Rule 144 No-action Relief for Securities of Certain Canadian Reporting Companies | Practical Law

Rule 144 No-action Relief for Securities of Certain Canadian Reporting Companies | Practical Law

The SEC's Division of Corporation Finance has granted no-action relief allowing Rule 144 resales of the securities of certain Canadian companies that were previously shell companies and are not subject to Exchange Act reporting requirements. 

Rule 144 No-action Relief for Securities of Certain Canadian Reporting Companies

Practical Law Legal Update 3-541-0665 (Approx. 3 pages)

Rule 144 No-action Relief for Securities of Certain Canadian Reporting Companies

by Practical Law Corporate & Securities
Published on 11 Sep 2013 • USA (National/Federal)
The SEC's Division of Corporation Finance has granted no-action relief allowing Rule 144 resales of the securities of certain Canadian companies that were previously shell companies and are not subject to Exchange Act reporting requirements.
On September 6, 2013, the SEC's Division of Corporation Finance granted no-action relief making Rule 144 available for the resale of securities of certain Canadian issuers despite the fact that those issuers previously have been shell companies and are not subject to Exchange Act reporting requirements. Under Rule 144(i), the securities of any issuer that has previously been a shell company may not be resold under Rule 144 unless the issuer has been subject to Exchange Act reporting for at least one year and has been timely in its filing obligations.
The no-action letter sets out issuer requirements that must be met for Rule 144 to be available, including that the issuer:
  • Is organized under the laws of Canada.
  • Was, at the time it became a public company, either:
    • a capital pool company (a shell company regulated by the TSX Venture Exchange); or
    • a special purpose acquisition corporation (a shell company regulated by the Toronto Stock Exchange).
  • Has ceased to be a shell company and, since the date that it initially ceased being a shell company, has never again been a shell company.
  • Is a reporting issuer under the laws of at least one Canadian province and is required to filed reports on SEDAR.
As stated in the no-action request, it is common for Canadian companies to become reporting companies using reverse mergers and for those companies to later become seasoned Canadian issuers that sell securities to US investors in private placements. Without relief, those securities would be ineligible for resale under Rule 144.
The no-action request also draws parallels between the robust disclosure requirements for Canadian issuers and the information required by Form 10 under the Exchange Act that ordinarily needs to be made available to investors under Rule 144.