The price at which securities of many Canadian issuers are trading has been significantly affected by the global coronavirus pandemic. This will almost certainly impact their risk of litigation arising from the accuracy their public disclosures. For companies that are dual listed in the United States, the risks are likely enhanced.
These risks appear to be exacerbated for issuers whose shares trade on Canadian exchanges as a result of the recent suspension of Ontario limitation periods, giving security holders a longer time within which to commence litigation.
With this in mind, issuers are well advised to continue to work closely with their legal counsel, audit committees, and, as appropriate, auditors to ensure that their risk and financial disclosures are robust, and that material information is disclosed promptly.
Potential civil claims
As our colleagues in the United States have observed, recent event may incite plaintiffs to challenge, with the benefit of hindsight, the extent to which companies have appropriately disclosed risks within their operations or supply chains that make them susceptible to global events like the current Covid 19 pandemic. Current events may also give rise to allegations regarding whether companies are acting quickly enough to disclose, in a timely manner, the ongoing risks and impacts to their operations arising from the pandemic.
Insurers and issuers whose shares trade on Canadian exchanges should note that pursuant to the recent order made under subsection 7.1(2) of the Emergency Management and Civil Protection Act, limitation periods for the commencement of any action are suspended for the duration of the COVID-19 emergency period, retroactive to March 16, 2020. This means that even after normal business operations resume, claimants will have a longer time within which to commence litigation, including securities class actions alleging that issuers made misrepresentations or material omissions in their public disclosures.
Measures taken by securities regulators in Canada
Some steps have been taken by securities regulators across Canada in response to the pandemic. For example, on March 18, 2020, the CSA announced it will introduce blanket relief for market participants in the form of a 45-day extension for regulatory filings (financial statements, management’s discussion and analysis, management reports of fund performance, annual information forms, technical reports, and certain other filings) required to be made on or before June 1, 2020. The CSA’s news release can be found here. The SEC, in the United States, issued an order two weeks earlier, on March 4, 2020, similarly providing relief for certain filings, subject to certain conditions.
The CSA and the individual provincial securities regulators have, to date, not provided specific guidance concerning the impact of the global pandemic on corporate disclosure obligations beyond extended dates for regulatory filings. In contrast, the above noted SEC order was accompanied by a press release in which SEC Chairman Jay Clayton emphasized the need for US issuers to collaborate with their audit committees and auditors to ensure robust and timely disclosure of all material risks to their business and operations to the fullest extent practicable:
“We also remind all companies to provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments. How companies plan and respond to the events as they unfold can be material to an investment decision, and I urge companies to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements. Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding coronavirus, can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for forward-looking statements.” SEC’s full press release can be found here.
In general, Canada issuers are advised to consider existing law and guidance concerning their continuous disclosure obligations including in National Instrument 51-102 – Continuous Disclosure Obligations, CSA Staff Notice 51-328 – Continuous Disclosure Considerations Related to Current Economic Conditions (January 8, 2009), CSA Staff Notice 51-330 Guidance Regarding the Application of Forward-Looking Information Requirements under National Instrument 51-102 Continuous Disclosure Obligations (November 20, 2009), and, as applicable, OSC Staff Notice 52-719 Going Concern Disclosure Review (December 17, 2010), and to consult with their respective legal counsel, audit committees and auditors.