A Caution for CPCs Looking at Foreign Acquisition Targets

A word of warning to any Capital Pool Companies considering the acquisition of a company or assets located outside of Canada and the United States: If your CPC is a reporting issuer in Ontario and the resulting issuer will not be a mining or oil and gas issuer, the disclosure for your transaction must be made by prospectus.  Basically that means that rather than preparing a filing statement or information circular as you do with all other CPC qualifying transactions you will have to prepare a non-offering prospectus and file it with the Ontario Securities Commission for review.  At that point, the OSC takes over the review of your disclosure and the TSX Venture Exchange’s review becomes an exercise limited to ensuring that the resulting issuer will meet TSX Venture Exchange listing requirements.

Given recent highly publicized scandals involving companies with foreign assets listed on Canadian exchanges, the OSC has been subjecting these transactions to a surprisingly high level of scrutiny, including review of the business and financial merits of the transaction. It can be debated whether this degree of scrutiny into the business/financial side of a deal by the OSC is appropriate, but it does seem to be the new way of things so CPCs looking at foreign qualifying transactions should be prepared.