Publicly traded companies at risk of missing filing deadlines because of COVID-19 disruptions are being encouraged by Canada’s provincial securities regulators to make a special application to avoid a sweeping, and potentially devastating, cease trade order.
The Canadian Securities Administrators (CSA), the umbrella group that represents the provincial securities regulators, issued a statement Monday reminding securities issuers that, if they are going to be late with their required financial disclosures, they can apply for a management cease trade order.
A management cease trade order, or MCTO, applies only to certain officers and directors but not the public. The prohibition prevents only company insiders from trading on whatever information they have yet to disclose to the public, while granting the company more time to complete its filing obligations.
The CSA’s release states that, “under normal circumstances,” such an application for a management cease trade order should be made two weeks before the due date for required filings. However, the CSA said it wanted to assure issuers that its members “will work to accommodate shorter periods where necessary.”
The release does not address how quickly the commissions will process such applications, or how much extra time companies will be granted to file their financials.
A failure-to-file cease trade order can serve as a huge blow to a company because existing investors are unable to sell their securities and prospective investors are barred from purchasing shares in the company. It can also hinder a company’s ability to secure financing.
Terence Dobbin, a securities lawyer and senior partner at Norton Rose Fulbright LLP, called the CSA’s reminder an “appropriate response by the regulators to the current situation.
“Regulators have recognized that there are many cases where a full cease trade order is simply too blunt a tool and does not serve to protect investors,” Mr. Dobbin said in an e-mail.
In a separate news release, the Ontario Securities Commission announced that it is postponing all on-site compliance reviews of the businesses that it regulates. The commission is also postponing all in-person hearings until at least April 30, 2020, and is exploring whether anyone with a hearing scheduled before that date can proceed by teleconference or in writing.