Written By Denise Bright, Matthew Hunt and Allegra Hessels

In light of the COVID-19 pandemic, Canadian reporting issuers are reminded to ensure that they maintain compliance with various continuous disclosure obligations and updating any earnings guidance that they have previously disclosed.

Canadian securities laws do not expressly require issuers to provide earnings guidance; however, where guidance is provided, it must be provided and updated in accordance with applicable securities laws. Forward-Looking Information (FLI) should only be disclosed if the issuer has a reasonable basis for such information. Issuers should ensure that any material FLI is appropriately disseminated in accordance with securities laws and the rules of any applicable stock exchange. In addition, self-regulatory organizations, such as the Investment Industry Regulatory Organization of Canada (IIROC), monitor such disclosure and may request that deficiencies be remedied.

Issuers that disclose material FLI must include disclosure that identifies such information as FLI, cautions users that actual results may differ, identifies material risk factors that could cause actual results to differ materially, states any material factors or assumptions used in developing such information and describes its policy for updating such FLI (if it includes procedures in addition to those required by securities laws). In the case of financial outlooks and future-oriented financial information (FOFI), the disclosure must be limited to a period for which the information can be reasonably estimated and utilize the accounting policies used for the issuer's historical financial statements. The disclosure must also state the date that management approved the FOFI and the purpose of such information, including a caution that the information may not be appropriate for all purposes.

In determining what is reasonable, issuers should consider their ability to make appropriate assumptions, the nature of the industry in which they operate and their operating cycle. This assessment will be unique to each issuer; however, the novel circumstances and increased uncertainty caused by the COVID-19 pandemic lends itself to having financial outlooks and FOFI that cover a shorter period than normal.

Issuers are required to update any previously disclosed FLI, including FOFI, for periods covered in its financial statements along with those periods beyond those in the financial statements covered by the FLI. For periods included in the applicable financial statements, the issuer must disclose material differences between actual results and the FLI. For periods beyond the applicable financial statements, the issuer must disclose if events or circumstances have arisen that are reasonably likely to cause actual or expected results to differ materially from their previously disclosed FLI. Thus, issuers should review their FLI to consider if and how the COVID-19 pandemic has caused, or is expected to cause, a material difference to the FLI previously disclosed.

The FLI update for future periods must clearly disclose the expected differences from the previously disclosed FLI, caution the user that results may vary from the FLI, and identify any risk factors that could cause such a difference.¹ Robust cautionary language is particularly important in novel circumstances, such as the current global pandemic, where there remains great uncertainty.

Issuers are reminded that any such updates must be captured in the management's discussion and analysis (MD&A), either directly or by way of reference to a news release that the issuer has previously filed respecting this information (provided that the MD&A must still reference the name and date of such press release and advise that it is available on the SEDAR website). In some instances, withdrawing previous guidance may be appropriate for certain issuers in light of the uncertainties created by the COVID-19 pandemic. If an issuer decides to withdraw its material FLI, it must disclose the decision and discuss the events and circumstances that led it to such withdrawal, including a discussion of any assumptions underlying such information which are no longer valid.

Issuers are urged when preparing or updating their material risk factors to put considerable thought into the breadth of their disclosure and the possible direct and indirect consequences COVID-19 could have on their business. Material risk factors should be tailored for each issuer and should not be boilerplate; however, the following is a list of some of the types of COVID-19 related risks that issuers have been reporting:

• impacts on the issuer's overall financial health currently and in the future;
• impacts on the issuer's revenue, earnings and cash flows;
• potential effects on assets on its balance sheet;
• increased volatility in financial markets and foreign currency exchange rates;
• impacts on the issuer's liquidity, capital and financial resources, including capital markets and liquidity;
• impacts on the issuer's continued ability to satisfy applicable debt covenants; 
• changes in consumer behaviour and the effects on demand for the issuer's services or products;
• increased disruptions to the issuer's supply chain; 
• disruptions to the issuer's ability to deliver services or products to its customers; 
• additional expenditures to maintain compliance with new health standards and other changes in the business structure (including capital expenditures and network upgrades to accommodate employees working from home, or cleaning and sanitation supplies for stores and offices that have remained open);
• cybersecurity and other information technology risks increased by the growing number of employees working remotely;
• labour shortages and other constraints reducing human capital arising from employees or contractors unable or unwilling to attend work or becoming ill from the virus;
• effects of additional legislative, regulatory and governmental intervention; 
• impairments to the issuer's ability to implement its business continuity plan;
• effects of travel restrictions and border closures; and
• direct and indirect effects of rising unemployment levels.

Issuers should be as transparent as possible when disclosing their current operational and financial positions, and describing how this may shift as the efforts to combat COVID-19 progress. This also involves highlighting their efforts to help mitigate the impacts of the pandemic on their business, for example by discussing management's response and ongoing efforts, the implementation of a business continuity plan, or any other ongoing efforts to monitor the situation as it evolves.

The lawyers in the Bennett Jones Corporate Finance group would be pleased to assist you with any questions related to FLI, its preparation, disclosure and update. In addition, please visit our COVID-19 Resource Centre for other COVID-19-related materials.

1. Issuers should refer to National Instrument 51-102: Continuous Disclosure Obligations for further information respecting other standard disclosure obligations applicable to FLI, financial outlooks and FOFI.

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