Applying the TSXV's New Policy 5.4

Applying the TSXV’s New Policy 5.4 – Capital Structure, Escrow and Resale Restrictions

The TSXV announced substantive changes to Policy 5.4 (now titled “Capital Structure, Escrow and Resale Restrictions”) on June 2, 2025.[1][2] This article speaks to some of the more practical takeaways from those policy changes, which appear to be driven by simplicity and efficiency. Help your company list on the TSXV or navigate post-listing transactions in a more efficient way by understanding some of these more practical points.

Changes at a High Level

The new Policy 5.4 implements the following important changes, among other things:

• Elimination of Surplus Escrow – There will no longer be a question of whether a “surplus escrow” or “value escrow” schedule applies to securities held by principals.  The type of escrow schedule that applies will simply depend on whether you list as a Tier 1 (18-month staged release escrow) or Tier 2 (36-month staged release escrow) issuer.
• Simplified Seed Share Resale Restrictions – All securities subject to the TSXV’s “seed share resale restrictions” (SSRR) will be subject to a 1-year hold, with 20% released on the date of the TSXV’s initial listing bulletin and every 3 months thereafter. Previously, securities subject to SSRR could be subject to several different release schedules depending on the date and price of issuance. For instance, shares issued below $0.05 to non-principals were previously subject to staged release escrow of up to 36 months.
• Increased Flexibility for Capital Structures – The former concept of “evidence of value” for new listings is now more simply referred to as the acceptability of an issuer’s capital structure. Capital structures can be validated in many of the same ways that evidence of value was previously established, with greater flexibility now available with some of the methods (see below for two examples of the more flexible methods).

Going Public – What the New Policy 5.4 Means for New Listings

There was a long-standing misconception that an excessively dilutive capital structure (or lack of “evidence of value”) could simply be cured by making securities held by principals subject to a surplus escrow agreement. That was never the case, and the issue of an inadequate capital structure would often come up in TSXV listings. Companies will still need to prove an adequate capital structure, but it has gotten easier. Here are two examples of how you can now do that in a more streamlined way:

• 10% or $5M Contemporaneous Equity Financing – The key change that we see is the ability to validate a capital structure with a majority arm’s length equity financing representing at least 10% of pro forma share capitalization (or alternatively $5 million or more in gross proceeds). RTOs and QTs previously needed to get to a 20% pro forma share capitalization threshold to validate a capital structure by way of a majority arm’s length equity financing and there was less flexibility in terms of the window of time during which that financing must close to count toward the test.
• 10x Average Annual Cash Flow – Though it is not always the case that venture issuers are cash flow positive prior to going public, the TSXV will now allow companies to include ten times average annual cash flows from operating activities³ when assessing adequate capital structure. That amount must be at least equal to 50% of the consideration payable in a RTO or QT. Previously, TSXV policies allowed companies to only include 5 times average annual cash flows.

The new Policy 5.4 also clarifies certain key considerations for listings via spin-off. In addition to the capital structure needing to be acceptable for any spin-off listing, if you want the spin-off shares to be counted towards the TSXV’s distribution requirements and/or not be subject to SSRR, the net tangible assets (NTA) of the assets/business transferred to the “spinco” from the listed parent company must be at least equal to $0.05/per spin-off share issued.

Already Listed – What the New Policy 5.4 Means for Acquisitions/Dispositions

The “evidence of value” concept is not going away for acquisitions and dispositions of non-cash assets by TSXV listed issuers in transactions that do not constitute new listings (ie. non-RTO and non-QT acquisitions)⁴. The new Policy 5.4 clarifies that evidence of value for 100% of the consideration payable for these acquisitions/dispositions must be proven in cases where TSXV policies require evidence of value (ie. where the acquisition/disposition is non-arm’s length, among other cases). It further provides that this evidence of value must be established through one of five prescribed ways: (i) an appraisal/valuation; (ii) prior expenditures in the last 5 years; (iii) NTA; (iv) 10x average annual operating cash flow; or (v) a majority arm’s length contemporaneous equity financing, which financing must represent at least 10% of the pro forma capital structure after completion of the financing and the acquisition, or the financing must raise gross proceeds of at least $5 million.

In cases where evidence of value for an acquisition or disposition (in non-RTO and non-QT contexts) cannot be established with any of the above methods, a company may apply to the TSXV for a waiver. The new Policy 5.4 sets out a non-exhaustive list of items, including disinterested shareholder approval, that the TSXV will take into consideration when assessing whether to grant that waiver request.

Reach out to our Team at DuMoulin Black to discuss these changes and how they may apply to your company.

Authored by JJ Hudolin, Advisor at DuMoulin Black. JJ helps companies list on Canadian stock exchanges and navigate their requirements after listing. He is a former member of the TSXV’s executive listings committee and current member of their Local Advisory Committee (Vancouver).