TSX-V Amends Policy on Reverse Takeover and Change of Business Transactions
January 9, 2017
The TSX Venture Exchange (TSX-V) has implemented amendments to Policy 5.2 – Changes of Business and Reverse Takeovers (Policy 5.2). While the amendments involve a major redrafting of Policy 5.2, they mostly confirm unpublished policies and working practices of the TSX-V in relation to reverse takeover (RTO) and change of business (COB) transactions. The key amendments are summarized below.
Historically, shareholder approval has generally been required for RTO and COB transactions. Policy 5.2 now reflects earlier guidance that shareholder approval will not be required where:
- The transaction is not a related party transaction;
- The TSX-V has confirmed its view that the issuer is without active operations;
- The issuer is not subject to a cease trade order;
- Shareholder approval is not otherwise required under corporate law or securities law; and
- The issuer has disclosed in a press release that it will not obtain, and the reasons for not obtaining, shareholder approval.
Often TSX-V issuers will need to complete a private placement in the interim period between announcement and closing of an RTO or COB transaction. Policy 5.2 confirms the TSX-V position that such bridge financings are only permitted where:
- The issuer lacks sufficient resources to complete the transaction;
- The financing is completed independently of the completion of the transaction;
- The money raised is used for specific purposes related to the completion of the transaction;
- It is offered at a discount to any financing completed concurrent with closing of the transaction that is no greater than what is permitted under TSX-V policies; and
- In certain cases, at least 75% of the financing must be subscribed by parties who are arm's-length to the transaction.
Deposits and Loans to Target Companies
In many RTO and COB transactions, issuers find themselves in a position where they need to advance funds to the target company prior to closing. Policy 5.2 now reflects working practices of the TSX-V which provide that:
- Advances up to $25,000 are permitted without prior approval of the TSX-V; and
- Advances greater than $25,000 are permitted with prior approval from the TSX-V, if such advances are secured and meet certain criteria as set out in Policy 5.2.
While the TSX-V has previously stated its intention to eliminate the requirement for sponsorship of an RTO or COB, this change has not yet been reflected in Policy 5.2. However, the TSX-V reminds issuers that it is receptive to waiver applications in appropriate circumstances. We have been successful in obtaining a sponsorship waiver in connection with a recent COB transaction in the technology sector, saving our client the considerable sponsorship fees and time and expenses that would normally be incurred in satisfying sponsorship obligations.
You can read the TSX-V notice to issuers here.