Updates on TSX Venture Exchange Policy 5.4

Effective June 2, 2025, the TSX Venture Exchange (“TSXV”) adopted the new Policy 5.4 – Capital Structure, Escrow and Resale Restrictions (the “New Policy 5.4”). The New Policy 5.4 introduced major amendments to simplify and streamline processes, which now applies to all new listings, including an initial public offering, a reverse takeover, a change of business and a qualifying transaction.

Summary of Amendments

Before the New Policy 5.4, issuers had to provide evidence of value to support a new listing. The New Policy 5.4 simplifies the capital structure analysis by eliminating the complex surplus securities escrow regime and only applying the value securities escrow regime.

Key Changes Under the New Policy 5.4 are as Follows:

1. Expanded Methods to Demonstrate Acceptable Capital Structure

To demonstrate an acceptable capital structure under the New 5.4 Policy, Issuers can rely on any one of the following methods when seeking approval for a new listing:

• Concurrent Equity Financing: Issuance of majority of securities to arm’s length parties for either
  • at least 10% of post-transaction shares, or;
  • at least $5million in gross proceeds.
• Appraisal or Valuation: An independent appraisal or valuation report that supports at least 50% of the consideration which includes all cash payments calculated pursuant to the formula as set out in the new Policy 5.4.
• Expenditures: Expenditures incurred on an asset within the previous five years that support at least 50% of the total consideration.
• Net Tangible Assets: The total consideration being equal to at least 50% of the target’s net tangible assets.
• Operating Cash Flow: Ten times the target’s average operating cash flow over the past eight quarters equaling to at least 50% of the consideration.
• Securities Issued by the Target Company: At least 50% of the target’s outstanding equity securities was issued either
  • at or above the Discounted Market Price (as the term is defined pursuant to TSXV policies), or;
  • at least 12 months prior to announcing the transaction, at prices equal to or greater than 50% of the issuers current Market Price.
• Current Listing: The Issuer has been listed and trading on another recognized exchange for at least one year.
• Initial Public Offering: The new listing is an Initial Public Offering that includes financing.

2. Escrow for Principals’ Securities

With the TSXV moving away from the surplus securities escrow regime, all securities under the New Policy 5.4 will be escrowed following the value securities release schedule as set out in National Policy 46-201 – Escrow for Initial Public Offerings, unless an exemption applies. In general, securities held by principals carrying less than 1% of voting rights will be exempt from escrow.

3. Seed Sharing Resale Restrictions (“SSRRs”)

The New Policy 5.4 also simplifies the hold periods for seed shares held by non-principals. SSRRs apply to all Listed shares at the time the transaction is complete. Under the New Policy 5.4, securities will have a one-year hold period with 20% of the SSRR Securities released every 3 months, starting on the date that the TSXV issues its bulletin.

Transitioning Period

To promote fairness, the TSXV is allowing issuers to align with New Policy 5.4 through transitional measures. The TSXV is not requiring that existing escrow agreements be amended; however, issuers can voluntarily apply to amend them in line with the New Policy 5.4, subject to disinterested shareholder approval.

Similarly, issuers can apply to amend the terms of SSRRs to reflect the New Policy 5.4. Such amendments do not require shareholder approval but is subject to the approval of the TSXV.

Takeaways

The New Policy 5.4 provides for broader valuation methods, streamlined escrow rules, and simplifies resale restrictions for seed shares, which results in more efficient processes for issuers.

For further details on how the New Policy 5.4 may impact you as an Issuer, reach out to Boughton Law’s Securities Group.