1. Offering Statements for Co-operatives: How Much Disclosure is Too Much?
Ontario co-operatives have a unique exemption from the requirements of the Ontario Securities Act. Subject to some limited exemptions, co-operatives that have more than 35 members/investors or will have more than 35 members/investors with the offering, can file an Offering Statement with the Financial Services Commission of Ontario (“FSCO”) and obtain a receipt therefore in order to be able to sell the securities being offered in lieu of obtaining a prospectus pursuant to the provisions of the Ontario Securities Act. Once the receipt has been issued, securities can then be offered for the sale by the Co-operative. What is a little known fact is that for several years members of the general public could attend at FSCO’s offices and make a copy of any receipted Offering Statement. However, effective July 1, 2016, FSCO is now publishing the following information on their website in connection with receipted Offering Statements: the name of the co-operative, its corporation number, the date of receipt, the date of expiry, the minimum and maximum amount of the offering and the website contact information of the co-operative involved. While this change seems relatively innocuous, FSCO has advised it is their intention to at some point in the future post all receipted Offering Statements on its website in their entirety. The level of disclosure of information required in an Offering Statement is “full true and plain disclosure of all material facts”. Many co-operatives are in competition with private businesses that do not have the level of public disclosure that co-operatives do. Although this information is currently available to the general public, an effort must be undertaken to obtain it. The posting of receipted Offering Statements online will make this information easily accessible to anyone, including competitors of a co-operative. Will FSCO allow sensitive business information to be withheld from an Offering Statement for commercially competitive reasons? That remains to be seen. However, this is an issue that should be on the radar screen of co-operatives who do or are planning to issue an Offering Statement at some future date.
2. Bulk Sales Act - Repeal Is Coming Less than a year from the 100th anniversary of its enactment, Ontario’s Bulk Sales Act (the “BSA”) seems set for repeal. On June 8, 2016 Bill 218, the Burden Reduction Act, 2016 received first reading. Section 1 of Schedule 3 simply says “The Bulk Sales Act is repealed.” Ontario has been a laggard in taking this step. All of the other common law provinces have previously repealed their BSA legislation. It was originally intended to protect creditors from business owners selling their assets and disposing of the proceeds without paying their creditors. In more recent times it has come to be viewed as out dated legislation which interferes with M&A transactions, both big and small, structured as asset sales by creating delays and increasing the costs of such transactions. It hasn’t been substantially amended since 1959. Repeal of the BSA was one of the key recommendations contained in the June 15, 2015 report to Ontario’s Minister of Government and Consumer Services by a group of legal practitioners and academics called Business Law Agenda: Priority Findings & Recommendations Report. The panel noted in their Report that there are now other means for protection of creditors such as credit reporting agencies, the Personal Property Security Act, the oppression remedy under the Ontario Business Corporations Act and preferences, transfers at undervalue and 30 day goods recovery under the Bankruptcy and Insolvency Act. Compliance with the BSA in the manner originally intended can be impossible where part of the purchase price is paid by the assumption of debt or the issuance of shares or for other reasons there is insufficient cash to pay all creditors on closing. Often vendor and purchaser would waive compliance as between themselves. That is not recognized under the BSA, which has a number of provisions that can be a trap to the unwary. A transaction completed without compliance with the BSA is voidable at the instance of an unpaid creditor. A purchaser who completes an asset purchase without complying can end up paying twice, first to the vendor on closing of the transaction and a second time to the unpaid creditors since the BSA makes the purchaser liable to the creditors in the event of non-compliance. The BSA is also uneven in its application. It doesn’t apply to a share purchase so sometimes a transaction that the parties would prefer to complete as an asset sale would have to be re-structured as a share deal in order to avoid application of the BSA. The BSA also does not apply to a sale in bulk that only involves intangibles. This has become a significant omission as the value of intangibles such as intellectual property, accounts receivable and goodwill have become a much more significant source of assets for many companies. Hopefully the legislature will follow through and enact the repeal so that on royal asset we can say RIP BSA.
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