paras. 106 and 107 Collège d'enseignement général et professionnel de Jonquière (CÉGEP) v. Champagne, 1996 CanLII 4413 (CA) Benizri v. Canada Post Corporation, 2016 QCCS 454, para. 6

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October 23, 2017

Comprehensive reform of the rules governing the regulation
and operations in the Québec financial sector

On October 5, 2017, Québec's Minister of Finance, Carlos J. Leitão, has tabled Bill 141 in Québec's National Assembly. The Bill, which is 470 pages long and includes some 750 sections, is entitled An Act mainly to improve the regulation of the financial sector, the protection of deposits of money and the operation of financial institutions. It proposes a major overhaul of the rules governing the operation of deposit-taking institutions and insurance companies, as well as the distribution of financial products and services (“FPS”) in the province. The Bill proposes amendments to the following laws: Act respecting insurance (repealed) Professional Code Act respecting trust companies and savings companies (replaced) Act respecting financial services cooperatives Act respecting the Mouvement Desjardins (repealed) Deposit Insurance Act (renamed Deposit Institutions and Deposit Protection Act) Derivatives Act Money-Services Businesses Act Automobile Insurance Act Act respecting the Autorité des marchés financiers (renamed Act respecting the regulation of the financial sector) Act respecting the distribution of financial products and services Real Estate Brokerage Act Insurers Act (enacted) Securities Act Based on the Minister's speech unveiling the Bill, the following is a summary of the 13 main categories of measures provided for in that draft legislation: Insurance — The Insurers Act is proposed as a replacement for the Act respecting insurance. It contains provisions governing the supervision and control of insurance business and of the activities of authorized (former permit holding) Québec insurers, as well asprovisions governing the constitution, operation and dissolution of Québec-incorporated insurers. The new Insurers Act also updates the rules applicable to the insurance activities of self-regulatory organizations (“SROs”), including professional orders. Financial services cooperatives — The Bill amends the Act respecting financial services cooperatives (essentially, credit unions which are members of the Groupe Coopératif Desjardins) to specify, among other things, rules relating to the organization and functioning of such cooperatives. The Bill adds a chapter concerning the Groupe coopératif Desjardins in replacement of the Act respecting the Mouvement Desjardins, which will be repealed. Deposit insurance — The Bill amends the Deposit Insurance Act and puts in place a new framework to supervise and control the deposit-taking business and authorized deposit-taking institutions in Québec. It includes provisions allowing for the resolution of problems arising from the failure of such an institution when affiliated to a cooperative group. The title of that Act is also changed to reflect the amendments made to it. Trust companies — The Act respecting trust companies and savings companies is replaced by a new legislation bearing the same title, but which redefines the regulatory framework governing those kinds of companies and their business. This framework is consistent with the new legislation to be applied to insurance companies and deposit-taking institutions. Real estate brokerage — The Act respecting real estate brokerage is to be amended to, among other things, define the concept of real estate brokerage contract, and to transfer to the Autorité des marches financiers (“AMF”) the supervision and control of mortgage brokers in the province. Financial products and services — The Bill amends The Act respecting the distribution of financial products and services to transfer to the AMF and the Financial Markets Administrative Tribunal ("FMAT") the SRO responsibilities currently entrusted to the Chambre de la sécurité financière and the Chambre de l’assurance de dommages. It also proposes a set of amendments aimed at facilitating the online offering and distribution of FPS. Act respecting the AMF — The Bill amends the Act respecting the Autorité des marchés financiers by introducing provisions to protect whistleblowers who denounce regulatory breaches of third parties to the AMF, to establish a committee tasked with taking submissions from consumers of FPS, and to structure the FMAT in a way similar to other provincial administrative tribunals, such as the Administrative Tribunal of Québec. The Act respecting the AMF is to be renamed an Act respecting the regulation of the financial sector. Funeral expenses insurance — The Bill amends the Civil Code of Québec to permit funeral expense insurance contracts to be entered into. It also modifies the Act respecting prearranged funeral services and sepultures, to provide for a more proper regulation of such contracts. Automobile insurance — The Bill amends the Automobile Insurance Act to specify how information relating to the acquisition or renewal of automobile insurance is to be filed. Money services — The Bill amends the Money-Services Businesses Act to provide for periodic checks (every three years) to be conducted on money-services businesses by the competent local police. Derivatives — The Bill adds derivatives trading platforms to the entities regulated under the Derivatives Act. Securities — The Bill amends the Securities Act to, among other things, replace the definition of "non-redeemable investment fund", prescribe restrictions on sharing commissions for certain dealers, and provide for the suspension of prescription when an application for authorization of an action for damages is filed under that Act. Legislation administered by the AMF — Finally, the Bill amends the laws administered by the AMF (listed in Schedule I to the Act respecting the Autorité des marchés financiers) to prescribe the duration of freeze orders obtainable under those laws and to prescribe the terms of administration and distribution of amounts remitted to the AMF pursuant to a disgorgement order issued thereunder. Bill 141 thus proposes wide-ranging reforms. It embodies measures which: amount to a major overhaul of certain financial laws (Desjardins’ financial services cooperatives, trust companies, deposit insurance); aim at providing a legal basis for operations that are either currently unregulated or unauthorized by law (e.g., the offering or distribution of FPS online); incorporate certain supranational standards into Québec's regulatory framework (e.g., resolution / orderly winding up of unstable systemically important financial institutions); redeploy the exercise of regulatory, supervisory and enforcement / disciplinary functions in the financial sector; and enact numerous new specific rules, particularly in the field of insurance (reciprocal insurance unions; exemption from authorization (permits) respecting suppliers of insurance-like extended warranty products; commercial practices; etc.). The scope is far-reaching for our clients operating in the Québec financial sector, and those who wish to efficiently seize the opportunities offered by the new rules that will govern the Québec's financial marketplace. They would now want: to learn more about the measures of the Bill and the way they may affect them, to position themselves competitively or adjust their ongoing projects in preparation for what is to come; to consult to knowledgeably define new strategies and be able to effectively implement them, in compliance with the new rules; to participate, separately or jointly with others stakeholders, to the consultations that the Minister of Finance has announced would be held on the Bill by a parliamentary committee, to present their views and propose enhancements to its provisions.

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