Bill 85, Quebec’s New Securities Act
Luc LaRochelle, Fran ois-J. P6pin and Ralph L. Simmonds*
The authors provide a basic account of Bill
85, Quebee’s new securities legislation, high-
lighting what they perceive to be its most im-
portant features. While providing references
to other provinces’ enactments and to federal
proposals which influenced the new Securi-
ties Act, the authors suggest that in a number
of respects Bill 85 is among the most inno-
vative of recent legislation on the regulation
of the securities markets. They also suggest
that Bill 85 could serve as a model for reform
in other provinces. Together with an analysis
of the new statutory regime of civil liability
introduced through the Act, the authors dis-
cuss the implications for securities regulation
in Quebec of the Civil Code and the Charter
of the French Language.
Dans le cadre d’une analyse du projet de loi
85, les auteurs font ressortir ce qu’ils consi-
d~rent comme les points saillants de la nou-
velle loi qu~b6coise sur les valeurs mobilih-es.
Apr~s avoir fait reference aux autres lois pro-
vinciales de valeurs mobilires et A l’avant-
projet de loi federal, qui ont influ6 sur la nou-
velle Loi sur les valeurs mobiires, les au-
teurs indiquent que le projet de loi 85 constitue
A plusieurs 6gards l’une des lois les plus in-
novatrices sur les valeurs mobilidres. Ils
6noncent que le projet de loi 85 pourrait ser-
vir de module de r~forme dans d’autres pro-.
vinces. En plus d’analyser le nouveau regime
statutaire de responsabilit6 civile instaur6 par
la loi, les auteurs examinent les retombes du
Code civil et de la Charte de la languefran-
caise sur la r~glementation en mati~re de va-
leurs mobilires.
*Respectively, partner, Doheny Mackenzie, Montreal; associate, Doheny Mackenzie, Montreal;
and Associate Dean (Academic), Faculty of Law, McGill. Part of the research on which this
article draws was done for a forthcoming book on business associations and made possible by
a grant from the Social Sciences and Humanities Research Council of Canada.
19831
QUEBEC’S NEW SECURITIES ACT
89
Synopsis
Introduction
1.
The New Act
II.
HII.
A Capsule History of Quebec Law
A. Previous Legislation
B.
The New Regime: Its Closed System
A.
B. Exemptions
“Distribution”
1. Private Placement Exemptions
2.
3.
4.
Small Issuer Exemptions
Resale Under Exemption
Special Distribution Disclosure Regimes
a.
The Simplified Prospectus Scheme
b.
The Abridged Prospectus
C. Conclusion
The Continuous Disclosure Regime
A.
The Reporting Issuer
B. Periodic Disclosure
C.
D.
E. The Permanent Information Record
F. Conclusion
The Proxy Information Circular
Insider Trading Reports
IV. Take-over Bids
A. Exemptions from Take-over Bid Regulation
B. Limited Bid Exemptions
C.
Information Circulars
D. Substantive Provisions Respecting Terms of an Offer
E. Conclusion
Mc GILL LAW JOURNAL
[Vol. 29
V. Market Controls
A.
Civil Liability
1. Liability for Lack of Disclosure
2. Liability for False Statements
3.
4. Conclusion on Civil Liability
Liability for Improper Insider Trading
B. Administrative Sanctions
VI. Licensing of Persons
Registration Requirements
Self-Regulatory Organizations
A.
B.
C. Conclusion
VII. National Issues and the Charter of the French Language
Conclusion
Introduction
On 6 April 1983, the 1982 Securities Act of the Province of Quebec
(the”new Act”)’ came into force. Known, as is most Quebec legislation, by
its bill number, Bill 85 is firmly in the tradition of North American securities
legislation. It is long: 354 sections, arranged under eleven titles or parts. It
is supported by an implementing regulation which (in its English form)
occupies 119 pages of the Gazette officielle du Quebec. 2 It is complex: in
the tradition of securities legislation in the rest of Canada, it represents an
attempt to make more comprehensive, and to update, the intricate scheme
it replaced. And it is a mix of involved drafting of statute and regulation
with grants of large discretionary authority to an expert administrative agency,
officially styled the Commission des valeurs mobili6res du Quebec (the
‘S.Q. 1982, c. 48, repealing the Securities Act, R.S.Q. 1977, c. V-I. There is a cross reference
table between the old Act and the new Act at 3 CCH Can. Sec. L. Rep. para. 60-000.
20.C. 660-83, 30 March 1983, G.O.Q. 198311.1269.
1983]
QUEBEC’S NEW SECURITIES ACT
“CVMQ”). With Bill 85, Quebec joins Ontario 3, Alberta4 and Manitoba5
in having recently “modernized” its securities legislation. All have done so
along somewhat similar lines.
Bill 85 is nonetheless also a milestone in Canadian securities regulation.
It is probably the most innovative of the recent Canadian Acts. It also shows
the greatest diversity of influences. Its drafting owes most to the Ontario
Act, but it has also been much influenced by the federal Proposals for a
Securities Market for Canada,6 more than any other provincial Act to date.
It also appears to have been influenced by present and proposed securities
law in the United States. And of course it has been drafted against the
background of Quebec’s Civil Code, although the Code’s direct influence is
the least of all the sources mentioned.
The purpose of this article is to provide a basic account of the new Act,
highlighting what we see to be its most distinctive features. We believe that
there is much in Bill 85 which the observer inside and the observer outside
Quebec will find of interest. For securities lawyers, our aim is to provide a
convenient inventory of the major changes the new Act has brought, as well
as references to background reading which they might find helpful. We are
no more sophisticated than that: it is too early yet to catalogue the day-to-
day practical problems which legislative reform like this invariably brings.
For non-specialists, our aim is to provide them with an idea of the basic
structure of the new Act, from which more detailed understanding can begin.
For securities specialists in Quebec much of what we will say will be well
known or trite. But, given the national markets for securities in this country
both for newly issued (the primary market) and for previously issued
–
securities (the secondary market)7 –
and the relative importance of Quebec
3The Securities Act, R.S.O. 1980, c. 466, first enacted as The Securities Act, 1978, S.O. 1978,
c. 47. There is a table of concordance between this Act and the old Quebec Act in 2 CCH Can.
Sec. L. Rep., para. 50-000a and between this Act and Bill 85 in (1982) 4 OSC Bull. 274A-317A
(No. 10).
4Securities Act, S.A. 1981, c. S-6.1, as am. S.A. 1981, c. B-15 and S.A. 1982, c. 32.
5The Securities Act, 1980, S.M. 1980, c. 50/50, as am. S.M. 1980-81, c. 26. This Act has yet
to be proclaimed in force.
6p. Anisman, W. Grover, J. Howard & J. Williamson, Proposals for a Securities Market Law
for Canada [:] Draft Act (1979), vol. I [hereinafter Proposals, vol. I]; Proposals for a Securities
Market Law for Canada [:] Commentary (1979), vol. II [hereinafter Proposals, vol. II]; and
Consumer and Corporate Affairs Canada, Proposals for a Securities Market Law For Canada
[:] Background Papers (1979), vol. I [hereinafter Proposals, vol. III]. Individual papers in the
latter volume bear their own dates, and the date is given where a paper is cited. The influence
of the Proposals on an early draft of Bill 85 is noted in Anisman, The Proposals for a Securities
Market Law for Canada: Purpose and Process (1981) 19 Osgoode Hall L.J. 329, 348-50.
7See Anisman & Hogg, “Constitutional Aspects of Federal Securities Regulation” (1978), in
Proposals, vol. III, supra, note 6, 139 and references therein.
REVUE DE DROIT DE McGILL
[Vol. 29
in those markets, securities lawyers outside the province need to be con-
cerned about this law. And, given the pervasiveness of the securities laws,
which apply to all businesses from the smallest to the largest, non-specialists
need to be concerned to acquire a feel for this law as well.
I.
A.
A Capsule History of Quebec Law
Previous Legislation
It is worth reviewing in short form the major legislative landmarks in
the evolution of securities regulation in Quebec leading to Bill 85. This will
enable us to present briefly the highlights of the new legislation. Subsequent
Parts of this article will address those highlights and related matters in much
more detail.
The first measure intended to regulate disclosure in securities trading
in Quebec came in March 1924, with legislation requiring that a corporation
wishing to issue bonds, shares or other securities file certain documents.8
The more important of these documents were a financial information state-
ment and a copy of every estinate, prospectus or other representation in
writing made by the corporation or upon its instruction which contained a
statement of the profits likely to be realized. The financial information state-
ment, certified by the auditors and sworn by the directors of the corporation,
contained modern prospectus-type information including details of previous
issues of securities and the remuneration of directors. Failure to file these
documents deprived the issuing corporation of its right to sue the purchasers
of its securities for the price of them. The directors involved would them-
selves be accountable for any payments made on account of the price. Se-
curities listed on Canadian exchanges and certain foreign exchanges were
exempt, as were securities issued in an isolated sale transaction. An amend-
ment to the legislation, also passed in 1924, imposed fines for defaulting
corporations and imprisonment for their directors.9
As the required documents only had to be filed with the Secretary of
the Province, the 1924 legislation “had little practical effect since once the
information was filed nothing more could be done and the facts did not
have to be publicized”.10 As a further measure of control, the province’s
License Law, which had introduced registration requirements for brokers
8See the Securities Sale Act, R.S.Q. 1925, c. 228, ss 3 and 4 (adopted as An Act respecting
the issue and sale of shares, bonds and other securities, S.Q. 1923-24, c. 64 adding ss 6119
(f)-(j) to the Joint Stock Companies’ General Clauses Act, R.S.Q. 1909, S. 5957.)
9S.Q. 1923-24, c. 65.
10 Porteous, The Securities Act (1945) 5 R. du B. 328. See also J. Williamson, Securities
Regulation in Canada (1960) 13.
1983]
QUEBEC’S NEW SECURITIES ACT
in 1906, was amended in 1928 to prohibit brokers from offering securities
where the applicable disclosure requirements had not been met. 1
After an inter-provincial conference held in Toronto in 1930, in the
wake of the stock market collapse, Quebec followed the general trend and
passed that year its Security Frauds Prevention Act, modelled on the Ontario
legislation of 1928.12 In 1933, however, Quebec led the other provinces 13
by further requiring, when the proceeds of an issue were to be turned over
to the issuer, that brokers not trade securities before a copy of the last
prospectus filed under the Companies Information Act 14 had been deposited
with the Registrar, together with a declaration of the prices and commissions
in connection with such issue.’ 5 In 1935, the Security Frauds Prevention
Act was further amended and became the Securities Act.’ 6 In 1955 Quebec
adopted its new Securities Act, 17 which was substantially similar to the Ontario
legislation of 1945.18 It was by the 1955 Act that the CVMQ was created.
These acts reflected two main themes in the prevention of securities
market abuses in Quebec. One was the principle, derived from the law of
the United Kingdom, of full, true and plain disclosure. The other was the
“blue sky” approach, derived from American state securities legislation,
which entailed the discretionary authority of public officials based on a
review of the merits of an issue to prevent an issuer gaining access to the
province’s public securities markets.
The modern era of Quebec securities regulation really began with the
Securities Act of 1955. During the last two decades, the shortcomings of the
Act became apparent, 19 despite a series of amendments from 1965 to 198120
aimed at bringing it in line with then current trends. Notwithstanding the
I”See the Quebec License Law, S.Q. 1900, c. 12, as am. S.Q. 1906, c. 9, s. 50 and S.Q. 1928,
12An Act for the prevention of fraud in connection with securities, S.Q. 1930, c. 88; see Wil-
liamson, supra, note 10, 24 and F. Wegenast, The Law of Canadian Companies (1931) 699.
t3Williamson, supra, note 10, 27.
14R.S.Q. 1925, c.228 (replacing the former version of c. 228 as provided for in S.Q. 1930, c.
c. 14.
87).
15An Act to Amend the Security Frauds Prevention Act, S.Q. 1933, c. 85, s. 2.
16S.Q. 1935, c. 72 as am. S.Q. 1938, c. 82 as consolidated by R.S.Q. 1941, c. 282. For a
comparison of its provisions with The Securities Act, 1945, S.O. 1945, c. 22, see Porteous,
supra, note 10, 334-5.
17S.Q. 1954-55, c. 11. See also Mackenzie, “Securities Legislation and Practice” in McGill
University Faculty of Law, The
.C.J Meredith Memorial Lectures (1966) 21, 22.
‘sTheSecuritiesAct, 1945, S.O. 1945, c. 22. See Williamson, supra, note 10, 30-4 fora review
of the Ontario Act.
19See Caron, Aspects du droit des valeurs mobiires (1975) 17 McGill L.J. 233, 290-1; Cat6,
The Underwriter’s Civil Liability and Investor Protection (1975) 10 R.J.T. 137, 177.
20S.Q. 1965, c. 80; S.Q. 1971, c. 77; S.Q. 1973, c. 67 (mainly on insider trading); S.Q. 1975,
c. 76, s. 2; and c. 83; S.Q. 1979, c. 14, c. 37 and c. 81, s. 20, para. 32; S.Q. 1981, c. 9, s. 22.
Mc GILL LAW JOURNAL
[Vol. 29
obvious weaknesses of the Act, the CVMQ was able to modernize the su-
pervision and control of securities trading in the province to a substantial’
extent, by utilizing its extensive discretionary authority. For example, the
preliminary prospectus was unknown under the Act, although it had been
introduced into Ontario in 1966. The CVMQ tolerated its use in Quebec 21
even before Bill 85 elevated the document to formal statutory recognition.
Another example of the Commission’s use of its discretionary authority
is Projet d’instruction gnrale no 31.22 Although never issued in final form,
this statement served as a guideline for exemptions from prospectus re-
quirements in a way which paralleled those of the 1978 Ontario securities
legislation. 23 For instance, it indicated that the Commission would exercise
its discretionary authority under the old Act to exempt certain limited dis-
tributions of securities from the prospectus requirements. This “seed cap-
ital” exemption is now to be found in section 47 of Bill 85.
B.
The New Act
The purpose behind Bill 85 was, in part, to bring the securities law of
Quebec into harmony with the legislation of other provinces. 24 Further, the
new Act is distinguished from the 1955 legislation by a better organization
of the text.25 It also no longer reflects, as the 1955 legislation tended to do,
a mere translation into French of the Ontario Act 26 which directly inspired
it. However, this now makes translating the Act into English much more
difficult, and the official translation is not an altogether happy one. As well,
there are new concepts in the Act without ready equivalents in the other
provinces’ legislation.
For the Commission the new Act represents the granting of a series of
new powers, some of which are unknown to regulators elsewhere in Canada.
21There was no policy statement to that effect, but in its reply to a filing of a preliminary
prospectus, the Commission would give its agreement in the following standard form letter
“The Director of Filings grants you the permission required under Section 70 of the Securities
Act (R.S.Q., c. V-i). This permission will expire as soon as a decision will have been made
concerning the final prospectus”.
A, para. III.
R.O. 190/80.
22(1981) XII Bulletin hebdomadaire (no 47).
23An Act to revise The Securities Act, S.O. 1978, c. 47, s. 71(l)(p) and s. 14(g) of Regulation,
24CVMQ, Avant-projet d’une nouvelle loi sur les valeurs mobili~res (14 mai 1980), Annexe
25See, for instance, Charbonneau, La Commission des valeurs mobilires du Quebec (1977)
20 Can. Pub. Admin. 87, 115 and notes 168-9, where it is stated that at one point the offences
were to be found in twenty-six different places in the Act.
26The linguistic concern as regards the Securities Act can be traced back to 1973, when an
attorney and member of the Quebec Securities Commission contributed to a lexicon prepared
by the Office de la langue franraise on exchange and securities market terms. The Commission
also issued its translation of the term “debentures” in (1974) V Weekly Bulletin (No. 9).
1983]
QUEBEC’S NEW SECURITIES ACT
In anticipation of the new Act there had been some substantial internal
reorganization of the Commission. For the first time in Quebec the Com-
mission has discretion to deny the benefit of the statutory exemptions oth-
erwise granted by the new Act.27 In the category of powers granted to the
Commission which are not expressly dealt with in the legislation of other
provinces is the discretion of the Commission to draw up policy statements 28
in the course of its functions.29 In addition, the members and personnel of
the Commission are subjected by the new Act to very strict rules of con-
duct.30 Rather more innovatively, Bill 85 gives a measure of substantial
flexibility to the internal organization of the Commission and allows for
devolution of its functions on a scale not to be found elsewhere in Canada.31
The modernization of securities regulation in Quebec can be said to lie
for the most part in four features of Bill 85. The first of these is the provision
of civil recourses for the defrauded investor, something absent from the old
Act. Bill 85 contains civil sanctions for the failure to provide certain dis-
closure documents, and for the use of documents which contain misrepre-
sentations. 32 These sanctions include the right to rescind a purchase contract,33
to have the price revised and to sue for damages. 34 There is also a provision,
new to Quebec securities legislation, creating civil liability for improper
insider trading.35
A second important feature of the new Act is the prompt offering qual-
ification system which permits the use of a simplified prospectus incorpo-
rating by reference data about the issuer already filed with the Commission.36
This is designed to permit seasoned issuers to qualify new issues faster and
more efficiently than before.
A third important feature of the new Act is the almost complete removal
of the concept of “public”, which under the old Act was crucial to the
27S.Q. 1982, c. 48, ss 48 and 49.
28Securities Act, S.Q. 1982, c. 48, s. 274.
29Securities Act, S.Q. 1982, c. 48, s. 276.
30S.Q. 1982, c. 48, ss 300 and 301.
31Securities Act, S.Q. 1982, c. 48, s. 307.
32SecuritiesAct, S.Q. 1982, c. 48, ss 30, 36.
33See, for instance, Ct6, supra, note 19, 148-50, 154-8, 162-5.
34SecuritiesAct, S.Q. 1982, c. 48, ss 214, 215, 218, 219, 223 and 225.
35SecuritiesAct, S.Q. 1982, c. 48, s. 228.
36SecuritiesAct, S.Q. 1982, c. 46, ss 84-88, preceded by CVMQ, Instruction gbnraleprovisoire
no 33, (1982) XIII Bulletin hebdomadaire (no 38) 1.2.2; available in other provinces through
policy statements: Ontario, Policy Statement No. 5.6 and Notice, 2 CCH Can. Sec. L. Rep.
para. 54-936, 54-890e; Alberta, Policy Statement No. 3-23, 1 CCH Can. Sec. L. Rep. para. 24-
535; British Columbia, Policy Statement No. 3-40, 2 CCH Can. Sec. L. Rep. para. 29-997g;
Manitoba, Policy Statement No. 3-12, 2 CCH Can. Sec. L. Rep. para. 34-999d; Saskatchewan,
Policy Statement No. 3-09, 3 CCH Can. Sec. L. Rep. para. 69-310.
REVUE DE DROIT DE McGILL
[Vol. 29
application of the requirement for a prospectus and for the licensing of
issuers. This is to remove much of the uncertainty that used to exist about
the applicability of those requirements.
The final important feature of Bill 85 is that it authorizes the Com-
mission to vest securities market professionals with greater responsibility
for the functioning of the market and the activities of their fellow profes-
sionals. To achieve this the Act provides that self-regulatory organizations
must be recognized by the Commission and that certain surveillance powers
can be delegated to them. It may be that the new Act has also significantly
recast the requirement for persons trading in securities to obtain a license,
by adding that, for the requirement to apply, such persons must (in effect)
not only be trading but doing so in the course of a business. 37 However,
this “carrying on business” addition is far from clear, which goes to illustrate
one of the semantic problems with the new Act.38
II.
The New Regime: Its Closed System
In Title II, “Distribution of Securities”, and the related Regulation, Bill
85 provides for a closed system presided over by a Commission endowed
with the power to control access to the public capital markets in Quebec.
This is by far the most complex part of the Act, but its main objective,
simply stated, is to ensure adequate disclosure for investors in the primary
securities market.
“Distribution” is the controlling term of this section of the new Act. It
determines the boundaries of the system and is defined separately in section
5 to cover primary market transactions and certain other transactions seen
to be similar. Section 11 of the Act follows the lead of the Ontario, Manitoba
and Alberta Acts in requiring that every person who proposes to make a
“distribution” of securities file a prospectus with the Commission and obtain
consent to its use. Likewise, a dealer who receives an order for a security
in distribution, and is not acting solely for the applicant, must send to him
a copy of the prospectus and any amendment within two working days of
the subscription or purchase. The investor has until two days after receipt
of the prospectus to withdraw from the transaction for any reason. This
feature, new to Quebec securities law, is borrowed from the Ontario model. 39
37S.Q. 1982, c. 48, s. 148.
38See text following note 261, infra.
39Securities Act, S.Q. 1982, c. 48, ss 29 and 30. On the Ontario provision, see V. Alboini,
Ontario Securities Law (1980) 414-22.
1983]
QUEBEC’S NEW SECURITIES ACT
Once the “distribution” is proposed and the detailed prospectus re-
quirements, to be found mainly in the Regulation,40 are met, the Commis-
sion may signal its consent by issuing a receipt (“visa”) or, exercising the
powers granted in section 5, withhold its consent even if all the disclosure
requirements are met. These section 5 powers are granted in terms rather
more explicit than those of the old Act4′ and clearly establish both the
Commission’s general capacity to govern access to the public capital markets
and its specific ability to exercise this power on the basis of a consideration
of the merits of an issue.
However, this picture, drawn from the Act, is somewhat misleading in
a number of respects. First, there is a large number of exemptions from the
prospectus requirement covering those situations where prospectus disclo-
sure and merit review are considered altogether unnecessary or unduly bur-
densome. Then, in other situations, the prospectus disclosure requirements
are significantly reduced, for similar reasons. Finally, the merit review part
of regulation is subsidiary in practice to the disclosure aspect. Its significance
is probably greatest for unseasoned or junior issuers and for issuers whose
offerings have novel features. For those issuers, the Commission may require
certain special disclosures of changes in their business or in the terms of
the issue as a condition of access to the market.
A.
“Distribution”
The scope of the term “distribution” is central to the operation of the
closed system. “Distribution” is defined to cover four types of transaction.
All would be familiar to an observer acquainted with provincial legislation
following the Ontario Act. Two types of distribution relate directly to the
primary market: an issuer or its agent obtaining or endeavouring to obtain
“subscribers or purchasers” for securities of the issuer; and an issuer giving
its securities, issued for the purpose, as collateral, say for a line of credit.42
The “subscribers or purchasers” language might possibly be read to cover
those cases where an underwriter takes title to newly issued securities for
the purpose of resale under the underwriting arrangement –
even apart
from other provisions which cover this explicitly, where an underwriter
40See Securities Act, S.Q. 1982, c. 48, s. 13; Regulation, O.C. 660-83, 30 March 1983, G.O.Q.
1983.11.1269, Title II, Chapter I and Schedules I-VI.
41See Securities Act, R.S.Q. 1977, c. V-I, s. 67, para. 6, as am. S.Q. 1979, c. 14 and S.Q.
1979, c. 79. It was not doubted that this permitted the type of merit review referred to in the
text.
42SecuritiesAct, S.Q. 1982, c. 48, s. 5, “distribution”, subparas (1) and (4). But note in relation
to subpara. (4) the exemption in s. 56 of the Act.
McGILL LAW JOURNAL
[Vol. 29
registered in Quebec is used. 43 This is in fact the commonest form of new
issue offering arrangement for a prospectus-qualified issue.
In addition to these major types of “distribution” are those where a
subscriber or purchaser who obtained a security under a statutory prospectus
exemption endeavours to obtain or obtains a purchaser of such securities”4
and where a person endeavours to obtain or obtains for the first time a
purchaser for the securities of a formerly “closed company”, which securities
have not previously been the subject of a prospectus.45 These limbs of the
“distribution” exemption can be seen to institute the “closed system” when
it is realized that none of the four limbs, and none of the exemptions (with
an exception to be noted), require that the subscribers or purchasers sought
or obtained be the “public”, or non-.”public”, as the case may be. The
prospectus requirement of the old Act was conditioned on an offer or sale
to the public, 46 and extended to offers to resell by persons who purchased
pursuant to an exemption only where the initial sale did not constitute a
sale to the public. 47 The difficulties of determining the application of the
scheme created by the term “public ‘ 48 are thus swept away. Furthermore,
there are now direct statutory limitations on persons purchasing under an
exemption from acting as conduits through which securities can move from
the issuer to persons not covered by any exemption. 49 In this last respect
the only control under the old Act, as mentioned, was that it caught thefirst
distribution to the public.50
The breadth of all of this can be better understood when it is appreciated
that “securities”, as the subject of a “distribution”, includes much more
43Firm underwritings are covered explicitly in s. 5, “distribution”, subpara. (2) and s. 55.
On the variety of underwriting arrangements in Canada, see D. Johnston, Canadian Securities
Regulation (1977) 135-9 and D. Johnston, F. Buckley, P. Dey & D. Drinkwater, Canadian
Securities Regulation[:] Supplement 1982 (1983) 16-7.
“SecuritiesAct, S.Q. 1982, c. 48, s. 5, “distribution”, subpara. (2).
45Securities Act, S.Q. 1982, c. 48, s. 5, “distribution”, subpara. (3). “Closed company” is
defined in s. 5 as a company whose constituting documents prohibit the distribution of its
securities to the public, restrict the free transfer of its shares and limit the number of its
shareholders to fifty, excluding present or former employees of the company or its subsidiary.
Compare the definition of “private company” in the oldAct, R.S.Q. 1977, c. V-1, s. 1(13). The
old definition is much the same, but not identical.
46R.S.Q. 1977, c. V-I, s. 67, first para.
47See the “premiere vente, offre de vente ou distribution dans le public” language in L.R.Q.
1977, c. V-1, s. 67, al. 1, as am. L.Q. 1979, c. 14 and L.Q. 1979, c. 79.
48On those difficulties, see Simmonds, “The Prospectus Closed System in Ontario and Its
Context” in L. Sarna, ed., Corporate Structure, Finance and Operations (1982) vol. II, 1, 17-
9 and references there.
49On this concern see Emerson, “Business Finance under the ‘closed system’ of the Ontario
Securities Act: Statutory Scheme and Pitfalls” in Special Lectures of the Law Society of Upper
Canada, 1982 [:] Corporate Law in the 80’s (1982) 29, 37-8.
50See supra, note 47.
1983]
QUEBEC’S NEW SECURITIES ACT
than corporate shares or debentures. Section 1, which delimits the scope of
the Act, apparently is meant to function like the definition of “security” in
section 1(11) of the old Act. In particular, both list a number of items which
include non-corporate investment opportunities. Bill 85 replaces the old
Act’s requirement of “document evidencing…a right, share or interest in the
capital, assets, earnings or profits” of an issuer with the item “investment
contract”. This in turn is defined in terms borrowed from American case
law under both federal and state securities laws.51 Similar terms are also to
be found in Canadian judicial52 and administrative decisions 53 on the pro-
vincial Acts which use “investment contract”. These decisions indicate that
such exotica as interests in beef breeding programmes 54 or the maintenance
of special commodities markets 55 are now more clearly covered in Quebec.
The more recent Canadian decisions evidence some unease with the Amer-
ican approaches to “investment contract”. 56 The concern seems to be that
preoccupation with those approaches causes one to lose sight of the more
direct question whether this is the type of scheme for which disclosure and
merit protection are required. In Quebec, that concern, if it was seen to be
warranted, could be addressed through the exercise of the power, in section
1(9) of Bill 85, to make Regulations to bring “any other form of investment”
within the scope of the Act. However, this may be rather too cumbersome
a way of dealing with the rapidly changing markets for exotic investment
instruments.
In one respect the “distribution” scheme of Bill 85 is significantly nar-
rower in its application than that of either the old Act or the present Acts
of Ontario, Manitoba and Alberta. Bill 85 does not define “distribution” to
include a disposition by a person holding a control position in the issuer.57
Only one of the justifications usually given for including such dispositions
seems significant under the new Act. This is the probability that resales by
control persons may be large transactions likely to be “accompanied by
5 SecuritiesAct, S.Q. 1982, c. 48, s. 1 (closing para.), and compare Iacobucci, “The Definition
of Security for Purposes of a Securities Act” (1978) in Proposals, vol. III, supra, note 6, 284
(dealing with federal securities law and the test in SECv. W.J. Howey Co. 328 U.S. 293 (1946))
and 294-6 (dealing with state securities law and the risk capital test of State Commissioner of
Securities v. Hawaii Market Center, Inc. 485 P. 2d 105 (Supreme Court of Hawaii, 1971)).
52ReSecuritiesAct, R.S.O. 1970, c. 426 andAmendments thereto, Pacific Coast Coin Exchange
of Can. Ltd. et al [1978] 2 S.C.R. 112, (1977) 80 D.L.R. (3d) 529 [hereinafter Re Pacific Coast,
cited to S.C.R.].
53See, e.g., Re Shelter Corporation of Canada [1977] OSC Bull. 6 (January).
54Re Farmex Enterprises Inc. [1974] OSC Bull. 50 (March).
55Re Pacific Coast, supra, note 52.
56See, e.g., Re Pacific Coast, supra, note 52 and Re International Technology Transfer Limited
Carrying on Business as Raymond Lee of Canada [1978] OSC Bull. 119 (June).
57See, e.g., the Ontario Securities Act, R.S.O. 1980, c. 466, s. l(1)(1 1)(iii), which should,
however, be read with the exemption in s. 71(7).
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[Vol. 29
significant selling efforts which a mandatory disclosure document delivered
to investors [like a prospectus] might counter”. 58 The other justifications
that control persons can be presumed to have access to inside infor-
–
mation; that they can “manage” the issuer’s news; and that their trans-
actions represent significant investment information in themselves 59 –
are
addressed sufficiently by special disclosure provisions elsewhere in the Act.
Those provisions, covered in the next Part, deal with insider trading and
with major changes in the affairs of widely-held issuers. A better way of
dealing with the large resale problem than a simple prospectus requirement,
and one which is not restricted to the transactions of control persons, is
perhaps to include in the definition of “distribution” all large secondary
market transactions. Then the required disclosure document could be tai-
lored to the character of the distributor and his transaction. A scheme like
this is suggested by the federal Proposals.60 In fact it is understood that the
CVMQ may implement a set of controls something like this through its
power in section 270 of the new Act to regulate “representations” (“d-
marchage”, probably better translated as “solicitations”, as it is in the def-
inition of “dealer” discussed below) with a view to transactions in a security.61
B.
Exemptions
As was seen, any issue of securities to anyone requires qualification by
the CVMQ, a process which is expensive and time consuming: thus the
exemptions from this requirement are important. There are over forty-five
such exemptions spelt out in the new Act.62 In addition, there is a special
set of rules, again in the form of exemptions, which apply to resales by
persons who acquired securities under an exemption and which will be
considered separately. The number of exemptions precludes treatment here
of all but those which are most significant in terms of practical impact and
variation from the old Act.
1.
Private Placement Exemptions
In dollar value terms, the “private placement” exemptions, in sections
43 to 45 and 51, are the most important of all. These include exemptions
for distributions to “sophisticated” (typically, institutional) or governmental
5SSee Simmonds, supra, note 48, 20.
59Ibid.
60Although its Draft Act does not go this far. see Proposals, vol. 11, supra, note 6, 74-5;
compare Grover and Baillee “Disclosure Requirements” (1976) in Proposals, vol. III, supra,
note 6, 416-7, 438-9 and 462.
61See CVMQ Projet d’instruction gn&ale Q-12, (1983) XIV Bulletin hebdomadaire (no 30)
1.2.2.
62SecuritiesAct, S.Q. 1982, c. 48, ss 3 and 441-63; see also Regulation, O.C. 660-83, 30 March
1983, G.O.Q. 1983.M.1269, ss 101-15.
1983]
QUEBEC’S NEW SECURITIES ACT
purchasers. Other private placement exemptions cover distributions of “gilt-
edged securities” (valeurs de premier ordre)63 or non-convertible (to voting
securities) debt, in both cases in amounts of at least $100,000 per investor.
They parallel similar exemptions in the Ontario, Manitoba and Alberta Acts,
but diverge in some respects from them. The new exemptions go well beyond
those of the old Act, particularly in the addition of the $100,000 purchaser
exemption. Much of the difference is apparent only and is accounted for by
the limit on the reach of the old Act to transactions with the “public”. One
of the approaches to the definition of “public” stressed the relevance of
whether the offerees were sophisticated investors with access to informa-
tion.64 At least some of the exempt private placement distribution would,
under the old Act, not have fallen within the prospectus requirement initially
because the distribution would not have been to the “public”. However,
put at its lowest, not all the transactions covered by the exemptions of the
new Act, particularly the $100,000 purchaser one, would necessarily involve
sophisticated investors with access to information equivalent in coverage,
currency and quality to a prospectus. Thus, some would have attracted the
prospectus requirement of the old Act, without any offsetting private place-
ment exemption.
There is a concern that Bill 85’s $100,000 private placement exemption
unduly compromises investor protection because it does not discriminate
between those who need some mandatory disclosure and those who do not.
This concern is reflected in the equivalent Ontario and Alberta exemptions,
which require an “offering memorandum” where the offering is advertised. 65
This document describes the business and affairs of the issuer for the as-
sistance of prospective investors in the distribution. There is no provision
for such a document under the new Act, 66 which is of particular interest as
Ontario may be about to upgrade its “offering circular” requirements.67 The
problem with the offering circular in Ontario is that, as explained in Part
V below, prospectus-like civil liability attaches to the document. In practice,
then, many of them have approached the statutory prospectus in content.
This substantially detracts from the advantages of speed and low cost that
63See definition in Securities Act, S.Q. 1982, c. 48, s. 57.
“See Simmonds, supra, note 48, 17-9 and references there on their major approaches. In
Quebec in recent times at least the number of offerees was of at least equivalent importance.
65See the Securities Act, R.S.O. 1980, c. 466, s. 71(1)(d) read with R.R.O. 1980, Reg. 910, s.
21(2). See also the Securities Act Regulations, Alta Reg. 15/82, ss 15-7.
66See, however, the provision for notice to the Commission under s. 46 of the new Act and
under Regulation, O.C. 660-83, 30 March 1983, G.O.Q., 1983.11.1269, s. 102.
67See An Act to Amend the Securities Act, Bill 176, 2d Sess., 32d Legis. Ont. 31 Eliz. II, 1982,
cl. 22(2) (new s. 71(l)(d)), cl. 1(7) (new s. 1(l)(26)(a)) and ci. 44 (new s. 126(a)). This bill died
on the order paper, but a new version is expected soon.
Mc GILL LAW JOURNAL
[Vol. 29
have made the private placement exemptions so popular. 68 It should be
noted that Quebec’s exemption, unlike Ontario’s, requires that the security
have some investment quality: it must be “gilt-edged” or debt not con-
vertible to voting securities, which offers some protection to investors. 69
But at least in relation to debt, this is probably not enough: a better com-
promise might be that contained in the federal Proposals.70 There, a dis-
tribution under its $97,000 exemption must be limited to fewer than fifty
purchasers and must not be accompanied by any advertising or selling or
promotional expenses, with some exceptions. This focuses attention on the
offerees and the purchasers, who after all are the major concern, not the
issuer.
2.
Small Issuer Exemptions
Those exemptions of the new Act which are of particular interest to
small issuers, on whom the burden of the prospectus qualification process
might be expected to bear hardest, are also significant. There are four such
exemptions. One is for a distribution of the issuer’s securities to its em-
ployees and senior executives or those of an affiliate, subject to preparation
of an offering notice for examination by the Commission and distribution
to investors. 71 This is very similar to an exemption under the old Act, 72 and
is paralleled in Ontario, Manitoba and Alberta,73 except that Quebec’s ex-
emption entails more control by the Commission. The second exemption,
in section 47 of the new Act, is for a distribution to no more than twenty-
five subscribers, 74 provided that certain conditions are met. Those condi-
tions are: that each subscriber be acting for his own account; there be a
written contract of subscription containing the prescribed terms; the dis-
tribution take no more than six months; it be made without advertise-
ment; and that the promoter of the transaction, except a registered dealer,
not have been involved in a similar transaction within the previous twelve
months. There was no exemption like this in the old Act.75 Again the “pub-
lic” requirement covered some of the same ground, but particularly notable
6 OSC Bull. 218, 223-5(No. 3).
68See Dey, Remarks to the Association of Fellows of the Canadian Securities Institute (1983)
69See Securities Act, S.Q. 1982, c. 48, s. 51 read with s. 57.
70See Proposals, vol. I, supra, note 6, s. 6.02(2) read with s. 6.02(3)(a).
71Securities Act, S.Q. 1982, c. 48, s. 52(5).
72R.S.Q. 1977, c. V-1, s. 28, third par.
73Securities Act, R.S.O. 1980, c. 466, s. 71(1)(n); The Securities Act, 1980, S.M. 1980, c. 50,
74For distributions of “tax shelter securities” the limit is fifty subscribers: see s. 47, first and
s. 71(1)(m); and Securities Act, R.S.A. 1980, c. S-6.1, s. 107(l)(h).
third paras.
75But see Projet no 31, supra, note 22.
1983]
QUEBEC’S NEW SECURITIES ACT
in the new Act is the lack of sophistication or access qualifications for pur-
chasers under the exemption. 76 The other recent provincial statutes with
corresponding “limited offering” exemptions all have such qualifications. 77
The difficulty in determining if such qualifications are met has been a major
criticism of those Acts. 78 Unlike the other provincial legislation, the new
Act restricts the exemption to non-“reporting issuers”. “Reporting issuer”
is a term describing an issuer which, generally speaking, having qualified a
prospectus for a new issue in the past, is now subject to the continuous
disclosure regime.79 In this way the start-up or “seed capital” nature of the
exemption, which is the practical reality in the other provinces except Alberta,
is made clear. It is made clearer still by a feature which the new Act shares
with those other Acts, except Alberta’s: the exemption can be used only once
in an issuer’s lifetime.
There are two other exemptions of particular interest to small issuers.
One is for “isolated transactions” (so far as issuer, subscriber and any sub-
sequent purchaser are concerned) in debt securities.80 This exemption had
a counterpart in the old Act which, however, was not restricted to debt, and
did not require that the transaction be isolated beyond the issuer’s per-
spective. 81 This new provision, coupled with the uncertainties of the term
“isolated”, 82 cuts back on the exemption’s apparent utility. The second
exemption is for a security issued by “a closed company in conformity with
its constituting documents”. 83 A closed company by definition must in those
documents “prohibit any distribution to the public” 84 which reintroduces
for this purpose the difficulties of ascertaining who is the “public”. It was
a feature of the corresponding exemption in the old Act that it did not require
this.8 5
The overall result is a need for further exemptions for small issuers in
Quebec if this type of enterprise is to be encouraged:8 6 the simplest reform
76But see Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.1.1269, s. 103, where sub-
scribers are required to state in the subscription contract that, inter alia, they are capable of
basing their investment decision on information presented by the issuer.
77See the Securities Act, R.S.O. 1980, c. 466, s. 71(l)(p); The Securities Act, 1980, S.M. 1980,
78See, e.g., Buckley, Small Issuers under the Ontario Securities Act, 1978: A Plea for Ex-
c. 50, s. 71(1)(o); and the Securities Act, R.S.A. 1980, c. S-6.1, s. 107(l)(p) and (q).
emptions (1979) 29 U.T.LJ. 309, 349.
79See Securities Act, S.Q. 1982, c. 48, s. 5, “reporting issuer”, also returned to in the text
below.
8oSecurities Act, S.Q. 1982, c. 48, s. 3(9).
81Securities Act, R.S.Q. 1977, c. V-I, s. 69(a) read with ss 28(i) and 1(13).
82See Buckley, supra, note 78, 323-4.
83Securities Act, S.Q. 1982, c. 48, s. 3(2).
84See supra, note 45.
85See Buckley, supra, note 78, 325.
86Compare the conclusions of Buckley, supra, note 78.
REVUE DE DROITDE McGILL
[Vol. 29
would be to adopt the limited offering exemption of the federal Proposals,
which is like Quebec’s but which differs from it in at least two important
respects. 87 The federal Proposals provide that the exemption may be used
more than once, and that the securities commission can make regulations
to impose further requirements if, for example, experience with the costs
of protecting investors through this concession to small business prove to
be too high.
3.
Resale Under Exemption
All of the exemptions in the new Act discussed in detail here, except
the exemption for distributions to employees and the limited offering ex-
emption, are available not only to an issuer, but also to a purchaser who
acquired his securities under an exemption. In addition, the purchaser can
resell outside the exemption system if he can meet certain conditions, which
vary depending on the exemption under which he acquired his securities.
For purchasers under all exemptions, there are two common conditions: no
effort must be made “to prepare the market or create a demand for the
securities being distributed”;8 8 and the issuer must be a “reporting issuer”
not in default of the requirements applicable to that status.8 9 The latter
condition is most significant, for an issuer is a “reporting issuer” only if,
as mentioned, having qualified a prospectus, it is subject to the continuous
disclosure scheme’s requirements described in the next Part of this article. 90
Thus, like Ontario, Manitoba and Alberta, Quebec is seeking to prevent the
creation of large secondary markets for securities in respect of whose issuer
there is no substantial mandatory information flow. 91
There are further resale conditions for a purchaser under the “sophis-
ticated purchaser”, government purchaser, $100,000 purchaser or limited
offering exemption. The purchaser must have held the securities for periods
ranging from six months, for “gilt-edged” securities, through to eighteen
months, for securities neither gilt-edged nor listed on “a recognized stock
exchange”. 92 By contrast, a purchaser under the exemption for distributions
to employees is not subject to a holding period requirement – unless and
to the extent that the issuer has not been a reporting issuer for at least twelve
87See Proposals, vol. I, supra, note 6, s. 6.03.
88Securities Act, S.Q. 1982, c. 48, s. 62.
89Securities Act, S.Q. 1982, c. 48, ss 58, 60 and 61.
9See s. 5, “reporting issuer”, and s. 68.
91See Securities Act, R.S.O. 1980, c. 466, s. 71(4), (4a), (5a), (5b) and (7); The Securities Act,
S.M. 1980, c. 50, s. 71(4), (5) and (7); and Securities Act, R.S.A. 1980, c. S-6.1, ss 109, 110 and
112.
92Securities Act, S.Q. 1982, c. 48, s. 58. All the active stock exchanges are “recognized” in
Quebec for this purpose.
19831
QUEBEC’S NEW SECURITIES ACT
months prior to the original exempt transaction. 93 The difference is best
explained by the perceived differences in the risk that the relevant purchaser
(by reference to the size of his transaction) might be acting as a conduit of
securities from issuer to the public. 94 All of this follows directly from the
Ontario, Manitoba and Alberta models. 95
4.
Special Distribution Disclosure Regimes
Rather more distinctive is the provision in the new Act of two special
distribution disclosure regimes, one of which has been brought about by
administrative adaptation in the other provinces, the other of which has no
counterparts as yet. The more important of the two is the simplified pro-
spectus scheme. 96
a.
The Simplified Prospectus Scheme
This scheme was originally the basis of what is now known nationally
as the “Prompt Offering Prospectus” (POP) scheme.97 Under the new Act,
the only provincial legislation to give the scheme formal statutory expres-
sion, a distributor which has been a reporting issuer for at least twelve
months and has filed a “permanent information record” 98 prepares a sim-
plified prospectus. This prospectus is significantly shorter than an ordinary
one largely because it incorporates by reference both the latest permanent
information record (which is to be updated annually) filed with the Com-
mission, and any intervening continuous disclosure filings.99 As well, the
Commission has undertaken to shorten drastically the time taken by the
to the point where in theory a simplified prospectus
review process”00 –
financing can be as fast and, in document preparation if not printing or
other terms, no more expensive than a private placement of equivalent size.
Quebec provides access to this system on much more liberal terms than the
other provinces which have adopted it: in those provinces the issuer must
have attained a substantial size, in terms of the value of its listed non-
preferred equity (at least $100 million), and the value assigned to its con-
solidated shareholders’ equity (at least $100 million) or after tax income (at
93Securities Act, S.Q. 1982, c. 48, s. 61.
94See Johnston, supra, note 43, 232.
95See references in supra, note 91.
96Securities Act, S.Q. 1982, c. 48, ss 18 and 19.
97See references in supra, note 36.
98The contents requirements for which are discussed in the Part III of this article.
99Compare Schedule I with Schedule IV in Regulation, O.C. 660-83, 30 March 1983, G.O.Q.
1983.1.1269.
‘OOSee CVMQ, Policy Statement No. Q-1, 3 CCH Can. Sec. L. Rep. para. 65-001.
Mc GILL LAW JOURNAL
[Vol. 29
least $15 million). 10 Alternatively, a debt issue in those provinces must
have a certain minimum investment rating. 10 2 This is unnecessary in Quebec.
A feature of the POP system in all provinces, which American expe-
rience with the analogous integrated disclosure system has shown to be
important, is the potential civil liability of the underwriter of a POP issue. 0 3
The underwriter in effect undertakes prospectus-like civil liability of the sort
described in Part IV below, for the contents of the continuous disclosure
documents incorporated by reference into the simplified prospectus. For an
issuer wishing to insure that it can take advantage of the speed of the POP
system, this seems to mean involving the underwriter in the preparation of
the relevant continuous disclosure document, including most importantly
thus cementing a “house/underwriter” relationship 0 4
the annual report –
and bringing closer the day when it is established that the same type of civil
liability attaches to continuous disclosure documents as now attaches to
prospectuses under the new Act.105
b.
The Abridged Prospectus
The other special disclosure scheme in the new Act permits the filing
of an “abridged prospectus” in lieu of the regular document. 10 6 This is
apparently designed to facilitate smaller financings: by virtue of the Regu-
lation under the Act, it is only available for distributions of up to $5 million.
This is in line with other recent initiatives in Quebec to encourage more
small businesses to try the public capital market in the province. 10 7 The
abridged prospectus presently has no counterpart in the Canadian Acts,’08
‘0oCompare O.S.C., Policy No. 5.6, 2 CCH Can. See. L. Rep., para. 54-936, section B, with
the Securities Act, R.S.O. 1980, c. 466, ss 18 and 84. Policy 5.6, section A.5 is misleading in
this respect.
102See references in supra, note 36.
’03Compare Nicholas,The Integrated Disclosure System and Its Impact Upon Undenvriters’
Due Diligence: Will Investors Be Protected? (1983) 11 Sec. Reg. L.J. 3, 18-20 with the remarks
of Dey, supra, note 67, 221-3.
104Competitive pressures in the market for underwriting new issues cut the other way, of
course: see Nicholas, supra, note 102, 25ff.
’05See Dey, supra, note 68, 222-3.
’06SecuritiesAct, S.Q. 1982, c. 48, s. 65 and Regulation, O.C. 660-83, 30 March 1983, G.O.Q.
1983.11.1269, ss 66-70.
I07Gouvernement du Qu6bec, Budget 1983-84, Discours sur le budget, 22-4 (Budget speech
delivered by Mr. Jacques Parizeau, Minister of Finance, 10 May 1983); also reproduced in
Assembl6e nationale du Qu6bec, Journal des D6bats, 33c legislature, 4e session, t. XXVII, 974ff.
0 8The closest is probably the exchange offering prospectus (replacing the “statement of
material facts”) for distributions through the facilities of a stock exchange. See Dey, Remarks
to the Financial Post Conference on Risk Capital, (1983) 6 0SC Bull. 1571, 1575 (No. 15).
1983]
QUEBEC’S NEW SECURITIES ACT
and is apparently inspired by American federal securities law.109 A com-
parison of the full and abridged prospectus requirements in the Regulation
discloses that it appears substantially simpler to comply with the provisions
governing the abridged prospectus. 110 This apparent difference is reduced
by the requirement that both documents “[s]tate any other material fact
that is likely to affect the value or the market price of the securities being
distributed”.1 ‘ As the usual civil liability for a prospectus attaches to the
content of an abridged prospectus, it remains to be seen how significant in
practice this special disclosure scheme will become for smaller issues. Fur-
thermore, small issuers might be deterred by the consequences of going
public through a prospectus, albeit an abridged one. The major consequence
is becoming a reporting issuer and thus subject to the continuous disclosure
scheme. We suggest a re-definition of reporting issuer in the next Part of
this article which addresses this problem. However, for all of this, we see
the new Quebec abridged prospectus scheme as a step in the right direction.’ 2
C.
Conclusion
Overall, a major concern about the new Quebec scheme, as with all
similar provincial schemes, is the weight of required disclosure. There are
data that suggest it does not produce sufficient investor benefit to justify
the load. We return to this point in our Conclusion. The complexity of the
legislation provides a lesser concern. With the scheme’s expanded list of
exemptions, and the involved controls over resales, it is complex indeed.
But the comparative simplicity of the old scheme, with its “public” and
first-sale-to-the-public elements, was in large part illusory, and the new Act
has probably made the application of the prospectus requirement signifi-
cantly more certain.
M. The Continuous Disclosure Regime
In terms of volume and value of trading the secondary securities market
is much more significant than the primary trade in securities. 113 Securities
reform in recent years has probably paid greater attention to investor pro-
tection in this area than in the area of prospectus qualification. 1 4 The new
109See (1982) 17 C.F.R. 230. 251-64.
I IOCf Regulation, O.C. 660-83,30 March 1983, G.O.Q. 1983.11.1269, Schedule I with Sched-
‘Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, Schedule I, item 40 and
ule VI, and also ss 69 and 70.
Schedule VI, item 22.
need for information is likely in connection with first issues by smaller entities”).
112For a partially dissenting view, see Proposals, vol. 1, supra, note 6, 79 (“greatest investor
” 3See, e.g., Williamson, “Canadian Capital Markets” (1978) in Proposals, vol. IJI, supra,
” 4Simmonds, supra, note 48, especially references at 5, n.15.
note 6, 18-9.
REVUE DE DROIT DE McGILL
[Vol. 29
Act builds on law made in and under its predecessor, as well as the recent
reforms in Ontario.
There are five components of the continuous disclosure system in the
new Act. “Reporting issuers” must disclose, through a press release which
must also be filed with the Commission, material changes “likely to have
a significant influence on the value or market price of the reporting issuer
as those changes occur.” 5 Reporting issuers
and…not generally known” –
must file with the Commission both quarterly financial statements and an-
nual reports.” 6 The latter must also be sent to certain registered security
holders.’ 7 The management of such issuers who call meetings of holders
of voting securities must solicit proxies; and every one who solicits proxies
must prepare a circular to be sent to those security holders and filed with
the Commission.” 8 “Insiders” of reporting issuers must disclose through
filings with the Commission changes in their control over securities of the
issuer.” 9 And reporting issuers who wish to utilize the simplified prospectus
(or POP) system must file and annually update a permanent information
record. 120 This record must contain certain prescribed information, as well
as all of the other continuous disclosure material the issuer fies. In terms
of the old Act, and Commission practice under it, only the proxy and per-
manent information record provisions are novel. In terms of the Ontario
legislation, if not the practice under it, only the provisions respecting the
permanent information record are original.
A.
The Reporting Issuer
The term “reporting issuer” is crucial to the application of the contin-
uous disclosure scheme.’ 2′ The idea here is to include within the scheme
all entities for whose securities there is likely to be a significant secondary
market. In conformity with the Ontario Act 22 there are broadly three classes
of issuers which the Act identifies for this purpose. One is issuers that have
qualified a prospectus, or filed a securities exchange take-over bid circular,
with the Commission. Another is issuers that have been listed on a stock
exchange in Quebec (that is, The Montreal Exchange). The third is issuers
that are the result or remnant of a business combination, one of the parties
IsSecurities Act, S.Q. 1982, c. 48, ss 73 and 74; see also the penal liability provisions, ss
187-9, and ss 226-33 regarding civil liability. We do not discuss in this article the closely related
provisions respecting mutual funds.
” 6Securities Act, S.Q. 1982, c. 48, ss 75-80.
“7 Securities Act, S.Q. 1982, c. 48, s. 77.
1sSecurities Act, S.Q. 1982, c. 48, ss 81 and 82.
“9 Securities Act, S.Q. 1982, c. 48, ss 89-103.
20Securities Act, S.Q. 1982, c. 48, ss 84-8.
’21See Securities Act, S.Q. 1982, c. 48, ss 68-72.
122See Securities Act, R.S.O. 1980, c. 466, s. 1(1)38.
1983]
QUEBEC’S NEW SECURITIES ACT
to which was a reporting issuer.123 By comparison with the old Act’ 24 what
is probably most notable about this new approach is the removal of the
former restriction of continuous disclosure requirements to corporate is-
suers: some limited partnerships (soci~tks en commandite) are listed on The
Montreal Exchange, for example. Bill 85’s coverage may be criticized as
being both too broad and too narrow. It is not clear that a significant sec-
ondary market always or usually forms after a prospectus-qualified issue is
made.125 Also, not every issuer for whose securities a significant secondary
market exists will be caught: consider an out of Quebec issuer which has
never raised capital in the province or obtained a Montreal Exchange listing. 126
The federal Proposals have a better criterion: whether the issuer has listed
any class of its securities on a recognized exchange, or has at least three
hundred “public security holders”. 127
The requirement to disclose certain material changes as they occur, to
be found in section 73 of the new Act, follows from the Commission’s former
Policy Statement No. 24.128 This Statement required disclosure of “material
facts” or “material changes”, 2 9 on pain of Commission intervention by,
for example, a cease trade order. While this Policy Statement has now been
withdrawn, its learning remains of value in two respects. First, the Policy
Statement indicates some types of circumstances which would require dis-
closure to be made, such as “proposed take-overs” or “material discover-
ies…which would materially affect earnings upwards or downwards”. 130 These
help, but it remains a difficult task to determine when disclosure must be
123For these three classes, see Securities Act, S.Q. 1982, c. 48, s. 68.
124See the Securities Act, R.S.Q. 1977, c. V-1, ss 113(a) and 157(b).
’12See Proposals, vol. II, supra, note 6, 66-7, which notes that advantages of the broader
coverage are greater “ease” of application “and the cost savings when a prospectus containing
most ofthe required information [for any initial continuous disclosure filing] must be prepared
in any event”.
’30Policy Statement No. 24, supra, note 128, 1.2.4.
holder”.
Former Commission policy was that issuers which went public should secure a listing on
The Montreal Exchange: see Proposals, vol. 11, supra, note 6, 63-4. The point in the text suggests
that reinstatement of such a policy might be unwise.
126Yontef, “Insider Trading” (1978) in Proposals, vol. III, supra, note 6, 633.
1’2 See Proposals, vol. I, supra, note 6, ss 2.38 and 4.02, read with s. 4.01(b), “public security
128Q.S.C. (1974) V Weekly Bulletin (No. 19) [hereinafter Policy Statement No. 24].
129Although it is not entirely clear, the term seems to have been meant to trigger the disclosure
requirement at least as often as the provision of the new Act. If anything, Policy Statement
No. 24 may have covered more situations (compare “might reasonably be expected to affect
materially”/”qui peut vraisemblablement influer d’une mani6re appr6ciable” in Policy State-
ment No. 24, supra, note 128, 1.2 with “likely to have a significant influence on”/”susceptible
d’exercer une influence appr6ciable sur” in s. 73 of the new Act).
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made, especially when circumstances are in flux. 131 In particular, all of the
instances in the Policy Statement are matters of the internal affairs of the
issuer. But it appears that the Policy Statement, and even more clearly Bill
85, also include “external” events. This differentiates the Quebec provision
from the Ontario legislation, 132 and would require the disclosure of, say, a
proposed but unannounced change in the tariff structure affecting the issuer’s
foreign competitors and likely to improve dramatically the issuer’s com-
petitive position. The other respect in which the Policy Statement helps is
to remind issuers that sometimes they must make it known that a material
change of the sort section 73 covers has not occurred. 133 Such a time is
when unusual or sudden market activity in the issuer’s securities is inexpl-
icable in terms of matters known to the issuer.
The disclosure requirement of section 73, as of the Policy Statement,
is capable of operating to the detriment of the issuer or its security holders
without an offsetting benefit to the market place. The classic example is
delicate take-over negotiations, which could be soured by premature reve-
lation. The Act clearly provides, as previous practice of the Commission
did, for an issuer to keep matter confidential where it has “reasonable ground
to believe that disclosure would be seriously prejudicial to the interests of
the issuer and that no transaction in the securities of the issuer has been or
will be carried out on the basis of the information not generally known”.134
A problem with this formulation is the self-policing feature.1 35 A better
solution to the dilemma would have the issuer telling the Commission that
a change has occurred without specifying it. Then the Commission could
closely monitor trading activity in the issuer’s securities, especially its in-
siders’ trading reports. This is the federal Proposals’ solution. 36
B.
Periodic Disclosure
As well as these “timely disclosure” obligations, reporting issuers must
make periodic, mainly financial, disclosure. Where the old Act required
unaudited semi-annual financial statements, 137 the new Act moves to quar-
terly ones, following the requirements applied by The Montreal Exchange
131A recent widely publicized instance which nicely illustrates the interpretive problems
created arose out of the attempt by Norcen Energy Resources Limited to gain control of the
Hanna Mining Company. See Norcen Investigation (1983) 6 OSC Bull. 759, 761 (No. 8).
132See Alboini, supra, note 39, 532.
133See Policy Statement No. 24, supra, note 127, ss 6.1-6.2.
134S.Q. 1982, c. 48, s. 74. Compare ibid., Section 7.
135Contrast the Securities Act, R.S.O. 1980, c. 466, s. 74(3) (issuer files report with Com-
136See Proposals, vol. I, supra, note 6, s. 7.03(2) and Proposals, vol. II, supra, note 6, 112.
137R.S.Q. 1977, c. V-1, s. 116.
mission marked “confidential” together with reasons for non-disclosure).
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QUEBEC’S NEW SECURITIES ACT
to listed issuers. 138 Where the old Act required audited annual financial
statements, the new Act requires an annual report.139 The annual report will
contain the yearly financial statements, audited and with the previous year’s
statements for comparison; but it will also contain certain other matter
prescribed by the Regulation. This matter is narrative, and at present 40
comprises, most importantly, a brief description of the issuer’s activities
over the financial year and management’s discussion of the financial results.
This represents for Canada the first such direct control of the narrative
contents of what in practice is probably the major medium of communi-
cation between management and shareholders. The importance attached to
this communication is exemplified by the requirement under the Act that
the annual report not simply be filed, but also sent to “every registered
holder of the issuer’s securities, other than debt securities”. 41 The greater
attention to the non-financial contents of the document is evidently inspired
by the federal Proposals42 and the American Law Institute’s Federal Se-
curities Code project. 143
C.
The Proxy Information Circular
The other important medium of communication between management
and shareholders is the proxy information circular, which the old Act did
not regulate. The circular requirements, outlined in Schedule VIII to the
Regulation, are very similar to those under the Ontario scheme.144 Thus,
138Montreal Exchange, Rule V, s. 9160, 3 CCH Can. Sec. L. Rep., para. 86-818. See Securities
Act, S.Q. 1982, c. 48, s. 76. It is somewhat inconvenient for issuers that the period for filing
quarterlies in Quebec is forty-five days, which compares with sixty days under Securities Act,
R.S.O. 1980, c. 466, s. 76.
139S.Q. 1982, c. 48, s. 77. The annual report must be filed within 140 days of the end of the
issuer’s financial year, while the annual financials, which form part of the report, must be filed
earlier, within 90 days of the end of the financial year in accordance with s. 75. Again, the
latter period is shorter than the corresponding 140 day period under Ontario’s Securities Act,
R.S.O. 1980, c. 466, s. 77.
14See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, s. 119. The Canadian
Institute of Chartered Accountants presently requires some narrative matter as incidental to
the financial statements: these requirements are picked up by the corporations laws of some
Canadian provinces and by the Federal Act.
141Compare the approach described in Proposals, vol. II, supra, note 6, 110-1. Note also
Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, s. 120, dealing with “manage-
ment reports” if used. This section draws on the 1978 report of the Adams committee to the
CICA and the subsequent 1981 report jointly sponsored by the CICA and the Financial Ex-
ecutives Institute: see CVMQ, Notice [:] Management Report (1981) XII Bulletin hebdomadaire
(no 46).
142The federal Proposals also provide for control over the narrative portion of the quarterly
143Se The American Law Institute, Federal Securities Code, (1980), vol. I, 602(a), comment
financial reports: see Proposals, vol. I, supra, note 6, s. 7.02.
(2).
144See Regulation, R.R.O. 910/80, Form 30.
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particulars of the matters to be voted upon must be given, together with
separate specifications if those matters include appointment of an auditor
or election of directors. The relevant types of voting security holders must
be identified, including those with “significant” single holdings which con-
trol more than 10 per cent of the voting rights attached to any class of the
issuer’s securities. The aggregate remuneration of senior executives must be
set out, and the interests of management in matters to be voted upon must
be described.
D.
Insider Trading Reports
Probably of rather more interest to investors are the requirements with
respect to the reporting of transactions by insiders. “Insider” is.defined in
much the same way as in the oldAct.145 The newAct covers senior executives
of the issuer, of its subsidiaries or of an insider of the issuer; persons ex-
ercising control over more than 10 per cent of the voting rights attached to
the outstanding securities of the issuer; and, what is novel under the new
Act, the issuer itself and its subsidiaries. 146 Also new to Quebec securities
law is a provision making senior executives of an issuer which becomes an
insider of a reporting issuer (as by a take-over bid) insiders of the reporting
issuer for up to the previous six months. 147 Insider trading information,
taken from the filed reports, is published in the Commission’s Bulletin
hebdomadaire, and appears to be as closely followed in Quebec as in the
other provinces in which such information is available. Like the old Act 148
Bill 85 requires reports to be filed within ten days of the end of the month
in which the transaction occurred, and within three days of the transaction
if it brought the holdings of a person up to or over 20 per cent of the voting
rights attached to the issuer’s outstanding securities.’ 49 The new Act does
go further than the old, and further than the Ontario Act, by requiring an
insider trading report to be filed within ten days of a transaction if it resulted
in a change of control of more than 1 per cent since the last reported po-
sition.1 50 Alberta, however, goes even further –
there any change must be
reported within the “accelerated” ten-day period.’ 5′ In both Quebec and
145Compare Securities Act, S.Q. 1982, c. 48, s. 89 with Securities Act, R.S.Q. 1977, c. V-I,
ss 157(c) and 158(a).
‘MIt should be noted that the 10016 voting rights class of insider is somewhat differently –
and possibly more widely – worded under the old Securities Act, R.S.Q. 1977, c. V-I, s.
157(c)(iii).
147SecuritiesAct, S.Q. 1982, c. 48, s. 94. Compare Securities Act, R.S.O. 1980, c. 466, s. 1(9),
which has the same effect.
148Compare Securities Act, R.S.Q. 1977, c. V-1, s. 162 with Securities Act, S.Q. 1982, c. 48,
s. 97.
149Securities Act, S.Q. 1982, c. 48, s. 99. See also s. 100 regarding subsequent 5% changes.
“50Securities Act, S.Q. 1982, c. 48, s. 97(1).
m’Securities Act, S.A. 1981, c. S-6.1, s. 147(2).
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QUEBEC’S NEW SECURITIES ACT
Alberta, but not Ontario, a person, insider or not, other than the offeror,
who, during a take-over bid, acquires at least 5 per cent of the target class
or series of securities (Quebec), or who acquires voting securities of the
target reporting issuer “carrying at least 5 per cent of the (total) voting rights
attached (to such securities)” (Alberta), must report this by ten a.m. of the
next working day (Quebec), or within three days (Alberta).152 All of these
accelerated reporting requirements, particularly Alberta’s, are likely to be
of great utility in a marketplace characterized in recent years by considerable
take-over bid activity.
However, Quebec’s new reporting requirements taken as a whole prob-
ably go too far in requiring reports of transactions regardless of size. They
therefore catch transactions which are not likely to be of interest to investors
and do not signal any improper insider trading activity. 5 3 Both American
federal securities law and the federal Proposals contain small transaction
exemptions which are worthy of consideration for Quebec.15 4
E.
The Permanent Information Record
The new Act’s permanent information record may prove to be of great
use for investment analysis. It is the maintenance of this record which
permits the use of the simplified prospectus system. Thus, the Act here
provides for an important form of integration of the continuous disclosure
and new issue disclosure schemes. This integration has been accomplished
by discretionary administrative action in the other provinces. 155 As was
seen, Quebec allows any reporting issuer which has satisfied the require-
ments attaching to that status for one year to have access to the system.
The issuer’s market capitalization, consolidated shareholders’ equity or after
tax income and the investment rating of its debt are relevant only to de-
termining the contents of the distinctive document forming part of the
permanent information record. This document, which must follow Schedule
IX of the Regulation, serves to provide on a continuing basis much of the
information that would otherwise appear only in a prospectus (if filed), or,
in a different form, be scattered across the discrete continuous disclosure
filings. The most important part of the Schedule IX requirements are for
details representing the business of the issuer, consolidated financial infor-
mation of certain sorts going back up to five years, an analysis of the issuer’s
financial position and operating results, its important subsidiaries, its senior
executives, its dividends and the markets where the issuer’s shares, other
Quebec Commission has indicated that it will endeavour to give these publicity quickly.
152SecuritiesAct, S.Q. 1982, c. 48, s. 143; Securities Act, S.A. 1981, c. S-6.1, s. 149(1). The
t53See Proposals, vol. II, supra, note 6, 120-1.
1541bid.
55See references in supra, note 36.
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than its preferred shares, are traded. The amount of information Schedule
IX requires is increased if the issuer does not meet the criteria which in the
other provinces determine access to this disclosure system. Schedule IX
otherwise has the same requirements as those provinces’ policy statements
set out for their “Annual Information Forms”. 56
F.
Conclusion
Overall, Quebec, more than any other province to date, appears to have
moved in the direction of a two-tiered information system. In one tier,
made up of the documents required to be sent to security holders, namely
the annual reports and managements’ proxy information circular, disclosure
is meant at least as much for the lay investor as for the securities profes-
sional. The other tier, made up of the filings comprising the timely disclosure
and insider trading reports, and the Schedule IX document which anchors
the permanent information record, is likely to be of greater interest and
utility to the securities professional who advises others or manages their
portfolios. Through the Schedule IX document this tier offers the prospect
of an integrated continuous disclosure record approximating a prospectus
in coverage and currency. In this respect the Quebec legislators appear to
have been inspired by the federal Proposals,157 as well as by a recognition
that investment information does not have to be directly known to the
investor to be helpful. The Proposals indicate the possibility that the second
level of disclosure could relatively easily include “soft” data, particularly
financial forecasts. These are the sorts of data that have given regulators
concern in the past, lest they be misinterpreted by the lay investor –
al-
though financial forecasts are now specially regulated in Quebec, so that
they may appear in both levels of disclosure.158 The further question whether
the continuous disclosure regulatory effort is in fact worth the costs to issuers
is examined in our Conclusion.
IV.
Take-over Bids
Like the old Act, Bill 85 deals with take-over bids for securities of an
issuer and also bids whereby an issuer proposes to purchase back part of
its outstanding capital (issuer bids). An issuer bid, 159 an invitation to make
an offer to sell, the acceptance of an unsolicited offer to sell and an exchange
of securities for the same purpose as a take-over bid generally speaking all
1560n those forms, see the references in supra, note 36.
57See Proposals, vol. II, supra, note 6, 108.
1
158See ibid., 68. See also CVMQ, Policy Statement Q-1J, “Financial Forecasts”, 3 CCH Can.
159Securities Act, S.Q. 1982, c. 48, ss 144-7.
Sec. L. Rep. para. 65-011.
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QUEBEC’S NEW SECURITIES ACT
come within the scheme of regulation for take-over bids. 160 References in
this section to take-over bid rules are thus also to the issuer bid rules, unless
otherwise indicated.
The purpose of these provisions is to protect offerees against having to
make a hurried decision in a high pressure context with inadequate infor-
mation. What is notable about Bill 85 is the expanded scope of the definition
of a take-over bid, as under recently proposed amendments to the Ontario
Act; the variations in the exemptions from the application of the provi-
sions; the circular that directors of an offeree are now obliged to send; and
finally the more onerous conditions under which an offer must be conducted
or may be withdrawn.
The definition of a take-over bid in Section 11-0 of the new Act is
formulated in terms of an offer for the purpose of “obtaining or securing a
dominant position in the offeree issuer”. “Dominant position” is further
defined in the same section as a holding of more than 20 per cent of the
“voting securities of the offeree issuer”. Unlike the old Act, this position is
to be determined taking account of, for example, securities convertible to
voting securities. 161 Perhaps more important is that a dominant position is
no longer limited to voting shares.162 It. now covers any voting securities,
such as shares in a limited partnership.
A.
Exemptions from Take-over Bid Regulation
There are four exemptions from the regulatory scheme. One is a stock
exchange exemption which had a counterpart in the old Act.163 The last
paragraph of section 116, read with sub-section (1), exempts from the ap-
plication of the take-over bid requirements the purchase of securities on a
stock exchange recognized by the Commission for this purpose, but also
establishes a quantity limit for the exemption. In no case may purchases
exceed 5 per cent of the total voting securities in any thirty day period and
10 per cent in any one hundred and eighty day period unless there is an
offer to all holders made in accordance with exchange rules. These quantity
limits are new, and are attempts to define more sharply what transactions
are tolerable in the interests of ensuring the proper functioning of the market,
particularly taking account of the normal activities of an institutional inves-
tor. The relevant stock exchange (The Montreal Exchange) can propose a
different rule with appropriate conditions, which would have to be approved
16″Securities Act, S.Q. 1982, c. 48, ss 113 and 114.
161Securities Act, S.Q. 1982, c. 48, s. 111.
162Securities Act, ,.S.Q. 1977, c. V-i, s. 1(18). Section 112 of the new Act triggers the ap-
plication of the rules where at least one “security” holder has his address in Quebec according
to the records of the “offeree issuer”.
163Securities Act, R.S.Q. 1977, c. V-i, s. 131(f), “exempt offer”.
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by the CMVQ after a public hearing.164 As the 5 per cent rule is common
to all the major Canadian exchanges, 165 consultations among them would
have to take place on new rules concerning take-over bids. Relatedly, there
is a new exemption, under section 116(3), for bids off the exchange involving
no more than 5 per cent of the total voting securities, provided that there
have not been acquisitions under the exchange exemption or this one to-
taling more than 5 per cent. Purchases on over-the-counter markets will
thus be governed by section 116(3).
B.
Limited Bid Exemptions
Another exemption from the regulatory scheme concerns take-over bids
not made to security holders in general. This limited bid exemption had a
counterpart in the old Act 66 and under Bill 85 applies to take-over bids
made to no more than fourteen holders, regardless of their residence, by
way of separate agreements. Bill 85 imposes an additional condition –
that
the bid price not exceed 115 per cent of the average closing quotation of
the securities referred to during the ten days of stock market activity pre-
ceding the bid. This exemption differs substantially from the corresponding
Ontario provision, which is not subject to a 115 per cent bid price ceiling.
However, in that province a bid over the 115 per cent level entails subjection
to the requirement to make a follow-up offer to the remaining security
holders:167 in Quebec a bid over the prescribed level which is not otherwise
exempted falls under the full regulatory scheme. The Quebec position is
thus also distinct from that in Alberta, 68 where the limited bid exemption
has no bid premium ceiling. In effect, Quebec has chosen to directly regulate
the payment of a premium for a control block of securities, but in a different
fashion from the Ontario rules.169
Finally, as under the old Act, the Commission is entitled to exempt
any take-over bid from the requirements of the Act –
including situations
involving the section 116 exemptions where not all their conditions are met
l6Securities Act, S.Q. 1982, c. 48, ss 177 and 178.
165See 3 CCH Can. Sec. L. Rep.: Montreal Exchange, Rule VIII, s. 12001, “normal course
purchase”, para. 87-701; Toronto Exchange, By-Laws, Part XXIII, Stock Exchange Take-over
Bids, s. 23.01(6), “normal course purchase”, para. 90-126; Vancouver Exchange, Rule 975.01(6),
“normal course purchase”, para. 94-514(e).
166Securities Act, S.Q. 1982, c. 48, s. 116(2) and 116(3) and Regulation, O.C. 660-83, 30
March 1983, G.O.Q. 1983.11.1269, s. 187. Compare Securities Act, R.S.Q. 1977, c. V-I, s.
131(f).
167See Alboini, supra, note 39, 685-7.
168Securities Act, S.A. 1981, c. S-6.1, s. 132(1)(c).
169See Alboini, supra, note 6, 643-4, 715, 721-8. The Chairman of the O.S.C., Peter Dey, has
commented on the “constructive” Quebec approach; see Remarks to the Society of Financial
Analysts, (1983) 6 OSC Bull. 1313, 1320 (No. 13).
1983]
QUEBEC’S NEW SECURITIES ACT
and where it finds that such an exemption would not be detrimental to the
protection of investors. 70
C.
Information Circulars
The take-over bid must be sent to security holders and must be accom-
panied by a take-over bid circular and the circular of the offeree’s directors.
The purpose of these documents is to provide information relevant to a
decision of a security holder. The contents of the circulars are prescribed
in the Regulation and must be certified by the board of directors, 17′ and in
the case of both take-over bid circulars and exchange bid circulars, the
information required is substantially the same as that specified by the old
Act. 172 The exceptions include some additions173 and the compulsory men-
tion of the statutory civil remedies to be discussed in the next Part. The
Commission also has discretion to approve communication of the bid and
the circulars in any manner. Newspaper advertisement, for instance, would
be useful in case of postal disruption. This rule is more flexible than that
of the Ontario Act where the only way to send the circular of the board and
of the senior executive officers is by mail,174 although the possibility exists
there of an exemption order being obtained.
The old Act required directors of the offeree issuer to issue and send a
circular only if they had a recommendation to make. Bill 85 renders man-
datory the preparation of a circular by the board of directors, who must
send it out within ten days from the date of the bid irrespective of whether
or not they recommend its acceptance or rejection. 175
Under the old Act, any person other than the offeror who acquired the
securities sought during either a take-over bid or an issuer bid would be
17OSecurities Act, S.Q. 1982, c. 48, s. 263.
1’7 Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, s. 170, Schedule XI, item
20 and Schedule XIV, item 21. See also Canada Business Corporations Regulations, SOR/79-
316, ss 59-62.
172Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.1.1269, Schedule XI, items 11,
13, 15-9 and 21.
173Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, Schedule XI, item 3(4),
formerly R.R.Q. 1981, c. C-11, r. 1, s. 36(a)(iv), no longer requires knowledge of the directors
and senior executives, whereas item 4, formerly s. 36(b), now requires such knowledge; the
delay of the right of cancellation, formerly seven days under s. 36(e), is now ten days by written
notice (item 7); item 9 has waived the former requirement of s. 36(g) that the information be
given where a reasonable inquiry was possible; item 20 and s. 182 now require mention of the
approval and publication of the circular, where s. 37 formerly required that its contents be
certified and signed.
As to the exchange bid circular, the requirements are more specific than under the Securities
Act, R.S.Q. 1977, c. V-I. See Regulation, R.R.Q. 1981, c. V-I, r. 1, s. 38.
174Securities Act, R.S.O. 1980, c. 466, s. 96(6). See Alboini, supra, note 39, 746.
’75Securities Act, S.Q. 1982, c. 48, ss 121 and 122.
Mc GILL LAW JOURNAL
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required to disclose its acquisition only if he could be brought within the
insider class. Practical experience with the operation of the Ontario Secu-
rities Act in the course of certain take-over bids176 has since demonstrated
the need for the special accelerated reporting requirements mentioned in
the previous Part of this article. These apply to issuer bid situations also 77
and should act as a deterrent to collusion between persons trying to block
a take-over. More recent cases have demonstrated that the acquisition of a
block during a bid is a material fact which should be disclosed to the public
on the exchange on the following day.178
D.
Substantive Provisions Respecting Terms of an Offer
Besides the provisions on disclosure of information in the offer, there
are also substantive provisions covering the terms of the offer. These are
designed to relieve shareholders from the need to act before they have had
a chance to assess the information and to come to a reasoned decision with
respect to the sale of their shares. These provisions also prevent shareholders
from being locked into an offer for too long a time without payment. Thus,
as under the old Act and the Ontario Act, there are rules setting a timetable
for dispatch of the offeror’s circular, deposit of offeree’s securities and du-
ration of the bid; and rules respecting over-tendering, payments and changes
in circumstances affecting the bid. As well, there are now rules against selling
against the bid, which have no counterparts in the old Act or the Ontario
one. Under these rules, the sale by the offeror of securities of the class or
series sought during the entire duration of the bid is prohibited. 179 The
example has been given of an offeror having abandoned a bid and “selling
his holdings into the market at prices influenced by the bid”, or of the offeror
“tendering securities in a competing bid prior to withdrawing his bid while
those who deposited securities under his bid are unable to sell to the com-
peting bidder”.
80
Some of the rules in Bill 85 which have counterparts in the old Act and
the Ontario Act nonetheless diverge from those models. Thus, the number
of conditions that may be attached by offerors to their bids to take account
of changed circumstances has been increased from two to four. Section
76See An Act to Amend the Securities Act, Bill 176, 2d Sess., 32d Legis. Ont. 31 Eliz. II,
1
1982, cl. 41.
177See the French version of Bill 85, Loi sur les valeurs mobiires, L.Q. 1982, c. 48, art. 143,
which refers to “offre publique”, which covers both a take-over bid and an issuer bid. Also
compare the English and French versions of the heading under Title IV between ss 109 and
110.
178See Alboini, supra, note 39, 663-9. Under Bill 85 see Regulation, O.C. 660-83, 30 March
1983, G.O.Q. 1983.11.1269, s. 189.
179Securities Act, S.Q. 1982, c. 48, s. 129.
18OAlboini, supra, note 39, 710-1.
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QUEBEC’S NEW SECURITIES ACT
126(1) of Bill 85, which had its counterpart in the old Act and the Ontario
Act, permits the offeror to reserve the right to withdraw the take-over bid
where the minimum number of securities sought has not been tendered.
Unlike its predecessor, section 126(2) does not limit the unforeseen and
material change against which an offer may be withdrawn to acts of the
management of the offeree corporation. 81 Section 126(3) introduces to Quebec
law an exemption which allows an offeror to withdraw his bid where the
approval of a public body is required. 182 Section 126(4) introduces an ex-
emption which allows the withdrawal of the bid where the offeror is pre-
vented from doing so by the effect of a general law.
E.
Conclusion
Overall, the provisions of the new Act on take-over bids are largely –
the same as those found in the .Ontario Act. Thus, the
but not entirely –
major changes that have been introduced have broadened the application
of the rules to all types of securities and to persons in a special relationship,
or acting as a group, while narrowing the availability of the limited bid
exemption. In addition, offeree security holders will be provided with in-
creased information with which to come to a reasoned decision, while ben-
efiting from the new statutory civil liability rules in Bill 85.
V. Market Controls
The rules under Bill 85 are to be enforced by the CVMQ itself, through
broad powers of intervention in securities trading, as well as through the
courts. We focus here on civil liability, where the new Act breaks new ground
in Quebec, and the administrative sanctions, where the new Act augments
the formidable arsenal in the old Act.
A.
Civil Liability
Bill 85 expressly imposes three types of civil liability where the old Act
had none. However, under the old regime the civil law provided a number
of recourses, which are to be continued under the new Act. 183 The first type
of statutory liability deals with transactions made without the specified dis-
closure documents. The second type of liability is for false statements con-
tained in disclosure documents, and the third type deals with insider trading.
With respect to the first two types of liability, but not the third, there are
181See Securities Act, R.S.Q. 1977, c. V-1, s. 132 and Securities Act, R.S.O. 1980, c. 466, s.
89(1)(12)(c). Of course, the offeror’s change of mind is not sufficient: for instance, the imposition
of quotas under the Export and Import Permits Act, R.S.C. 1970, c. E-17, could constitute a
material change for a particular enterprise.
182See, e.g., Transport Act, R.S.Q. 1977, c. T-12, s. 39.
’83Securities Act, S.Q. 1982, c. 48, “Explanatory Notes” (Title VIII).
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civil law analogues. What is particularly notable now are the differences the
provisions of the new Act will make, as well as the uncertainties those
provisions create.
1.
Liability for Lack of Disclosure
The first type of statutory civil liability is a recognition of the juris-
prudence of the Quebec Cour d’Appel on the delivery of the prospectus i84
and of the civil law rule that a breach of a statutory provision gives rise to
delictual liability,1 85 and consequently, it would seem, relief in damages.
However, there is no jurisprudence illustrative of this damages liability.
Section 214, which gives buyers the right to have the transaction set aside
for lack of a prospectus, now expresses what was considered a little-tested
possibility at civil law.
Thus, where a prospectus has not been delivered as required under Bill
85, the person selling the security can be sued for rescission or, if the sub-
scriber or purchaser has disposed of the security, revision of price, in ad-
dition to damages. Damages can be claimed from: the issuer, the holder
whose securities were distributed without prior filing of a prospectus; from
the senior executives of the issuer or of the holder; or from the dealer
responsible for the distribution. Where a prospectus has been filed but has
not been received by the subscriber or purchaser, his right is limited to
damages against the dealer required under section 29 to send him the pro-
spectus. While the right of rescission given to the purchaser or subscriber
offers investors a fixed recovery, the return of the price, revision of the price
and damages are in the discretion of the court for assessment. The measure
of those is unclear, and is returned to below.
Section 214 does not mention documents other than a prospectus. Thus
it does not cover, for example, a notice offering securities exempted under
section 52 and required to be prepared, filed and sent to prospective pur-
chasers under section 53, which is returned to in Part VI. However, it is
noticeable that the exemptions of section 52 appear to be conditional upon
the preparation and sending of circulars to the persons contemplated by the
distribution.1 8 6 Thus the failure to provide the circulars would deprive the
90.
184Y. Renaud & J. Smith, Droit quebecois des corporations commerciales (1974), vol. II, 1189-
185Newman, Breach of Statute as a Basis for Responsibility in Civil Law (1949) 27 Can. Bar
Rev. 782. There is also the possibility of absolute nullity: Gaston Pelletier v. Ren6 Pelletier
and Les Aliments Maxi, Inc., C.P. (Kamouraska, 250-02-000624-79) 18 June 1981.
186Securities Act, S.Q. 1982, c. 48, s. 53; Regulation, O.C. 660-83, 30 March 1983, G.O.Q.
1983.11.1269, s. 111, which applies to all notices.
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QUEBEC’S NEW SECURITIES ACT
distribution of the exemption and engage the sanction detailed in section
214.187
It is important to note that section 214 liability is not based on fraud,
misstatement or the like. The plaintiff may have purchased precisely what
he intended to purchase and be fully informed about the issuer, but he may
nonetheless seek rescission, revision of price or damages. The spectre of a
host of plaintiffs demanding their money back in a declining market will
both encourage extreme care in the initial decision whether or not a security
is exempted and discourage prefiling “solicitations”, intentional or other-
wise. There is no defence of honesty and reasonable behaviour like that
made available to issuers and holders of securities by the federal Proposals.
Such a defence could have alleviated the strict liability of section 214; however,
the final result even with the Proposals’ defence might not have been much
different, since it has been observed that the courts might put a heavy burden
of proof on defendants invoking it.18
s
Tied to this first rule of civil liability is the statutory right of a purchaser
and a subscriber in a distribution to unilaterally rescind the contract in two
instances. One is exercisable up to two days after the prospectus is received.
Unlike the corresponding Ontario provision, however, under the new Act
delivery of a preliminary prospectus (which in Quebec is not, generally
speaking, a mandatory document) prior to the order for the securities cuts
off the withdrawal right.189 The Quebec position seems to be best explained
as an added inducement to generate, and distribute widely, preliminary
prospectuses. A subscription or purchase may also be unilaterally rescinded
where securities have been distributed beyond the valid life of a prospectus,
that is, one year. This period may also be extended for a further year, under
certain conditions. 190 Such rescission will take effect upon receipt by the
dealer of a notice sent within thirty days of the purchaser’s or subscriber’s
knowledge of the offence.
Section 215 further extends the recourses of section 214 to cover two
situations arising in the course of a take-over bid and an issuer bid. A tender
of securities made without the circular as required under Title IV gives the
right to an action in rescission of the agreement or revision of price against
the offeror who has failed to prepare a circular. In addition, the offeror and
its senior executives may be sued in damages. The shareholder who has not
received the circular that has been prepared may seek damages from the
offeror and its senior executives.
187Securities Act, S.Q. 1982, c. 48, ss 52 and 53.
18SProposals, vol. II, supra, note 6, 273.
189See references in supra, note 39.
19Securities Act, S.Q. 1982, c. 48, ss 33 and 34.
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2.
Liability for False Statements
The second type of civil liability arises under sections 217 through 225,
and applies to any misleading statement of a material fact as well as any
pure omission of a material fact’ 91 contained in a prospectus (whether sim-
plified, abridged or long form), 192 a permanent information record incor-
porated by reference in a prospectus, 193 an offering notice,194 a circular, 195
drafted by either the board of directors or the senior executives 96 and any
other document authorized by the Commission for use in lieu of a prospectus.197
At civil law, fraud gives rise to contractual liability sanctioned by the
nullity of the contract or revision of the price and to delictual liability for
damages. 98 An agreement to subscribe for securities newly issued to the
public is, like other contracts of sale,199 governed by the Civil Code, and
can be annulled for the fraud of the corporation, its authorized represen-
tatives or its board of directors, but not for the fraud of third parties, unless
the corporation had knowledge of such fraud.200 A simple omission will
constitute fraud where it makes what was said misleading. 20′ It should also
be noted that the general principles of contractual liability will also admit
an action based on statements contained in a prospectus, outside the fraud
or negligence context, as in the case of a promise that has not been executed.
In such instances, plaintiff’s recourse is in damages. 202
191Securities Act, S.Q. 1982, c. 48, s. 5. The absence of a definition of “material fact”, which
differs from the Ontario Act, has raised some concern. The provision has nevertheless been
adopted as is on the basis that it was justified by the need for the expression to adapt to the
varying contexts of the sections of Bill 85 in which it is used (see Assemblfe nationale du
Quebec, Commission permanente des institutions financi~res et cooperatives, Journal des D&
bats, t. XXVII, B-10740). But in the absence of qualification, as that of section 13 of the new
Act for example, the applicable criterion might be one of civil law and could also vary depending
on whether the recourse is rescission for error or fraud or for revision of price or damages.
192Securities Act, S.Q. 1982, c. 48, ss 217 and 219.
193Securities Act, S.Q. 1982, c. 48, s. 221(1).
194Securities Act, S.Q. 1982, c. 48, s. 221(2).
195Securities Act, S.Q. 1982, c. 48, ss 222 and 223.
196Securities Act, S.Q. 1982, c. 48, s. 225.
197Securities Act, S.Q. 1982, c. 48, s. 221(3).
198J.-L. Baudouin, Les obligations (1983) para. 162.
199La cie rurale de lumijre glectrique v. Cauchon (1924) 36 B.R. 532.
20Bonhomme v. Bickerdicke (1899) 17 C.S. 28, 46-7 (Cour de rfvision). Cf arts 991, 993
and 1473 C.C.; Ct6, supra, note 19, 144, and Demers, Prospectus Liability and Investor Pro-
tection in Quebec Law (1977) 18 C. de D. 745, 750.
201Demers, supra, note 200, 759-60.
202Ibid., 782-3.
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QUEBEC’S NEW SECURITIES ACT
As a fraud is also considered a delict,20 3 any defrauded investor or
purchaser could seek damages under the general principles of delictual li-
ability of the Civil Code from any person who had participated to any degree
in a fraud.204 In this field every person, whether a subscriber to newly issued
shares or a purchaser on the open market,205 who sustained damages is
entitled to relief 206 by establishing the causal link between fault or omission
and damage. This causal link will probably have to be reliance on the pro-
spectus. 20 7 In addition to rescission, other remedies for fraudulent state-
ments and omissions are damages and revision of the price. For negligent
but not fraudulent statements, the only remedy is damages to compensate
the loss. 20 8
Where the fraud is such that the plaintiff would have nevertheless con-
tracted, but on less onerous conditions had he known the truth,209 plaintiff
is entitled not to rescission 210 but to revision of the price. Such revision is
much narrower, of course, than a general damages award, where recovery
would not be limited to the difference in price but would also include other
items such as all additional expenses and expert.costs. 21 1
As under the first type of rules governing disclosure, an interesting
feature of sections 217 and 222 of Bill 85 is that they provide liability without
fault. Also Bill 85 embodies the feature of Quebec civil law which allows a
person the right to retain his contract and sue for damages in cases of
fraud. 212 However, appreciation of the measure of compensation remains
difficult. The new Act does not set forth the limits to an award of damages
such as those found under the Ontario Act and the federal Proposals.213
203Baudouin, supra, note 198, para. 164.
204Bonhomme v. Bickerdicke, supra, note 200, 46-7. If more than one person participated
in the fraud or had knowledge of the false representations, all would be jointly and severally
liable under art. 1106 C.C.
205But see Demers, supra, note 200, 762 on how the Quebec courts have relied on Peek v.
Gurney (1873) L.R. 6 H.L. 377, (1873) 43 L.J. Ch. 19, [1861-73] All E.R. Rep’t 116, to limit
the recourse to a subscriber only.
2rArticle 2261(2) C.C.
207Baudouin, supra, note 200, paras 158-6 1. But see Simmonds, “Directors’ Negligent Mis-
statement Liability in the New Scheme of Securities Regulation in Ontario” in L. Sana, ed.,
Corporate Structure, Finance and Operations (1980) 291, 329-30.
208Article 1053 C.C.; see Ct6, supra, note 200, 781.
209Article 993 C.C.
21 Baudouin, supra, note 198, para. 166.
2111bid., para. 165.
212Wegenast, supra, note 12, 733-4; see Ct6, supra, note 19, 147 and Baudouin, supra, note
213See, e.g., Proposals, vol. I, supra, note 6, ss 13.02(3)(b) and 13.10(4), and Securities Act,
198, para. 164-5.
R.S.O. 1980, c. 466, s. 126(6), (7) and (9).
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Under the new Act, the plaintiff may be a subscriber during the distri-
bution period,214 a shareholder who tenders his securities in response to a
take-over or issuer bid,215 a purchaser from a holder in a secondary
distribution 216 and – where the misrepresentation is in a circular of the
board of directors or of senior executives –
all the holders of securities of
the offeree issuer at the time of the bid.21 7 The panoply of defendants to
such a lawsuit include every person whose securities were distributed, 218
the offeror 219 and its senior executives, 220 the dealer under contract with
such issuer or holder 221 and every other expert (including a lawyer) who,
with his consent, has prepared an opinion containing a misrepresentation
appearing in the prospectus or circular.222 In addition, any misrepresenta-
tion contained in a circular or notice of the board of directors and senior
executives will entitle all the holders of securities of the offeree issuer to an
action in damages against the signatories of the document.223
In an action for damages for misrepresentation only one defence is
available to persons other than the issuer, the holder and the offeror 224 unless
it is shown that the plaintiff knew of the misrepresentation at the time he
acquired or tendered his securities. 225 This defence, in sections 220(1) and
224(1), permits a qualified defendant to show that “he acted with prudence
and diligence”. 226 These provisions are complicated by the fact that the
defence seems likely to be applied differently depending upon whether the
person asserting the defence acted in the capacity of expert or non-expert
and upon the nature of the allegedly false item with respect to which he is
being sued. 2 27
3.
Liability for Improper Insider Trading
The third type of rule of statutory civil liability concerns the use of
privileged information. Insiders, as described above, and other persons who
by reason of their affiliations 228 have a special relationship with an issuer
2 14Securities Act, S.Q. 1982, c. 48, ss 217 and 219.
21SSecurities Act, S.Q. 1982, c. 48, ss 222 and 223.
216Securities Act, S.Q. 1982, c. 48, ss 217 and 219. See Alboini, supra, note 39, 860.
217Securities Act, S.Q. 1982, c. 48, s. 225.
218 SecuritiesAct, S.Q. 1982, c. 48, s. 218.
219SecuritiesAct, S.Q. 1982, c. 48, s. 223.
220Securities Act, S.Q. 1982, c. 48, ss 218 and 223.
22Securities Act, S.Q. 1982, c. 48, s. 218.
222Securities Act, S.Q. 1982, c. 48, ss 219 and 223. These sections do not appear to exclude
the liability of persons mentioned in ss 218 and 222.
223Securities Act, S.Q. 1982, c. 48, s. 225.
224Securities Act, S.Q. 1982, c. 48, ss 220(1) and 224(1).
225Securities Act, S.Q. 1982, c. 48, s. 217, second para., and s. 220(2).
’26Securities Act, S.Q. 1982, c. 48, s. 220(1). Will the test be replaced by the civil law notion
of “bon pare de famille”?
227See Alboini, supra, note 39, 863-77, on the differently worded Ontario Act.
22Securities Act, S.Q. 1982, c. 48, ss 89, 94, 95, 189, 190 and 191.
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QUEBEC’S NEW SECURITIES ACT
are subjected to civil liability where they trade in securities of the issuer
with knowledge of or where they inform others229 concerning “a material
fact not yet known to the public that could affect the value or the market
price of securities of an issuer”.230 Any profit so realized by these “insiders 231
will be recoverable for the benefit of the issuer of such securities 232 and of
the mutual fund 233 or of the client for whom a portfolio is managed. 234
Where directors of the issuer or of the mutual funds have not shown dili-
gence in instituting proceedings or during the proceedings, 235 this action
may be instituted or continued at the initiative of certain other persons.
They are any persons who held securities of the issuer or of the mutual
funds at the time of the offence or the Commission.236 In addition, an action
once started may be joined by such persons or the Commission. 237
In addition, section 226 provides a civil remedy to a purchaser who
suffered a prejudice by reason of his dealing with a person in a special
relationship with an issuer who carries out a transaction in securities with
knowledge of privileged information that is not publicly known. To be
compensated for damages resulting from the trade, the purchaser need only
establish that the special relationship party238 had knowledge of the privi-
leged information at the time of the transaction.
As a defence under either of these provisions, the defendant may prove
that he had grounds to believe that the privileged information was known
to the public. His other defences are that, at the time he had the privileged
information, he was already participating in a plan under which securities
could be acquired or that he was in a situation where he had to disclose
the privileged information in the course of business, without any ground
to believe that it would be used or disclosed contrary to sections 187, 188
or 189.
4.
Conclusion on Civil Liability
Bill 85 thus makes it easier for an injured investor to get relief for harm
suffered in the stipulated types of securities transaction. The strict liability
character of the provisions means that the plaintiff need only prove violation
229Securities Act, S.Q. 1982, c. 48, ss 226 and 227.
2-Securities Act, S.Q. 1982, c. 48, s. 5, definition of “privileged information”.
23 Securities Act, S.Q. 1982, c. 48, s. 228 does not include persons listed in s. 189.
232Securities Act, S.Q. 1982, c. 48, s. 228(1).
233Securities Act, S.Q. 1982, c. 48, s. 228(2).
2-4Securities Act, S.Q. 1982, c. 48, s. 228(2).
235Securities Act, S.Q. 1982, c. 48, s. 231.
236Securities Act, S.Q. 1982, c. 48, s. 229.
-37Securities Act, S.Q. 1982, c. 48, ss 230 and 233.
238Securities Act, S.Q. 1982, c. 48, ss 89, 94, 95 and 189-91.
McGILL LAW JOURNAL
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of a provision of the Act causing loss (or benefit) to have a contract annulled
or the price revised, all without proving reliance. Furthermore, statutory
recognition in securities law of recourses in damages which previously were
only a matter of general civil law should raise investor and issuer con-
sciousness of the possibility of civil liability for securities malpractice.
Despite these provisions, the civil law remains significant because most
importantly it will cover areas not touched by the statutory regime, such
as false statements in annual reports and a confidential offering memoran-
dum. For, in contrast with the position in Ontario, prospectus-type express
civil remedies are not extended to a confidential offering memorandum,
when used in a private placement in Quebec.
What is of particular interest in all of this is the lack of litigation under
the civil law. It therefore remains to be seen, even with the raising of con-
sciousness of civil liability which the statutory provisions may produce,
what practical differences the new regime makes. It may well be that the
most important difference it does make is to induce added caution in the
preparation of disclosure documents, particularly those incorporated by ref-
erence in the simplified prospectus.
B.
Administrative Sanctions
A rather more significant sanction in terms of its actual incidence is
likely to be the intervention of the CVMQ in the market place to deal with
abuses. Under the old Act, the Commission could order investigations, a
cessation of security trading, an asset freeze, and its “power of death”,
appointment of an administrator of a corporation. Under the new Act, all
of these types of powers are carried forward. The scope of some has been
expanded.
The cease trading order can now clearly be issued against an adviser.239
Under the old Act, only where a cease trading order was violated could the
Commission apply to the Superior Court for an injunction.240 It may now
do so for any infringement of a provision of the Act and Regulation, its
decisions and the decision of one of the Commissioners and members of
the Commission’s staff. Since such an order will take effect from the time
the person is notified or becomes aware of it,241 a person dealing in securities
while a cease trading order stands is given a defence of due diligence.
In addition, the Commission now has what the old Act did not confer,
a discretion to refuse the
but Ontario’s legislation long has conferred –
239Securities Act, S.Q. 1982, c. 48, ss 265 and 266.
24Securities Act, R.S.Q., 1977, c. V-1, s. 80(4); Securities Act, S.Q. 1982, c. 48, s. 268.
241Securities Act, S.Q. 1982, c. 48, s. 267.
1983]
QUEBEC’S NEW SECURITIES ACT
benefit of an exemption whenever the Commission considers it is necessary
to protect investors. 242
In all, the administrative sanctions at the Commission’s disposal make
it a very powerful agency. These powers are probably necessary in order to
deal with the rapidly changing securities markets. The CVMQ itself has in
the past recognized the danger of abuse of these powers. The Act provides
further protection: the right to revise its own decision, and the right of
persons affected to an appeal, to a hearing and to reasons for decisions. 243
VI.
Licensing of Persons
Bill 85 carries forward from its predecessor the traditional mechanism
of requiring dealers to be licensed. This control technique is designed to
ensure that securities market professionals are honest, competent and fi-
nancially responsible.244 One of the changes that Bill 85 brings is to change
the wording of the requirement, and perhaps focus the requirement more
sharply. Another is that the new Act introduces a comprehensive scheme
for the recognition of professionals’ self-regulatory organizations, and for
the delegation to them of a number of important functions.
A.
Registration Requirements
Section 148 of the new Act requires that before a “dealer” (courtier) or
“adviser” (conseiller en valeurs) may “carry on business” (exercer son ac-
tivit) he must be registered as such. Section 149 extends a similar require-
ment to the representatives of a “dealer” or “adviser”. The term “dealer”
is defined 245 to include: a securities intermediary “even when acting as
principal for his own account”; a person who distributed a security “without
the benefit of a prospectus exemption, except an issuer who retains the
services of a registered dealer”; and a person “soliciting purchasers for se-
curities”. 24 6 The term “adviser” 247 is defined as a person who provides
242Securities Act, S.Q. 1982, c. 48, s. 264.
243Securities Act, S.Q. 1980, c. 48, ss 310 and 317-24. See LeBel-Chevalier, Les pouvoirs
discretionnaires de la Commission des valeurs mobilibres du Quebec dans l’exercice de sa
competence et les contrbles possibles de ses decisions (1983) 43 R. du B. 849. Against this
background, the importance of s. 353, which overrides the Canadian Charter of Rights and
Freedoms, Part 1 of Schedule B, Canada Act 1982, 1982, c. 11 (U.K.), is much reduced.
247See Securities Act, S.Q. 1982, c. 48, s. 5, “adviser”.
supra, note 6, 1392.
244See Connelly, “The Licensing of Securities Market Actors” (1978) in Proposals, vol. III,
245Securities Act, S.Q. 1982, c. 48, s. 5, “dealer”.
246Presumably the negative inference from the first clause of the “distribution” limb –
that
every person who distributes with the benefit of a prospectus exemption, but as an “inter-
mediary”, or a solicitor of purchasers, is not caught –
is not meant to be drawn. See especially
the exemption in s. 157, which would make no sense if that inference were meant to be drawn.
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[Vol. 29
securities advice or who manages a portfolio of securities under a mandate.
The Commission will verify that the candidate or its senior executives have
“the competence and integrity to ensure the protection of investors” and
that the candidate has “adequate financial resources to ensure the viability
of his business”. 248
The Regulation provides for a number of categories of licensee (or as
Bill 85 calls him, “registrant”) and, with the Act, sets conditions for each
category. 249 The principal conditions, which for the most part are based on
those contained in Commission Policy Statements250 under the old Act, go
to educational background, financial responsibility, record-keeping and client
service. Thus, for registration, a dealer or adviser (if a natural person) and
its representatives must have “adequate professional training”. 251 A dealer
or adviser must have a certain minimum level of “net free capital”. 252 All
dealers and some advisers must have prescribed insurance or bonding cov-
erage, while some dealers must also participate in a contingency fund ap-
proved by the Commission. 253 Prescriptions, which vary in detail with the
category of registration, are made with respect to the accounting and other
records a registered dealer or adviser must keep.254 Dealers and advisers
must determine that recommendations they propose to make correspond
to “the investment objectives and financial position” described to them by
their client (a “know-your-client” rule).255 In addition, all dealers and some
advisers must place responsibility for opening new accounts with a senior
executive resident in Quebec, 256 and clients must be provided with certain
per transaction, on request and periodic information. 257 Finally, a registered
dealer or adviser must have a principal establishment in Quebec, and its
2 48Securities Act, S.Q. 1982, c. 48, s. 151. The discretion set out in the Ontario Act in s. 25(1)
is in a wider form, but in practical administration probably comes to the same thing.
and ss 203-49 (conditions); Securities Act, S.Q. 1982, c. 48, ss 158-68.
249See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, ss 190-4 (categories)
25CVMQ, Policy Statement No. 17 (1979) X Bulletin hebdomadaire (no 3); QSC, Policy
Statement No. 18, (1972) III Weekly Summary (No. 58); and QSC Policy Statement No. 21
(1973) IV Weekly Summary (No. 40), as amended.
251See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 198311.1269, s. 205.
2See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.I1.1269, ss 207-12. Neither the
25
new Act nor the Regulation indicate how this is to be calculated; but see Policy Statement No.
21, supra, note 250.
253See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.II.1269, ss 213 and 214 (in-
surance, bonding) and s. 215 (contingency fund).
2
54See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, ss 220-4.
255See Securities Act, S.Q. 1982, c. 48, s. 161.
256See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, s. 231.
z 7See, e.g., Securities Act, S.Q. 1982, c. 48, s. 162; and Regulation, O.C. 660-83, 30 March
1983, G.O.Q. 1983.11.1269, ss 243, 239 and 245.
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QUEBEC’S NEW SECURITIES ACT
registered representatives must be Quebec residents.2 8 Registration contin-
ues until it is cancelled, subject to the annual payment of fees. 259 And the
Commission may at any time revoke or suspend registration, or subject it
to special conditions or restrictions, where it is of the opinion that the
registrant has not complied with the Act or the Regulation or “where the
protection of investors requires it”.260
Some of the detail in the regulatory scheme just outlined represents a
variation on the schemes of both the old Act and Ontario model.261 How-
ever, the greatest degree of innovation is represented by the scope of the
provisions. Under the old Act and the Ontario Act, any person who traded
in a security had to register, and “trade” was defined broadly as: any dis-
position for value or attempt to so dispose; any underwriting; and any act
to carry out these or defined as a trade by the Regulation.262 On the face
of it this would have required even traders in an isolated transaction or
ones dealing through a registered broker on a stock exchange to register.
However, the old Act provided a licensing exemption for isolated trades,
although it did not provide one, as the Ontario Act does, for trades through
a licensed person. 263 Thus, a person who frequently sold securities through
a licensed broker on a stock exchange would have had to obtain a license,
although there was in such cases the possibility of an exemption by special
order of the Commission, 264 and, in any event it is understood that the
Commission did not interpret the licensing requirement to apply when a
licensed person was involved.
Under the new Act it is possible that the view of the federal Proposals
in this area was adopted, that the licensing system, with its expertise, cap-
italization and record requirements, made the most sense where the trader
was in the business of trading. 265 Certainly that is what the English version
of the Proposals suggests. 266 However, the French language of Bill 85 is
much less clear, and the definition of “dealer” is unlike the corresponding
2 8 See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, ss 203 and 204.
259See Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, s. 199.
26See Securities Act, S.Q. 1982, c. 48, s. 152.
261See, e.g., Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, s. 199 (indefinite
registration) and compare Securities Act, R.S.Q. 1977, c. V-1, s. 35(1) (registration to be renewed
annually).
262See the Securities Act, R.S.Q. 1977, c. V-1, s. 24 read with s. 22 and Securities Act, R.S.O.
1980, c. 466, s. 24, read with s.1(1)(42) and subject to the exemptions set out in s. 34.
263Compare the Securities Act, R.S.Q. 1977, c. V-i, ss 28 (especially s. 28(b)) and 29 with
Securities Act, R.S.O. 1980, c. 466, s. 34 (especially s. 34(1), (2) and (10)).
2″Securities Act, 1.S.Q. 1977, c. V-I, s. 29, third para.
265See Proposals, vol. II, supra, note 6, 128.
266See Proposals, vol. I, supra, note 6, s. 8.01.
Mc GILL LAW JOURNAL
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ones in the Proposals;267 this material would suggest that, to the contrary,
there is no “carrying on business” element in the licensing requirement. For
impersonal trades on a stock exchange which are not part of a “distribution”,
there is probably no difference between the two readings: there is no solic-
itation and the intermediaries (the brokers) will be licensed. For a person
endeavouring to sell his securities off the exchange but not doing so as part
of a “distribution” or a business, there might be the new isolated trade
exemption, already mentioned, in any event. But this exemption will not
always be available, as where he is selling off a block of securities in small
lots: in the view that there is no “carrying on business” element, and if no
other exemption were available, 268 he would have to obtain a license. At
least this would not be necessary if the trader left the entire task of resale
to a licensed broker: on our reading of the definition of “dealer”, the Ontario
exemption for trading through a licensed person which is not in the new
Act is unnecessary under it. A licensing requirement with such scope for an
occasional trader makes little sense. Our discussion here nicely illustrates
the types of issues created by the new semantics of Bill 85.
Bill 85 has also varied the list of registration exemptions found in former
Quebec and present Ontario laws. This may in part at least be in response
to the major criticism of the Ontario exemptions made in the federal Pro-
posals.269 The Ontario Act features substantial duplication of the prospectus
exemptions in the registration exemptions; 270 yet it is far from clear that,
simply because an investor does not need the protection of a prospectus,
he does not need the protection of the licensing scheme. The point can best
be appreciated by considering the $100,000 private placement prospectus
exemption. Unlike the Ontario Act, there is no licensing exemption in Bill
85 for that situation. Otherwise, the new Act more or less 271 follows the
more discriminating approach of the Proposals.
affaires” for “carry on business”.
267See Proposals, ibid., ss 2.07 and 2.14. The French version of Proposals, s. 8.01 uses “faire
268He might apply to the Commission for an exemption by special order under s. 263 of the
269See Connelly, supra, note 244, 1286-7 and compare the Securities Act, R.S.O. 1980, c. 466,
s. 34 with Proposals, vol. I, supra, note 6, s. 8.06. Many of the exemptions of the Ontario Act,
like the isolated trade exemption, are undoubtedly rendered unnecessary in any event by the
carrying-on-business scope criterion; see Proposals, vol. II, supra, note 6, 138.
new Act.
27oCompare Securities Act, R.S.O. 1980, c. 466, s. 34 with ss 71 and 72.
2710ne notable deviation is Bill 85’s provision of a licensing exemption for federal and
provincial government debt securities. This is open to criticism: see Connelly, Proposals, vol.
III, supra, note 6, 1291.
19831
QUEBEC’S NEW SECURITIES ACT
B.
Self-regulatory Organizations
Another commendable borrowing from the federal Proposals is the scheme
in the new Act for the recognition and utilization of self-regulatory orga-
nizations in the securities trading field.
Traditionally, a significant amount of autonomy was granted to these
bodies, pre-eminently the Montreal Stock Exchange (as it then was) and
the district of the Investment Dealers Association which covered Quebec.
The rationale was pragmatic: their autonomy represented a delegation of
decision-making to organizations better able to discipline their members
than a government agency. 272 But this state of affairs also posed risks of
narrow self-interest activity and of oppression of a minority of members by
the majority. Perception of this problem led in 1971 to the assumption by
the Commission of control over the Montreal Stock Exchange beyond the
previous rather limited requirement that the Exchange keep records of all
transactions on it.273 The Exchange had to be recognized by the Commission
which, when it was of the opinion that the public interest so required, could
take any decision, make any order or give any direction respecting how the
Exchange was to be run, its rules or decisions, floor trading or quoted se-
curities, ascertainment that a listed issuer was complying with the securities
laws and the information to be obtained from the Exchange, its members
or listed issuers. Any persons affected by the conduct of the Exchange could
apply to the Commission for redress. 274 It is notable, however, that such
jurisdiction was never asserted over the Investment Dealers Association or
other self-regulatory organizations.
This situation has changed under Bill 85. The jurisdiction over stock
exchanges is extended to “a securities clearing house” and any “professional
association [which wishes to] regulate transactions in securities by its mem-
bers”.275 Together with stock exchanges, all of these “self-regulatory orga-
nizations” must be recognized by the Commission, and fall under its supervisory
jurisdiction. 276 This scheme, which is inspired by the federal Proposals,277
272See Dey & Makuch, “Government Supervision of Self-Regulatory Organizations in the
Canadian Securities Industry” (1978) in Proposals, vol. III, supra, note 6, 1435-9.
273See An Act to amend the Securities Act, S.Q. 1971, c. 77 and Dey & Makuch, supra, note
267, 1431.
274Securities Act, R.S.Q. 1977, c. V-i, s. 110. Strictly, any exchange operating in the province
fell under these rules –
and until its merger in 1974 with the MSE, there was one other
exchange in Quebec, the Canadian Stock Exchange: see R. Forbes & D. Johnston, Canadian
Companies and The Stock Exchange (1980) 8.
275See Securities Act, S.Q. 1982, c. 48, s. 169.
276See Securities Act, S.Q. 1982, c. 48, s. 169 (recognition); ss 177-86 and 317-23 (supervisory
jurisdiction).
277See Proposals, vol. II, supra, note 6, Part 9 (Self-Regulatory Organizations).
REVUE DE DROIT DE McGILL
[Vol. 29
is much more comprehensive than those in almost all the other provinces,
which generally speaking only deal in this way with stock exchanges. 278
Two further matters distinguish the Quebec legislation in this area. The
newAct permits the Commission to delegate to a self-regulatory organization
all or any part of the administration of the licensing system. 279 This is
possible to some extent under the Ontario Act as was also the case under
the old Act.280 The major instance of this delegation in Quebec was the
performance of regular audits by stock exchanges of member registrants.
The new Quebec provision is notable for its forthrightness and its breadth.281
The other distinguishing characteristic of the new Act is its stipulation of
standards for recognition and for organization operations.282 The standards
are in terms of financial resources as well as admission to membership, rules
respecting access to services and the provision of disciplinary procedures
for breach of the organization’s rules or of the Act or the Regulation. The
Act also requires that rules of the organization that have the effect of limiting
competition must be submitted to the Commission for special approval.
This second matter has no counterpart in the other legislation, although it
goes far to recognizing practice so far as stock exchanges are concerned.2 83
Both of these matters were evidently inspired by the federal Proposals.284
C.
Conclusion
The licensing schemes in Canada appear to have worked fairly well. 285
Quebec’s new scheme raises some interpretation problems, but when cou-
pled with the provisions for self-regulatory organizations the scheme em-
bodies a number of useful advances. The provisions respecting self-regulatory
organizations at least should serve as the new enacted Canadian standard
in the area.
278See, e.g., Securities Act, R.S.O. 1980, c. 466, s. 22. But see Securities Act, S.A. 1981, c. S-
6.1, as am. S.A. 1981, c. B-15 and S.A. 1982, c.32, Part 17.
am. S.A. 1981, c. B-15 and S.A. 1982, c. 32, s. 183.
279See Securities Act, S.Q. 1982, c. 48, s. 170. See also Securities Act, S.A. 1981, c. S-6.1 as
28See, e.g., Securities Act, R.S.O. 1980, c. 466, ss 19, 20 and 72(1)(b); Securities Act, R.S.Q.
1977, c. V-i, ss 81-93.
28 Compare it, however, with Proposals, vol. I, supra, note 6, s. 9.05 (which is even broader).
See generally Proposals, vol. II, supra, note 6, 155-6.
282See SecuritiesAct, S.Q. 1982, c. 48, ss 174-6. Note the special position of securities clearing-
houses in s. 175, last para.
283Consider the recent unfixing of stock exchange commission rates by securities commission
order: see Beck & Reschenthaler, Ending Securities Commission Fee Regulation: Rationale
and Economic Effects (1983) 7 C.B.L.J. 377.
m4 See Proposals, vol. I, supra, note 6, ss 9.05 (delegation) and 9.03 (standards).
n5See Connelly, supra, note 244, 1392.
19831
QUEBEC’S NEW SECURITIES ACT
VII. National Issues and the Charter of the French Language
The new Act has achieved a great degree of integration with the Canadian
securities legislation environment, so that the same basic documents may
now be filed throughout the country. The language issue however remains
a major problem. The new Act has no contributions to make here, but the
Commission has recently issued a policy statement concerning the appli-
cation of the province’s language regime to the new Act’s disclosure docu-
ments. It is therefore appropriate to review that regime and to discuss that
policy statement here.
Ever since its coming into force in August of 1977, the Charter of the
French Language has been a major constraint for issuers seeking distribution
of their securities both within and outside the province of Quebec. As “bro-
chures” or “similar publication”, 286 both the preliminary and final pro-
spectus must be sent to corporate investors resident in Quebec in the French
language or in both the French and English languages. 287 Individuals may
request brochures to be sent to them in the English language only.288 How-
ever, the latter exemption can hardly be relied upon, since the reason for
the filing in Quebec of a prospectus for national issue is often the presence
in the province of a relatively large number of substantial financial insti-
tutions. In the early days of the Charter, issuers were concerned as much
with the adverse publicity which could have resulted from a breach of the
language requirements applicable to brochures as they were with the fines
to which they could have been liable under the Charter’s penal provisions. 289
A further concern was that the prospectus might be held to form part
of a “pre-determined contract” for the purchase of securities. The prevailing
opinion to this day is to the effect that a “pre-determined contract” which
is not in the French language or in bilingual French and English form is,
absent a request by the parties that it be drawn up in the English language
2 86A characteristic of a prospectus is “to call the attention of the public”; French Gas Saving
Co. v. The Desbarats Advertising Agency Ltd. (1912) 1 D.L.R. 136, 145 (Que. K.B.), aff’d,
(1912) 1 D.L.R. 147 (Que. KB., App. Side).
287Compare Charter ofthe French Language, R.S.Q. 1977, c. C-11, s. 89, which states: “Where
[the Charter] does not require the use of [French] exclusively, [French] and another language
may be used together.”
28BRegulation respecting the language of commerce and business, R.R.Q. 1981, c. C-i1, r. 9,
s. 15.
289Under s. 205 of the Charter of the French Language, R.S.Q. 1977, c. C-11, a corporation
may be liable to a fine of $50 to $1,000 for each offence, and to a fine of $500 to $5,000 for
any subsequent offence.
Mc GILL LAW JOURNAL
[Vol. 29
only, susceptible of absolute nullity.290 At first, the Commission relied on
issuers to obtain from their legal counsel guidance as to the language re-
quirements applicable to prospectuses, both preliminary and final. While
Bill 22 was still in effect, 291 it decided no longer to accept for filing any final
prospectuses which were in the English language only. Then, in November
of 1981, it also required that the preliminary prospectus be filed in French.
The latter decision causes many more practical problems, since the prelim-
inary prospectus evolves, from proof to proof, until the very day of its filing,
whereas the final prospectus normally differs in editorial content from the
preliminary prospectus only to the extent required by the deficiencies raised
by the various securities commissions throughout the country.
Until the new Act came into force, the Commission tacitly agreed with
the view that reporting issuers not carrying on business in Quebec were not
required to send to their shareholders residing in the province their financial
statements and proxy solicitation material in the French language.292 Indeed,
the Charter must be construed as requiring only those corporations carrying
on business in the province to communicate upon request 293 with their
shareholders in the French language. This was most important to reporting
issuers involved in “going private” transactions in the late 1970’s, where
lengthy proxy solicitation circulars were sent to shareholders with a view
to amalgamations.
Financial statements, including annual reports, and proxy solicitation
material of corporations not carrying on business in Quebec are not required
to be in the French language because they are intended for the shareholders
and are therefore not to be considered as “brochures and similar publica-
tions” which, by definition, are intended for the public. Relief from the
language requirements of the Charter was also available to initiators of take-
over bids by inserting in the letter of transmittal a bilingual “language ac-
knowledgement clause” whereby the shareholders accepting the offer re-
quested all documentation pertaining to the take-over bid to be drawn up
29’This view is supported mainly by the wording of the Preamble and s. 55 of the Charter
and by a parallel with the sanctions applicable to the language requirements of the Consumer
Protection Act, R.S.Q. 1977, c. P-40, ss 4 and 106.
291The predecessor legislation was formerly entitled Official Language Act, S.Q. 1974, c. 6.
292The Commission sent out a notice requesting all reporting issuers to communicate with
their Quebec shareholders in French, but never enforced it.
293It was decided in R. v. Sutton (Cour des sessions de ]a Paix, Montreal, 27-028966-F20)
that “fundamental language rights” granted under Chapter II of Title I of the Charter, such as
that of a person to have business firms communicate with that person in French, must be
exercised; that is, the person must require the French communication. As a result, many public
corporations carrying on business in Quebec provide their Quebec shareholders with financial
statements, including annual reports, and proxy solicitation material in the English language
only, while making the French version available upon request. By the time such a request is
received, the corporation has had time to prepare the French version.
1983]
QUEBEC’S NEW SECURITIES ACT
in the English language only. In this way it was possible to comply with the
provisions of the Charter applicable to “pre-determined contracts”.
Since the coming into force of the new Act, the situation remains the
same as regards both a preliminary and a final prospectus. However, in
March 1983, the Commission issued a notice setting forth its interpretation
of the requirements of the Charter, for the purposes of its application to all
information documents filed with it.294
The notice first requires any prospectus, offering notice or information
document replacing a prospectus to be drawn up in French. These offering
notices are the ones referred to in earlier Parts of this article and required
in connection with the distribution by an issuer to holders of its securities
of an exchange, conversion or subscription right relating to its securities,
with the distribution by an issuer of securities to its shareholders through
a subscription plan and with the distribution by an issuer of securities of
its own issue to its employees and senior executives or those of an affiliate.295
Information documents replacing a prospectus include the “information
document” required in connection with options. 296 The Commission will
also likely consider as an information document replacing a prospectus a
management proxy circular prepared in view of a meeting at which an
amalgamation will be considered. And, although not specifically required
to be in the French language by the Commission’s notice, an “advertising
document not prohibited by regulation” 297 used in the course of a distri-
bution is subject under the Charter to the same requirements as a prospectus.
The Commission further requires a French version of the documents
forming part of the permanent information record to be prepared and filed
at the latest when the reporting issuer files its short-form prospectus. These
include all documents filed by the reporting issuer to comply with the con-
tinuous and periodical disclosure requirements of the new Act. Conse-
quently, a reporting issuer not carrying on business in the province of Quebec
must, if it is to avail itself of the prompt qualification system, prepare French
versions of its interim financial statements, its annual reports and its proxy
solicitation material.
This second item of the Commission’s notice appears to fall somewhat
short of the requirements of the Charter. To the extent that the permanent
information record is available to the public before, during and after the
filing of a short-form prospectus, it constitutes a publication and should be
available in the French language irrespective of whether the reporting issuer
294CVMQ, Avis, (1983) XIV Bulletin hebdomadaire (no 12), 1.2.1.
295Securities Act, S.Q. 1982, c. 48, s. 52 (a change from s. 53).
296Securities Act, S.Q. 1982, c. 48, s. 67.
297This is permitted under Securities Act, S.Q. 1982, c. 48, s. 16(3).
REVUE DE DROIT DE McGILL
[Vol. 29
has filed a short-form prospectus. Because the Commission’s interpretation
is not at all binding upon the Office de la langue frangaise or the Commission
de surveillance de la langue frangaise, the bodies entrusted with the appli-
cation and enforcement of the Charter, reporting issuers should perhaps file
and update their permanent information record simultaneously in both the
French and English languages. Practically, the lengthy process of preparing
a French version of the disclosure documents mentioned above shortly
before an issue would defeat the very purpose of the prompt qualification
system, since it presumably would require more time than the drafting and
printing of the short-form prospectus. The Commission clearly states in its
notice that it will not review the permanent information record until it is
filed in French. Such review must have taken place in order for the Com-
mission to be bound by the five-day delay applicable to the review of short-
form prospectuses. 298
The third element of the Commission’s notice requires that information
appearing in the annual report and integrated in the short form prospectus
by reference be drawn up in French. This appears to be somewhat redundant
in view of the previous element.
Finally, the Commission’s notice requires that there be a French version
of the take-over bid circular, the management circular and the notice of a
senior executive. This is an instance where the Commission has clearly
exceeded the scope of the Charter. Indeed, the take-over bid circular, man-
agement circular or notice of a senior executive are not intended for the
public, and thus none constitute publications required by the Charter to be
available in the French language. Furthermore, the “language acknowl-
edgement clause” in the letter of transmittal certainly complies with the
provisons of the Charter dealing with pre-determined contracts.
In the preamble to its notice, the Commission states that it is not
entrusted with any specific authority as regards the application of the Charter.
Notwithstanding that, it has rendered at least one decision where it took it
upon itself to decide which provisions of the Charter apply to a prospectus
and to what extent.299 It then issued a notice setting forth language require-
ments beyond the scope of the Charter. All of the foregoing creates a con-
fusing atmosphere somewhat disturbing for national reporting issuers whose
298See Avis, supra, note 294, 1.2.1.
299Decision No. 6705 re: Ampal-American Israel Corporation in CVMQ, (1982) XIII Bulletin
hebdomadaire (no 30), 2.3.1. For decisions rendered on the subject by the Commission under
the previous Official Language Act, S.Q. 1974, c. 6, see Charbonneau, supra, note 25, at his
note 86.
Despite an unfavourable decision, the Commission subsequently allowed Ampal-American
Israel Corporation to proceed with a prospectus drawn up in English only, on the condition
that the next distribution be made in French, to which Ampal agreed: Assembl~e nationale du
Quebec, Commission permanente des institutions financi~res et cooperatives, Journal des D6.
bats, t. XXVII, B-10754-5.
1983]
QUEBEC’S NEW SECURITIES ACT
Quebec counsel have expressed different views as to the specific require-
ments of the Charter.
Conclusion
As we have attempted to demonstrate throughout this article, the new
Act represents an integrated and self-contained legal framework regulating
the securities industry and markets in the province of Quebec which im-
proves in several respects on its predecessor. The new issue regulation scheme
is better defined than ever before. The continuous disclosure system has
benefited from careful rethinking. The civil recourses under the new Act
create a scheme of statutory liability which will reduce reliance on the general
liability provisions of the Civil Code. Furthermore, the extensive powers
conferred upon the Commission under the new Act indicate a clear intent
to ensure a greater effectiveness in market surveillance.
Unfortunately, the new Act does not achieve total integration with the
remainder of Canada. As an apparently small, but practically troublesome
example, the forty-five day delay within which a reporting issuer must file
and send its interim financial statements to its shareholders residing in the
province3o certainly imposes upon national issuers a constraint which, in
addition to the language problems raised earlier, does not provide for the
harmony that seems reasonable in this area. As well, the minor differences
in the content of a Quebec prospectus can only be perceived as unfortunate
in an environment which in the past few years has seen the acknowledge-
ment of the need for uniformity represented by the National Policy State-
ments system.30
On the other hand, we note the leadership asserted by the CVMQ in
introducing legislation providing for delegation to self-regulatory bodies and
for the prompt qualification system. It may be that, in the present federal
context, the differences between the legislation in force from province to
province will simply mirror the greater vitality of the regulatory authorities
in each jurisdiction as they assert and express through legislation their own
specific views of certain issues. We certainly do not suggest that uniformity
is simply a “technical” goal. 302 However, in view of the national character
of much of our securities market, we hope that the greater vitality of one
of the most important jurisdictions in Canada from the securities point of
view will some day result in a better national framework. In this respect,
30OSee supra, notes 138 and 139.
30’Compare Bill 85, Regulation, O.C. 660-83, 30 March 1983, G.O.Q. 1983.11.1269, Schedule
I with Ontario Regulation, R.R.O. 910/80, Form 12 (prospectus forms) and National Policy
Statements Nos. 1-35 in 2 CCH Can. See. L. Rep., paras 54-838 et. seq.
302Cf Macneil, The Future of the Supreme Court of Canada as the Final Appellate Tribunal
in Private Law Litigation [:] A View from the South (1983) 7 C.B.L.J. 426, 431-2.
Mc GILL LAW JOURNAL
[Vol. 29
we offer some thoughts about what we consider to be a major issue facing
securities regulation in those provinces which have so recently overhauled
their legislation as Quebec has done. This issue is the future of disclosure
requirements.
If there is a central theme to the new regime of securities regulation in
Quebec, it is disclosure. As in the United States, with its scheme of federal
securities regulation, and in Ontario, so in Quebec, recent reforms have
largely been concerned with rationalizing the statutory primary market and
secondary market disclosure schemes. 30 3 We see this as raising three im-
portant issues. Put in the form of questions, those issues are: Does disclosure
serve any useful purpose? Is it well-designed for the purposes it serves?
Might there be too much (or too little) required disclosure? Our answers to
these questions are uncertain, to a greater or lesser degree, and look towards
the accumulation of more experience. In this respect we see the CVMQ as
having an important role, one for which under the new Act it is well prepared.
The useful purpose served by requiring primary market and secondary
market disclosure is that such disclosure enables people to make better
investment decisions.34 While information about issuers of the sort the new
Act requires would seem capable of serving this purpose, such a view as-
sumes that this information is not otherwise going to be produced. The
question could be asked whether issuers and others in the securities market-
places in Canada could be expected to produce this information without the
statutory requirements. 305 The answer seems to be that there can be no
assurance that they would, particularly in the case of issuers of mining and
oil securities. However, more work of the sort already undertaken in the
United States could be done, and we suspect that such work would show
that the disclosure requirements should be much more selective than they
are now.
Even if the requirement for the sort of information the new Act envis-
ages is capable of making an important contribution to better investment
decisions, this does not say whether the sort of information required is as
well-suited to the purpose as can reasonably be expected. Here we raise the
matter of how the investor can best benefit from required information. The
prospectus scheme, until recently, embodied the view that its information
should be delivered into the investor’s hands, and implicitly assumed a
large degree of autonomy in investor decision-making. The continuous dis-
closure system can be said to embody largely306 the view that its information
503See Simmonds, supra, note 48, 2-6.
304Ibid., 8.
305Ibid., 9, on which the following text draws.
306But see the “two-tiered” character of the scheme which Bill 85 recognizes.
19831
QUEBEC’S NEW SECURITIES ACT
is sufficiently made available by a filing in an office of public record. There
it can be inspected and from there disseminated throughout the investment
community. In this dissemination, licensed securities market professionals
would likely play the greatest role, and, correspondingly, investor decision-
making will largely be aided by such persons. The new prompt offering
prospectus system, as we saw, applies this filtration idea to the prospectus
area. This dichotomy in the regulatory scheme raises the question whether
one model of investment decision-making is preferable to the other.
The answer to our question seems to be that, generally speaking, the
aided investment decision-making model is better: “investors do not and
should not decide to invest without expert financial advice”. 30 7 This does
not mean that regulators should not concern themselves with what infor-
mation gets into investors’ hands. But it does mean that there should be
“less simplification of complex information, fewer omissions of more spec-
ulative or uncertain matters (so-called ‘soft’ information).. .and conse-
quential loosening of the rigidity in format and content of required disclosure
documents”. 30 8 It also means close collaboration between the regulators and
the bodies that concern themselves professionally with the types of data
issuers can produce about themselves, bodies such as the Society of Financial
Analysts and The Canadian Institute of Chartered Accountants.
The final question is one of a cost-benefit type and goes to whether too
much or too little information is being required. Our own view is that too
much is required of the smallest issuers now subject to the disclosure process.
This is probably also true, but for different reasons, of the largest issuers.
In the latter case, our point is that equivalent information seems likely to
be generated in any event. In the case of the smallest issuers, this cannot
be said; but the costs of regulation, in terms of burdening a vital innovative
force in the economy, are probably too high. 309 More information would
be desirable to assist in the evaluation of both of the cases we make.
The CVMQ is in a position to work out better answers to our questions
than those we have attempted to provide. Bill 85, as we have shown, permits
the CVMQ to delegate responsibility on a scale which encourages it to make
the best use of its personnel. The prompt offering system makes possible a
more selective examination of prospectuses, and thus encourages the iden-
tification of particular industries and types of issuer for special analysis. Bill
85 goes even further, however: it requires the Minister charged with re-
sponsibility for the administration of the Act to report to the Government
“on the implementation of this. Act and on the advisability of continuing
307Simmonds, supra, note 48, 11.
3OSIbid.
3wSee Buckley, supra, note 78, 321-2.
REVUE DE DROIT DE McGILL
[Vol. 29
it in force and, as the case may be, amending it”.310 This legislative context,
we suggest, should be read to encourage the sorts of regulatory impact studies
and securities market conditions analysis which our questions call for.311
That kind of work should ensure a continuation of the process of worthwhile
change in the law which Bill 85 well marks.
31Securities Act, S.Q. 1982, c. 48, s. 352.
31’Compare the similar views of an American observer after an analogous reform of federal
securities legislation: Wheeler, Securities Law Practice in the 1980s: An Appraisal, (1981) 9 Sec.
Reg. L.J. 3. For an illuminating analysis of the limits, technical and political, to this type of
exercise, see Hartle and Trebilcock, Regulatory Reform and the Political Process (1982) 20
Osgoode Hall L.J. 643, especially 664-70.
