The Ontario Securities Commission has finalized a new approach to imposing cease trade orders for failure to file final statements on time. The intent of the initiative is to ensure that shareholders of public companies do not experience the sudden loss of liquidity that would result from a general cease trade order on their securities

Under new OSC Policy 57-603, even if a company is in default of its obligations to file financial statements, the commission will not always impose a general cease trade order on the company. When the company places certain alternative information on the public record, including all material information that has not been generally disclosed, cease trade orders will only be imposed on the company’s directors, officers and insiders that would have access to any undisclosed material information.

The OSC says it will normally allow this alternative approach to continue for two months after the filing deadline. After two months, a general cease trade order will be issued.

“Our current 140-day filing period for annual financial statements allows ample time for any company to meet its obligations to file financial statements,” said Kathy Soden, Ddirector of the OSC’s Corporate Finance Branch. “However, in those rare cases where the company defaults on its obligations, the commission’s new approach will maintain shareholder liquidity for an additional two month period if all material information has been disclosed.”

“Where the new approach cannot be followed, because a company does nct even file the alternative information required by the Commission, shareholders finding their investments subject to a general cease trade order should realize that the alternative approach was available to the company, and should call company representatives to account for their loss of liquidity,” Soden added.

Over the past month, staff of the Continuous Disclosure Team was in contact with any company that had yet to file its Dec. 31, 2000 annual financial statements to inform them of the policy and its implications. OSC staff have also encouraged companies to inform the market of any pending defaults.