The purpose of this blog is to provide a quick checklist for companies that are either considering launching a “normal course issuer bid” (or “NCIB”) or have already done so.
From time to time, management of a public company may come to the conclusion that the market price of its shares may not fully reflect the underlying value of its shares and that the purchase by the company of its own shares, and subsequent cancellation of those shares, may be in the best interests of the company and its shareholders. This is based on the premise that such purchases, combined with the subsequent cancellation of such shares, would increase the proportionate interest of, and be advantageous to, all remaining shareholders of the company.
If the company wants to purchase a large block of its own shares, the company will likely need to launch a formal “issuer bid” to purchase its own shares. Under applicable Canadian securities law, the company would need provide a formal issuer bid circular to all of its shareholders, make the offer to all of its shareholders, keep that offer open for a minimum of 35 days and purchase shares on a pro rata basis from all shareholders who accept that offer. The company will also likely be required to obtain a valuation of its shares and disclose the results of that valuation to its shareholders in the formal issuer bid circular.
Alternatively, if the company only wants to purchase a portion of its shares from time to time, and at times, prices and amounts of its choosing, the company may instead launch a normal course issuer bid in compliance with the rules of the stock exchange upon which it is listed.
Exchange Limits on NCIBs:
The Toronto Stock Exchange places the following limits on purchases made under NCIBs:
(a) Such purchases may not aggregate more than the greater of:
- 25% of the average daily trading volume of the shares; and
- 1,000 shares; and
(b) Over a 12-month period, commencing on the date specified in the notice of the normal course issuer bid submitted by the company to the TSX, such purchases may not exceed the greater of:
- 10% of the public float (i.e. shares held by persons that are not insiders of the company and are free from resale restrictions), or
- 5% of the outstanding shares;
on the first day of the 12-month period.
The TSX Venture Exchange places the following limits on purchases made under NCIBs:
(a) Such purchases may not exceed 2% of the total issued and outstanding shares outstanding at the time the purchases are made; and
(b) Over a 12-month period beginning on the date specified in the notice of the bid submitted by the company to the TSXV, such purchases may not exceed the greater of:
- 10% of the public float (i.e. shares held by persons that are not insiders of the company and are free from resale restrictions); and
- 5% of that class of shares issued and outstanding;
on the first day of the 12-month period.
Corporate Law Restrictions on Issuer Bids
Under each of the Canada Business Corporations Act (CBCA) and the Alberta Business Corporations Act (ABCA), a corporation shall not make any payment to purchase or otherwise acquire shares issued by it if there are reasonable grounds for believing that:
(a) the corporation is, or would after the payment be, unable to pay its liabilities as they become due; or
(b) the realizable value of the corporation’s assets would after the payment be less than the aggregate of its liabilities and stated capital of all classes.
Most other corporate statutes in Canada have similar provisions.
Typical Process to Launch an NCIB
The following are the typical steps or documents required to implement an NCIB:
- Board Approval: The company must receive the approval of its board of directors for the NCIB.
- Retain Member to Conduct NCIB: The company must retain an exchange member (i.e. broker) to make the purchases under the NCIB.
- Exchange Approval: The company must submit an application to the applicable exchange and receive exchange acceptance of its NCIB.
- Press Release: The company must issue a press release announcing the commencement of the NCIB.
Filing and Disclosure Requirements Following the Launch of the NCIB
The company must also make the following filings and disclosures following the launch of the NCIB:
- Disclosure to Shareholders: The company must include a summary of the material information contained in its NCIB notice (i.e. its application) to the exchange in the next annual report, information circular, quarterly report or other document mailed to its shareholders. The disclosure must indicate that shareholders can obtain a copy of the notice, without charge, by contacting the company.
- Reporting Purchases to Exchange:Within 10 days after the end of each month in which purchases are made, the company must report to the exchange the number of securities purchased in the preceding month, providing the dates of the purchases, the average price paid and stating whether the securities have been cancelled, reserved for issuance or otherwise dealt with. No reports are required during any period in which no purchases are concluded. The company can delegate the reporting requirements to the exchange member appointed to conduct the NCIB on its behalf. However, it is the company’s responsibility to ensure that the filing requirements are met.
- Insider Reporting of Purchases on SEDI: A company that purchases its own shares must file an insider report on SEDI.ca disclosing each acquisition and cancellation of its shares under a normal course issuer bid within 10 days of the end of the month in which the acquisition occurred.
Cancellation of Shares
The company will also need to make arrangements with the exchange member retained to conduct the NCIB and the company’s transfer agent to ensure that all shares purchased by the company under the NCIB are promptly returned to treasury and cancelled.
Invitation for Discussion:
If you would like to discuss any aspect of issuer bids or NCIBs, or any other securities or business law related matter, please do not hesitate to contact one of the lawyers in our business law group.
Disclaimer:
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.