Public Company Disclosure and the Canadian Emergency Wage Subsidy

April 17, 2020

Now that the Government of Canada has approved the Canada Emergency Wage Subsidy (CEWS), Canadian public companies should consider whether taking advantage of this or other forms of government support trigger immediate timely disclosure obligations under Canadian securities laws.  

Effective April 11, 2020, the CEWS came into force providing a wage subsidy to eligible Canadian employers to enable them to continue to pay their Canadian employees through their own payroll during the March 15 to June 6 program period. In order to take advantage of the CEWS, companies must satisfy certain eligibility criteria, including (among others) a significant decline in revenue as compared to earlier periods. Eligible employers will have to sustain losses of “qualifying revenues” (discussed further below) that meet the following thresholds in each of March, April and May 2020:

  • For March 2020, a decrease in revenue of 15%, either compared to March 2019 or to an average of January and February 2020.
  • For April and May 2020, a decrease in revenue of 30%, either compared to the same month of 2019 or to an average of January and February 2020.

Eligible public issuers intending to apply for the CEWS should consider whether doing so triggers immediate timely disclosure requirements under Canadian securities laws or stock exchange requirements. Similar considerations also apply to other forms of government supports, Canadian and foreign, that issuers may avail themselves of during the COVID-19 pandemic.  

Timely Disclosure Obligations

Canadian securities laws generally require the public disclosure of a material change in the affairs of a reporting issuer through the filing of a press release and material change report. Stock exchange rules generally govern the disclosure of material information and require that material information be disclosed via press release. For a material fact or material information to constitute a material change, it must be a “change” in the business, affairs or capital of the issuer.

In order to assess whether applying for, and taking advantage of, the CEWS or other governmental supports will constitute a material change or material information necessitating immediate disclosure, issuers are reminded of the guidance found in National Policy 51-201 Disclosure Standards (NP 51-201). While there is no bright line test for when certain information has become material and the materiality of certain information may vary between industries and issuers depending upon particular circumstances, NP 51-201 includes a list of potentially material information that may provide some guidance for reporting issuers. Notably, NP 51-201 lists “a significant increase or decrease in near-term earnings prospectus” and “unexpected changes in the financial results for any periods” as changes in financial results that may constitute material information. Similar guidance is found in Canadian stock exchange timely disclosure rules.

In some cases, the loss of revenue required in order to take advantage of the CEWS may fall squarely within such guidance. However, the list of potentially material information found in NP 51-201 is not exhaustive and does not substitute the need for issuers to exercise their own judgement in making materiality determinations. Issuers should also carefully assess their “qualifying revenue” as compared to their total revenues (consolidated for all of their Canadian and foreign operating entities) in evaluating materiality.

Finally, issuers should consider whether non-disclosure of an application for CEWS or other forms of governmental supports results in insiders and those in a special relationship with the issuer being unable to trade securities of the issuer. Boards, management and employees should be reminded of the prohibitions on insider trading and tipping in light of any corporate plans to seek wage subsidies and other COVID-19 related assistance.

Periodic Disclosure Obligations

Whether or not the CEWS triggers an immediate disclosure obligation under Canadian securities laws, issuers should consider their upcoming quarterly filing obligations (MD&A, financial reports) and how to disclose an application for or receipt of the CEWS and/or other governmental supports. MD&A should focus on material information and provide a narrative explanation, through the eyes of management, of how the issuer performed during the applicable period. For issuers who have just completed their first quarter of 2020, discussions of operations will likely include a discussion of COVID-19 as one of the significant  factors that caused changes in total revenues, particularly if the issuer has applied for the CEWS. In disclosing revenue reductions, issuers should also address whether the reduction is anticipated to be transient (for example, as a result of temporary closures of non-essential services) or more long-term business disruptions or uncertainty.

Other Disclosure Considerations

Canadian issuers may also want to consider the following when applying for CEWS and/or other forms of governmental supports during the COVID-19 pandemic:

  • Governmental disclosure of application. Regardless of whether an issuer decides to disclose that it has applied for the CEWS, Bill C-14, A second Act respecting certain measures in response to COVID-19, provides that the Minister may communicate or otherwise make available to the public the name of any person or partnership that applies for the CEWS. Issuers should bear this in mind when deciding to apply for CEWS or to disclose same.
  • Nature of the support. While the CEWS is a non-repayable government subsidy, other forms of governmental supports, including those in foreign jurisdictions, may be structured as loans. If so, issuers will need to review their credit agreements and consider their existing leverage ratios or request waivers so as to seek to avoid triggering any applicable events of default.
  • Prior disclosure. Issuers should consider whether an application for CEWS (due to meeting thresholds for declining qualifying revenues) is obvious or reasonably foreseeable in light of prior recent disclosures. For example, where an issuer has previously announced temporary closures, application for governmental supports may be viewed as consistent with its existing disclosure record as compared to an issuer which has yet to disclose qualitative or quantitative impacts from COVID-19 business disruption.
  • Guidance, outlook and material information. Issuers who have previously issued guidance or other forward-looking type information should consider how that guidance will need to be revised in light of an application for governmental supports. Issuers have an obligation to monitor previously provided guidance and provide an update or retraction if the issuer no longer has a reasonable basis for the guidance or the material assumptions supporting the guidance.
  • Public relations. Publicly announcing an application for wage subsidies may be beneficial to issuers as it demonstrates their desire to maintain employees and be a good corporate citizen.

Recent U.S. Guidance

In an April 8, 2020 joint statement issued by the U.S. Securities and Exchange Commission Chairman Jay Clayton and Division of Corporate Finance Director William Hinman titled “The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19”, U.S. public companies were urged to “provide as much information as practicable regarding their current financial and operating status, as well as their future operational and financial planning” as it related to the COVID-19 pandemic. This request for disclosure includes a call for public companies to disclose any financial assistance under the CARES Act or other COVID-19 related federal and state programs if they have materially affected, or are reasonably likely to have a material future effect upon, financial condition or results of operations, including the “nature, amounts and effects of such assistance”. Arguably, plans to apply for the CEWS would trigger disclosure if similar guidance were to be provided in Canada.

More Information

For more information about the CEWS, please see:

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