Several industries in Canada are consolidating their businesses, and the issuers are selling off their assets. This creates a problem for the issuers as they are left with excess cash on their balance sheet, and they have no alternative options to deploy this amount elsewhere.

In such circumstances, an issuer can consider either a normal course issuer bid or a substantial issuer bid if they have adequate cash that they can distribute. Here’s a detailed overview of substantial issuer bids.

What Is A Substantial Issuer Bid?

A substantial issuer bid or SIB allows issuers to distribute their extra cash to security holders in an efficient and fair manner. Using a substantial issuer bid, an issuer can purchase outstanding securities for cancellation in amounts that are much greater than permitted by the rules of a normal course issuer bid. Approval from The Board of Directors. If an issuer decides to make a substantial issuer bid, they need to gain approval and authorization from their organization’s board of directors.

To gain this approval, the issuer must submit proper documentation that explains why they are going to make a substantial issuer bid. It should also include a confirmation from the board of directors that this repurchase program will be beneficial for the issuer and not cause them any loss.

Moreover, the board of directors needs to consider if any solvency tests will be applicable, whether there are any additional regulatory approvals, any restrictive clauses in the debt facilities, capital requirements, or limitations under the governing statute.

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Characteristics of A Substantial Issuer Bid

A substantial issuer bid allows each security holder to either participate in the bid, accept it, or reject it. The restrictions of a normal course issuer bid don’t apply to a substantial issuer bid, so security holders can realize the whole or part of their investment at a rate that is much higher than the trading price.

Also, the security holders can sell their holdings without having to pay the normal holding costs, which is an excellent opportunity for them to dispose of their holdings. The purchase and cancellation of securities under a substantial issuer bid positively impact the issuer’s earnings and the cash flow based on per security.

If you’re looking for more information about substantial issuer bids, get in touch with us at Faber LLP. We’re an accounting firm in Edmonton, and we have a team of experienced chartered accountants who provide accounting services and tax advisory services. Contact us to book a consultation with our team.