Continuous Disclosure Guidance from the Alberta and Ontario Securities Commissions

Davis LLP Securities & Corporate Finance Bulletin

February 08, 2012

Reporting issuers are subject to numerous continuous disclosure obligations under securities law in Canada. Some of the most challenging concepts to grapple with involve the ongoing requirement to disclose material changes and dealing with material facts and material changes in connection with the insider trading rules.

The Alberta Securities Commission’s Kapusta decision and the Ontario Securities Commission’s Coventree decision, both of which were released in 2011, illustrate these issues. This bulletin explores some of the guidance collectively given by these commissions.

The decisions confirm that the concepts of material fact and material change are distinct. A material fact is one that would reasonably be expected to have a significant effect on the market price or value of an issuer’s shares and a material change occurs when there is a change in the business, operations or capital of an issuer which would reasonably be expected to have a significant effect on the market price or value of the relevant securities. The definition of a material fact is broader than that of a material change, as not all material facts are a result of a change in the business, operations or capital of the issuer.

The concept of material fact is important in relation to prospectus disclosure, as a prospectus must contain full, true and plain disclosure of all material facts related to the securities issued or proposed to be distributed. Full disclosure allows investors to make an informed investment decision, true disclosure is accurate and not misleading and does not omit a fact that is either material or necessary to understand the facts already disclosed and plain disclosure must be understandable to investors and in plain language.

Although material fact and material change are distinct concepts, the materiality threshold is the same. The commissions emphasized that materiality is about whether the fact or change would reasonably be expected to have a significant effect on the market price or value of securities.

The decisions also indicate that a material change can be triggered by a change in the value of an issuer’s securities without that change necessarily being reflected in the market price of its securities. There are many reasons why the market price would not be affected by an external announcement. Adherence to the form of disclosure rules is also important. Material changes must be disclosed by issuing a news release and filing a material change report, rather than describing the material change in a separate disclosure document.

External events beyond an issuer’s control can trigger a material change in the issuer’s business, that is then required to be disclosed in accordance with applicable securities law. Although as a general principle it is assumed that investors will be aware of external economic developments and their general effects on issuers, this principle may not always apply. External events which result in a material change in an issuer’s business will trigger disclosure obligations for the issuer, where they have a direct effect on its principal business that is uncharacteristic of what is being generally experienced by other issuers in the same business.

Disclosure of a material risk in a prospectus does not insulate a reporting issuer from its obligation to disclose a material change in its business that later results from the actual risk occurring. This is the case even when the event that occurs and results in the material change is widely reported in the media.

Finally, the commissions discussed that more is expected from inside directors and those officers and directors with superior qualifications. Inside directors are more involved in decision making and have greater access to information. Therefore, they are expected to be more attentive to securities laws.


If you have any questions concerning this bulletin, please contact the authors or your usual lawyer at Davis LLP.