Policy: OSCP - 57-603 - Defaults by Reporting Issuers in Complying with Financial Statement Filing Requirements

NOTICE OF ONTARIO SECURITIES COMMISSION

POLICY 57 - 603

DEFAULTS BY REPORTING ISSUERS

IN COMPLYING WITH FINANCIAL STATEMENT FILING REQUIREMENTS

Notice of Policy

The Commission has, under Section 143.8 of the Securities Act (the "Act"), adopted Policy 57-603 Defaults by Reporting Issuers in Complying with Financial Statement Filing Requirements (the "Policy"). The Policy is effective on April 17, 2001.

Background

On March 31, 2000 the Commission published the Policy for comment (the "2000 Draft"). During the comment period on the 2000 Draft, which ended on May 31, 2000, the Commission received two comment letters. One of them was from the Association for Investment Management and Research and it simply expressed support for the Policy. The other one, received from Osler, Hoskin and Harcourt ("Osler") fully supported the 2000 Draft. The comments provided by Osler have been considered by the Commission and the final version of the Policy being published with this Notice reflects the decisions of the Commission in this regard. Appendix A of this Notice provides a summary of Osler's comments and the responses of the Commission.

Capitalized terms used in this Notice are as defined in the Policy, unless otherwise indicated.

Substance and Purpose of the Policy

The purpose of this Policy is to state:

(i) certain principles, criteria and factors which the Commission will normally consider in responding to a default of a requirement to file annual or interim financial statements (a "Financial Statement Filing Requirement");

(ii) the manner in which the Commission interprets the application of section 75 of the Act in circumstances where a reporting issuer determines that it will not comply, or, subsequently determines that it has not complied, with a Financial Statement Filing Requirement; and

(iii) practices to be followed by the Commission to make available for public inspection the list of defaulting reporting issuers maintained pursuant to subsection 72(9)of the Act.

The Policy provides that the Commission will, generally, respond to a Financial Statement Filing Requirement default by issuing a Management and Insider Cease Trade Order (a "Management CTO"). This will generally be the only Cease Trade Order issued if the Defaulting Reporting Issuer provides the information contemplated by the Alternate Information Guidelines, the default is corrected within two months of the date of the default and no other default exists at the time of that correction.

The Policy also provides that, where a Defaulting Reporting Issuer does not satisfy the Alternate Information Guidelines, or the default continues for more than two months, the Commission will normally consider the immediate imposition of an Issuer Cease Trade Order (an "Issuer CTO") and may also consider whether Enforcement action against the directors and officers who failed to release the information is appropriate.

Summary of Changes

The Commission has made changes to the 2000 Draft, to respond to the comment letter received from Osler (as discussed in Appendix A) and to staff's experience in administering the 2000 Draft (as discussed in more detail below). Changes were made to Part 4 of the 2000 Draft, to make it more consistent with similar provisions in proposed Commission Policy 51-601 Reporting Issuer Defaults. The changes made were not material and the Commission is not republishing the Policy for comment.

Proposals to Address Problems Encountered In Administering the 2000 Draft

The following is a description of changes made to the 2000 Draft as a result of staff's experience in administering the 2000 Draft.

The 2000 Draft provided that "Defaulting Management and Other Insiders", ("DMOI") on whom Management CTOs will be imposed, means persons and companies who:

"(i) are directors, officers or insiders of the Defaulting Reporting Issuer during the period the Defaulting Reporting Issuer is in default; or

(ii) were directors, officers or insiders of the Defaulting Reporting Issuer during the period covered by the financial statements which are the subject of the default."

In the spring of 2000, Commission panels at hearings relating to the imposition of Management CTOs were not willing to accept, without further evidence, that all DMOI, as defined in the 2000 Draft, should be the subject of a Management CTO. The panel was willing to accept, as evidence, an affidavit supplied by the issuer naming the individuals that had or may have had, access to material undisclosed information. As a result, the Policy has been revised so that only directors, officers and insiders that "have had, or may have had, access to any material fact or material change with respect to the Defaulting Reporting Issuer that has not been generally disclosed" are included in the definition of DMOI.

Also, section 3.1 of the Policy has been revised to add, to the list of information that an issuer needs to provide, an affidavit listing the names of each person or company that comes within the definition of DMOI. However, there is a concern that if an issuer chooses not to supply such an affidavit (or supplies one that appears inaccurate or incomplete) this would result in the imposition of an Issuer CTO, which removes liquidity from the marketplace. Accordingly, section 3.1 has also been revised to provide that, in the event that the Commission does not receive the requested affidavit, or it appears inaccurate or incomplete, then Management CTOs will generally be imposed on those directors, officers and insiders that, in the Commission's view, clearly had access, during the time period referred to in the definition of Defaulting Management and Other Insiders, to any material fact or material change with respect to the Defaulting Reporting Issuer that has not been generally disclosed.

Another change has been made to section 3.1 of the Policy to remove any suggestion that an issuer can force the imposition of an Issuer CTO instead of a Management CTO. That is the deletion of the phrase: "In order to issue a (Management CTO) instead of an (Issuer CTO)..." from the beginning of the sentence that sets out the information that the Commission needs to receive from a Defaulting Reporting Issuer. Of course, the Commission always retains the discretion of what, if any, type of CTO to impose and this is referred to in section 2.1 of the Policy.

Another change proposed to the Policy, to try to address the large amount of work and staff time involved in administering the 2000 Draft, is one that may help to allocate the necessary staff resources over a longer time period. The following sentence has been added to section 3.1:

"The Commission is of the view that an issuer will often be able to determine that it will not comply with a Financial Statement Filing Requirement at least two weeks before its due date and the Default Announcement should be made as soon as this determination is made."

This statement will focus issuers on the fact that they should make a Default Announcement as soon as they determine that they will be in default and will clarify that the Commission believes that many issuers know this at least two weeks before the due date. The earlier that issuers make Default Announcements and provide us with the affidavit and addresses that are to accompany the Default Announcement, the better staff will be able to administer the Policy.

The first two sentences of section 3.1 of the Policy have been revised as indicated in the following blackline, to clarify the Commission's interpretation of the application of section 75 of the Act, in certain circumstances:

The Commission is of the view that, where a reporting issuer determines that it will not comply, or, subsequently determines that it has not complied, with a Financial Statement Filing Requirement, this will generally, except in very rare circumstances, represent a material change that should be immediately communicated to the securities marketplace by way of a news release and report of the material change in accordance with section 75 of the Act. However, Even if in the rare circumstances when this determination does not represent a material change, the Commission takes the view that the determination is normally important information that should be immediately communicated to the marketplace by way of news release and report (a "Default Announcement"), that is authorized by a senior officer of the reporting issuer and is otherwise prepared and filed with the Commission in the same manner as a news release and report of a material change referred to in section 75 of the Act.

 

APPENDIX "A"

Summary of Comments Raised by Osler, Hoskin and Harcourt ("Osler")
in addition to their Full Support for the Policy

(a) Comment:

Osler points out that the definition of DMOI includes "directors, officers or insiders" and that "officers" is broader than "senior officers", which is included in the Act's definition of "insiders". Osler asks whether the intent was to catch a broader group of executives (than would be caught by the definition of "insiders" in the Act) and if so, suggests that more specific language be considered.

Commission's Response:

The intent behind the 2000 Draft was to include more "officers" than would be included as "senior officers". The Commission believes that the current language makes this clear and that more specific language is not needed.

(b) Comment:

Osler comments on the fact that the definition of DMOI includes parties who are directors officers or insiders during the "period covered by the financial statements". Osler's view is that this casts too broad a net. They give an example where a director resigns on the second day of a new fiscal year and fifteen months later the issuer defaults in filing its annual financial statements. Even though the director had no responsibility for the affairs of the issuer for almost 15 months, because he was a director for the first two days of the "period covered by the financial statements", he would be included in the definition of DMOI.

Osler also says that it may be useful to specify that the "period covered by the financial statements" does not include the periods relating to the comparative financial statements which are presented as part of such financial statements.

Commission's Response:

The Commission agrees with Osler's concerns and has revised the definition of DMOI to say "at any time since the end of the period covered by the last financial statements of the Defaulting Reporting Issuer that were filed in accordance with a Financial Statement Filing Requirement". This change to the description of the period means that, for example, if a director or officer (e.g. a CFO) resigns just before the end of a third quarter and the issuer subsequently defaults in filing annual financial statements, the Policy would not provide that the CFO would be included in the Management CTO even he or she had been the CFO for three quarters of the fiscal year. The Commission thinks this is appropriate because the CFO did not have access to material undisclosed information after the third quarter ended.

(c) Comment:

Section 2.1 states that generally the Management CTO will be the only cease trade order issued if the default is corrected "within two months of the date of the default". Osler suggests referring instead to "the default and any subsequent defaults" to make it clear, for example, that the Commission will take action if the issuer has corrected a default in filing annual financial statements but, prior to such correction, has defaulted in filing first quarter financial statements.

Commission's Response:

The Commission has revised this part of section 2.1 to provide that a Management CTO "will generally be the only CTO issued if ... the default is corrected within two months of the date of the default and no other default exists at the time of that correction".

(d) Comment:

Osler points out that "a restructuring effected under the CCAA often requires more than two months to implement and it is unclear whether the "limited period beyond two months (as referred to in section 2.2) is flexible enough to fully accommodate such a restructuring...".

Commission's Response:

The Commission acknowledges that restructurings under the CCAA often take more then two months. In fact, some material prepared in November, 1999 indicated that the average time, based on the restructuring of eight large companies under the CCAA, was seven months. However, the Commission does not propose to revise the Two Month Period because:

(i) as stated in section 2.1 of the Policy: "the basis for the two month period is that the objective of maintaining liquidity in the secondary markets normally diminishes in importance as time passes, relative to the importance of furnishing the marketplace with financial information in the form and within the time frames that are statutorily prescribed; and

(ii) the language of section 2.2 is already sufficiently flexible to accommodate restructurings that go beyond two months: "... the Commission will generally not pursue an Issuer Cease Trade Order in respect of the reporting issuer for a limited period beyond two months, in order to accommodate a restructuring of the reporting issuer."

However, in order to clarify that the Commission will take timing into consideration in deciding whether to pursue an Issuer Cease Trade Order, the following italicized statements have been added to section 2.2:

"The issuer should make appropriate submissions to Commission staff significantly in advance of the expiry of the Two Month Period as to the status and timing of the restructuring, as well as any other submissions the issuer considers appropriate. The issuer should provide staff with copies of all orders made in the insolvency proceedings that contain a stay of proceedings, or an extension of a stay of proceedings, promptly after any such orders are made. The Commission will consider those submissions, as well as other facts relevant to the issuer, in deciding whether to pursue an Issuer Cease Trade Order."

(e) Comment:

Osler points out that section 3.1 of the Policy would require a Default Announcement to be made not only upon the initial default, but also with respect to each subsequent default and Osler views this as unnecessary "in light of the issuer's other ongoing reporting requirements".

Commission's Response:

The Commission agrees with this comment because of the requirement, in section 3.2 of the Policy, for Default Status Reports to be issued every two weeks following the Default Announcement, during the period of the default. Accordingly, section 3.1 of the Policy has been revised to provide that a Default Announcement does not have to be made if the issuer is already in default of a previous Financial Statement Filing Requirement, has followed the provisions of section 3.1 regarding a Default Announcement of that earlier default and is following the provisions of section 3.2. To ensure that a subsequent default is publicly disclosed (without requiring all the detail that was in the Default Announcement regarding the earlier default) section 3.2 of the Policy has been revised to provide that a Default Status Report should normally also identify any subsequent (anticipated) default of a Financial Statement Filing Requirement.

(f) Comment:

With regard to the Policy's statement, in section 3.1, that a Default Announcement should "disclose in detail the reason for the (anticipated) default", Osler notes that the reasons may be highly confidential and that the "disclosure of sensitive information, or the premature disclosure of information, could be harmful to the market and the reporting issuer".

Commission's Response:

The Commission does not have sympathy for this concern because the Policy permits trading to continue during the Two Month Period (except for trading by Defaulting Management and Other Insiders) on the basis of the information disclosed in the Default Announcement and in Default Status Reports (as well as the information provided to creditors, under section 3.3 of the Policy) and the Commission believes that disclosure of the reason for the (anticipated) default is an important part of that disclosure.

(g) Comment:

Paragraph 3.1 (vii) of the Policy requires a Default Announcement to disclose any other undisclosed material information concerning the reporting issuer "(which may include unaudited financial statements)". Osler notes that "this would be inappropriate and potentially harmful to the market where the very reason for the default is delay in obtaining the approval and sign-off of the auditors. Language should perhaps be considered which would clarify that such disclosure is not required in all cases and that the reporting issuer may be permitted to justify the non-disclosure of unaudited financial statements."

Commission's Response:

The Commission does not believe that any clarification is necessary because paragraph 3.1 (vii) merely says that this "may" include unaudited financial statements. In addition, section 3.4 of the Policy provides:

"The Commission reminds issuers that any unaudited financial information which is communicated to the marketplace should, except in certain circumstances involving insolvency, be directly derived from financial statements which have been prepared and presented in accordance with generally accepted accounting principles. In Default Announcements and Default Status Reports, this information should be accompanied by cautionary language that the information has been prepared by management of the Defaulting Reporting Issuer and is unaudited."

(h) Comment:

Section 3.2 provides that Default Status Reports should normally communicate "any changes to the information contained in the Default Announcement....". Osler suggests that we only refer to "material changes".

Commission's Response:

The Commission has made this change to the Policy.

(i) Comment:

Osler notes that the provision, in section 3.3, for insolvent issuers to "file a report disclosing the same information they provide to its creditors in the same manner as a news release and a report of a material change referred to in section 75 of the Act" may be unduly burdensome in certain circumstances, such as where a voluminous information circular has been prepared in connection with a proposed CCAA arrangement transaction. Osler suggests that we consider alternatives for making such information publicly available including, for example, use of an issuer's website.

Osler also points out that some information is disclosed to certain creditors pursuant to confidentiality agreements and must not be subject to public disclosure because that could preclude the issuer's ability to restructure its finances.

Commission's Response:

The Commission does not believe that it is too burdensome to file a report disclosing information that an issuer is required to provide to its creditors. This information has already been prepared for creditors. If the information provided to creditors is very lengthy, the issuer can append the full information provided to creditors (e.g. an information circular) to a material change report. For issuers that want to append the information provided to creditors to a material change report, the following statement has been added to the Policy, regarding filing in SEDAR:

"If a Defaulting Reporting Issuer chooses to give this disclosure by filing a copy of information provided to creditors with a material change report, then for purposes of filing in SEDAR, this must all be contained in the same electronic document."

Osler expressed the view that item five of Form 27, the form of material change report, would need to be modified. Item five provides that the disclosure in material change reports "should be sufficiently complete to enable a reader to appreciate the significance of the material change without reference to other material". However, staff do not believe that issuers following section 3.3 of the Policy should feel constrained by this statement in Form 27, because section 3.3 does not require strict compliance with section 75 (unless of course the information is a material change) because section 3.3 merely says "in the same manner as a report of a material change referred to in section 75 of the Act". In any event, as noted above, for purposes of filing in SEDAR, the information will have to be contained in the same electronic document, so technically there will not be "reference to other material".

The Commission believes that it would probably be ineffective for a news release to contain all of the information provided to creditors because newspapers would not report such lengthy information. Accordingly, section 3.3 has been revised to provide that the news release should simply disclose that the report has been filed and the nature of its contents.

With respect to Osler's concern about disclosing information provided to creditors confidentially, the Commission has concerns about excluding disclosure of such information because the issuer is in default of a Financial Statement Filing Requirement and trading is permitted to continue on the basis of disclosure of the information provided to creditors (as well as the disclosure in the Default Announcement and Default Status Reports). In any event, the Commission believes that issuers can deal with confidential information "in the same manner" as a confidential material change report referred to in subsections 75 (3) and 75(4) of the Act.

(j) Comment:

Section 6.1 provides that:

"The scope of this Policy is limited to Financial Statement Filing Requirement defaults. Defaults of other continuous disclosure requirements will be addressed on a case-by-case basis in a matter similar to that set out in this Policy. In particular, the Commission may consider applying the approach set out in this Policy where a reporting issuer is in default of a continuous disclosure requirement that is analogous to a Financial Statement Filing Requirement (for example, a failure to file an Annual Information Form in accordance with Ontario Securities Commission Rule 51-501 AIF and MD&A)".

Osler cautions against "the wholesale application of the Policy to other continuous disclosure obligations.. For example ... it would not be appropriate to apply with full force the strictures set out in the Policy" to an issuer which complied with all of its continuous disclosure obligations other than its requirement to file an AIF.

Commission's Response:

The Commission views this as a comment on the application of the Policy, rather than on its text. The Commission believes that the words of section 6.1 make it clear that any application of the Policy to requirements other than Financial Statement Filing Requirements will be addressed on a case-by-case basis in a matter that permits us to determine in each case, whether and to what extent application of the Policy is appropriate.

ONTARIO SECURITIES COMMISSION POLICY 57-603

DEFAULTS BY REPORTING ISSUERS IN COMPLYING WITH

FINANCIAL STATEMENT FILING REQUIREMENTS

PART 1 GENERAL

1.1 Definitions

In this Policy:

"Alternate Information Guidelines" means the disclosure guidelines outlined in Part 3;

"Cease Trade Order" means an order under paragraph 2 of subsection 127(1) of the Act that trading in securities of the reporting issuer by all persons or companies, or certain persons or companies identified in the order, cease, either permanently, or, for such period as is specified in the order.

"Default Announcement" means a news release and report referred to in section 3.1;

"Default List" means the list of defaulting reporting issuers maintained by the Commission pursuant to subsection 72(9) of the Act;

"Defaulting Management and Other Insiders" means persons and companies who have been directors, officers or insiders of the Defaulting Reporting Issuer at any time since the end of the period covered by the last financial statements of the Defaulting Reporting Issuer that were filed in accordance with a Financial Statement Filing Requirement, and during that time have had, or may have had, access to any material fact or material change with respect to the Defaulting Reporting Issuer that has not been generally disclosed;

"Defaulting Reporting Issuer" means a reporting issuer identified by the Commission as being in default of a Financial Statement Filing Requirement;

"Default Status Report" means a news release and report referred to in section 3.2 of this Policy;

"Financial Statement Filing Requirement" means a requirement to file annual or interim financial statements in accordance with Part XVIII of the Act;

"Issuer Cease Trade Order" means a Cease Trade Order that all trading in securities of a Defaulting Reporting Issuer cease, either permanently, or, for such period as is specified in the order; and

"Management and Insider Cease Trade Order" means a Cease Trade Order that trading in securities of a Defaulting Reporting Issuer by persons or companies identified in the order as Defaulting Management and Other Insiders cease, either permanently, or, for such period as is specified in the order.

1.2 Purpose

The purpose of this Policy is to state:

(i) certain principles, criteria and factors which the Commission will normally consider in responding to a Financial Statement Filing Requirement default;

(ii) the manner in which the Commission interprets the application of section 75 of the Act in circumstances where a reporting issuer determines that it will not comply, or, subsequently determines that it has not complied, with a Financial Statement Filing Requirement; and

(iii) practices to be followed by the Commission to make available for public inspection the Default List.

PART 2 RESPONDING TO DEFAULTS BY REPORTING ISSUERS OF FINANCIAL STATEMENT FILING REQUIREMENTS

2.1 Principles, Criteria and Other Factors

The following actions, among others, may be taken by the Commission to address a Financial Statement Filing Requirement default:

(i) the Commission will respond to the default by placing the Defaulting Reporting Issuer on the Default List; and

(ii) the Commission will usually consider issuing an Issuer Cease Trade Order or a Management and Insider Cease Trade Order in respect of the Defaulting Reporting Issuer.

The Commission will, generally, respond to a Financial Statement Filing Requirement default by issuing a Management and Insider Cease Trade Order. This will generally be the only Cease Trade Order issued if the Defaulting Reporting Issuer provides the information contemplated by the Alternative Information Guidelines, the default is corrected within two months of the date of the default and no other default exists at the time of that correction.

Where a Defaulting Reporting Issuer does not satisfy the Alternate Information Guidelines, or the default continues for more than two months, the Commission will normally consider the immediate imposition of an Issuer Cease Trade Order and may also consider whether Enforcement action against the directors and officers who failed to release the information is appropriate. The basis for the two months period is that the objective of maintaining liquidity in the secondary markets normally diminishes in importance as time passes, relative to the importance of furnishing the marketplace with financial information in the form and within the time frames that are statutorily prescribed.

2.2 Reporting Issuers That Are The Subject Of Insolvency Proceedings

In circumstances where:

(i) the Defaulting Reporting Issuer is the subject of insolvency proceedings, and

(ii) pursuant to the provisions of the applicable insolvency legislation, the Defaulting Reporting Issuer has retained title to its assets and its directors and officers continue to manage its affairs,

the Commission will generally not pursue an Issuer Cease Trade Order in respect of the reporting issuer for a limited period beyond two months, in order to accommodate a restructuring of the reporting issuer. (In the case of Canadian insolvency legislation, it is expected that these circumstances would be restricted to a restructuring under the Companies' Creditors Arrangement Act or Part III of the Bankruptcy and Insolvency Act).

The issuer should make appropriate submissions to Commission staff significantly in advance of the expiry of the two month period, as to the status and timing of the restructuring, as well as any other submissions the issuer considers appropriate. The issuer should provide staff with copies of all orders made in the insolvency proceedings that contain a stay of proceedings, or an extension of a stay of proceedings, promptly after any such orders are made. The Commission will consider those submissions, as well as other facts relevant to the issuer, in deciding whether to pursue an Issuer Cease Trade Order. The Commission will, normally, expect the Defaulting Reporting Issuer to satisfy the provisions of the Alternate Information Guidelines during the period of the extension.

PART 3 DISCLOSURE

3.1 Default Announcement

The Commission is of the view that, where a reporting issuer determines that it will not comply, or, subsequently determines that it has not complied, with a Financial Statement Filing Requirement, this will, except in very rare circumstances, represent a material change that should be immediately communicated to the securities marketplace by way of a news release and report of the material change in accordance with section 75 of the Act. Even in the rare circumstances when this determination does not represent a material change, the Commission takes the view that the determination is normally important information that should be immediately communicated to the marketplace by way of news release and report (a "Default Announcement"), that is authorized by a senior officer of the reporting issuer and is otherwise prepared and filed with the Commission in the same manner as a news release and report of a material change referred to in section 75 of the Act. The Commission is of the view that an issuer will often be able to determine that it will not comply with a Financial Statement Filing Requirement at least two weeks before its due date and the Default Announcement should be made as soon as this determination is made.

The Commission is of the view that the Default Announcement should:

(i) identify the relevant Financial Statement Filing Requirement and the (anticipated) default;

(ii) disclose in detail the reason for the (anticipated) default;

(iii) disclose the current plans of the reporting issuer to remedy the default, including the date it is anticipated that the financial statements, which are the subject of the Financial Statement Filing Requirement, will be filed (or, if there are no such plans or anticipated date, the fact that there are no such plans or date and the reasons why);

(iv) specify the date that is two months after the default and acknowledge that the Commission may impose an Issuer Cease Trade Order if the default is not remedied by that time;

(v) confirm that the reporting issuer intends to satisfy the provisions of the Alternate Information Guidelines so long as it remains in default of the Financial Statement Filing Requirement;

(vi) disclose relevant particulars of any insolvency proceeding to which the reporting issuer is subject, including the nature and timing of information that is required to be provided to creditors, together with confirmation that the reporting issuer intends to file with the Commission throughout the period in which it is in default, the same information it provides to its creditors at the times the information is provided to the creditors and in the same manner as it would file a material change report under the Act; and

(vii) disclose any other material information concerning the affairs of the reporting issuer that has not been generally disclosed (which may include unaudited financial statements).

The Commission will also need to receive from a Defaulting Reporting Issuer:

(a) an affidavit listing the names and positions/titles (if any) of each person or company that comes within the definition of Defaulting Management and Other Insiders; and

(b) the current address, telephone number and telecopy number of each person or company referred to in the definition of Defaulting Management and Other Insiders that is known to the Defaulting Reporting Issuer.

The information described in items (a) and (b) above should be delivered with the Default Announcement together with an undertaking to provide to the Commission, during the period of default which is the subject of the Default Announcement, particulars of any changes to this information that is known to the Defaulting Reporting Issuer.

If the affidavit described in item (a) above is not received by the Commission, by the due date of the Financial Statement Filing Requirement, or that affidavit appears inaccurate or incomplete, then the Commission will, generally, make a Management and Insider Cease Trade Order that identifies those directors, officers and insiders that, in the Commission's view, clearly had access, during the time period referred to in the definition of Defaulting Management and Other Insiders, to any material fact or material change with respect to the Defaulting Reporting Issuer that has not been generally disclosed.

A Default Announcement is not needed if the issuer is in default of a previous Financial Statement Filing Requirement, has followed the provisions of section 3.1 regarding a Default Announcement of that earlier default and is following the provisions of section 3.2.

3.2 Default Status Reports

The Commission takes the view that, after a Defaulting Reporting Issuer's Default Announcement, and during the period of the default which is the subject of the Default Announcement, a Defaulting Reporting Issuer should normally communicate to the marketplace by way of news release (a "Default Status Report"):

(i) any material changes to the information contained in the Default Announcement, as revised by subsequent Default Status Reports;

(ii) particulars of any failure by the Defaulting Reporting Issuer in fulfilling its stated intentions with respect to satisfying the provisions of the Alternate Information Guidelines;

(iii) the information referred to in paragraph 3.1(i) regarding any (anticipated) default of a Financial Statement Filing Requirement subsequent to the default which is the subject of the Default Announcement; and

(iv) any other material information concerning the affairs of the reporting issuer that has not been generally disclosed.

In order to keep the market continuously informed of any developments during this sensitive time, the Default Status Reports should normally be issued every two weeks following the Default Announcement during the period of the default. If the Commission, at any time, issues an Issuer Cease Trade Order in respect of the Defaulting Reporting Issuer, Default Status Reports will no longer be necessary.

The Commission takes the view that, even where no information is required to be communicated in accordance with paragraphs (i), (ii) and (iv) above, in order to keep the market apprised of the current status and affairs of the Defaulting Reporting Issuer, the fact there is no such information to report during this period should normally be communicated in a Default Status Report.

It is the Commission's view that every Default Status Report should be prepared, authorized, filed and communicated to the securities marketplace in the same manner as that specified in section 3.1 for a Default Announcement.

3.3 Information Respecting Defaulting Reporting Issuers Which Are Subject to Insolvency Proceedings

The Commission takes the view that, where a Defaulting Reporting Issuer that is the subject of insolvency proceedings retains title to its assets and its directors and officers continue to manage its affairs, the Defaulting Reporting Issuer should simultaneously file a report disclosing the same information it provides to its creditors in the same manner as a report of a material change referred to in section 75 of the Act and issue a news release disclosing that the report has been filed and the nature of the report's contents. If a Defaulting Reporting Issuer chooses to give this disclosure by filing a copy of information provided to creditors with a material change report, then for purposes of filing in SEDAR, this must all be contained in the same electronic document. This is in addition to the Default Announcement and Default Status Reports.

3.4 Financial Information in Default Announcements or Default Status Reports

The Commission reminds issuers that any unaudited financial information which is communicated to the marketplace should, except in certain circumstances involving insolvency, be directly derived from financial statements which have been prepared and presented in accordance with generally accepted accounting principles. In Default Announcements and Default Status Reports, this information should be accompanied by cautionary language that the information has been prepared by management of the Defaulting Reporting Issuer and is unaudited.

3.5 Default Correction Announcement

The Commission is of the view that, once the Financial Statement Filing Requirement default is remedied, the reporting issuer should communicate that information to the securities marketplace in the same manner as that specified in section 3.1 of this Policy for a Default Announcement.

PART 4 COMMISSION PUBLICATION OF INFORMATION RESPECTING A DEFAULTING REPORTING ISSUER

4.1 Publication of Default Status

The Commission proposes to include on its Web Site (www.osc.gov.on.ca) a current Default List. The Default List is also available for public inspection in the offices of the Commission during normal business hours.

The Commission expects that this information will be relevant to existing and prospective security holders of Defaulting Reporting Issuers, as well as to registrants in their discharge of suitability and know-your-client obligations.

PART 5 REVOCATION OF CEASE TRADE ORDERS

5.1 Revocation of Cease Trade Orders

Where a Management and Insider Cease Trade Order or an Issuer Cease Trade Order has been issued as a consequence of the Financial Statement Filing Requirement default, the Commission will consider revoking the order:

(i) upon the Defaulting Reporting Issuer complying with the Financial Statement Filing Requirement; and

(ii) provided the Defaulting Reporting Issuer is not otherwise in default of any requirement of the Act or regulations which would cause the reporting issuer to be placed on the Default List.

The Commission's consideration of any application for revocation will be based upon its review of the financial statements which are submitted, the period of time the issuer has been the subject of a Cease Trade Order, and any other factors or circumstances which it determines to be of significance in the particular case. In particular, the Commission may consider whether, before revoking an Issuer Cease Trade Order that has been outstanding for some time, the issuer should also bring its disclosure up to date by providing prospectus-level disclosure.

PART 6 DEFAULTS OF OTHER CONTINUOUS DISCLOSURE REQUIREMENTS

6.1 Defaults of Other Continuous Disclosure Requirements

The scope of this Policy is limited to Financial Statement Filing Requirement defaults. Defaults of other continuous disclosure requirements will be addressed on a case-by-case basis in a manner similar to that set out in this Policy. In particular, the Commission may consider applying the approach set out in this Policy where a reporting issuer is in default of a continuous disclosure requirement that is analogous to a Financial Statement Filing Requirement (for example, a failure to file an AIF or MD&A in accordance with the requirements of Ontario Securities Commission Rule 51-501 AIF and MD&A).