Complying with CLR – or just being given a dispensation?

Last year, in response to the publication of the Spring 2015 Zombie List , The TSXV was quoted as follows: “TSX Venture Exchange consistently and carefully reviews the companies that are listed on its exchange to ensure they comply with its continuous listing standards. It is absolutely false to suggest that there are 600 companies that fail to meet our standards,” the company said in an emailed statement.

John McCoach recently sent me an email regarding all the negative working capital companies listed on the TSXV. “our position is that TSXV is currently, and has consistently, applied our continued listing standards as outlined in our policies.”

I answered his email with the following:

I would appreciate it very much if you would share with me the specifics of how the TSXV “is currently, and has consistently, applied our continued listing standards as outlined in our policies.” because my reading of the TSXV’s CLR indicates that the CLR are not being enforced.

I will be happy to change my opinion once you have explained your stated position.

How I reached my present conclusion:

As what I consider any reasonable person would do, I have been going to Policy 2.5 http://apps.tmx.com/en/pdf/Policy2-5.pdf and starting off with

1.1 “Each Issuer must meet the CLR standards applicable to its category in order to remain listed in either Tier 1 or Tier 2.”

then

2.1 Working Capital “adequate Working Capital or Financial Resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of 6 months” (TS: negative working capital obviously is not adequate to meet either ‘need’)

then

2.1 Assets and Operations: “no requirements generally although the Exchange retains discretion to declare that an Issuer no longer meets Tier 2 Continued Listing Requirements if, in the Exchange’s opinion, the Issuer or its principle operating subsidiary substantially reduces or impairs its principal operating assets, ceases or discontinues a substantial portion of its operations or business for any reason” (TS: spelling – oops)

then

2.1 Activity
either A or B below:
A) For the Issuer’s most recently completed financial year: i) positive cash flow; ii) significant operating revenue; or iii) $50,000 of exploration or development expenditures.
B) In aggregate, for the Issuer’s two most recently completed financial years, $100,000 of exploration or development expenditures.
(TS: another test that is relatively simple to measure and apply)

then

3 Inability to Meet CLR
Tier 1 could go to Tier 2 so looking at 3.2:
“A Tier 2 Issuer which is unable to meet one of the Tier 2 CLR will not immediately have its listing transferred to NEX. The Exchange will notify the Issuer in writing (the “Tier 2 Notice”) as to the Tier 2 CLR that it does not meet and will allow the Issuer six months from the date of the Tier 2 Notice to meet the requirement. During those six months, the Issuer will trade as a normal Tier 2 Issuer. If, after that six-month period, the Issuer does not meet all applicable Tier 2 CLR, the Exchange may either, at its discretion, suspend and delist the Listed Shares of the Issuer or transfer its listing to NEX.
(TS: While “discretion” is given to the TSXV, that discretion is not the equivalent of magically causing a company to meet Tier 2 CLR standards.)

then

3.2 (e)
The Exchange uses discretion and flexibility in applying Tier 2 CLR. If an Issuer has a viable business, the Exchange may determine that it is not appropriate to transfer the Issuer to NEX even where the Issuer is unable to meet all Tier 2 CLR. The Exchange will, for example, consider the seasonal or other cycles which affect an Issuer’s business. If an Issuer’s Working Capital is low because of seasonal or other temporary conditions, the Exchange may delay enforcement of this Policy but will continue to monitor the Issuer.

(TS: This “discretion and flexibilty” was designed – rightly – with exploration companies in mind. It could easily be possible for a company to be inadequately financed after it paid its bills at the end of an exploration season and before it announced results and raised money for the new season.

3.2 was obviously not intended to be used to allow companies to spend years with negative working capital and doing nothing except racking up G&A expenses.
I see no other discretionary clauses, so what is the TSXV relying on when it says “is currently, and has consistently, applied our continued listing standards as outlined in our policies.”?

If you can provide me with an explanation, I will include it in my next posting so that others, and there are many who are as confused as I am, will also understand what is going on.

Thank you for your attention.
++++++++++++++++++++++++++++++++++++++

The questions above are fair and detailed. Did I get any answers?

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